10 years ago, Aileen Lee coined the term 'unicorn.' Here's what the landscape looks like now — and here's where it’s headed.

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When Cowboy Ventures founder and venture capitalist Aileen Lee coined the term “unicorn” to describe startups that had notched valuations upward of $1 billion over a decade ago, she had no idea that she’d made a prescient forecast of the times ahead.

Back then, the distinction was as rare as the mythical creature itself, with her original analysis identifying just 39 such startups. Cut to 2024, and unicorns have ballooned 14x over the past decade, with a colossal 532 companies now members of the Unicorn Club — but that’s not all that has changed.

While early gains and booming sectors like the cloud, coupled with near-zero interest rates, led VCs to shovel vast amounts of capital toward companies and minted many new unicorns over the past decade, things have come almost full circle of late, tainted by rising borrowing costs, shrinking runways and economic uncertainty.

The startup landscape is a markedly different one today , and things are likely to get uglier for many unicorns before they get better, Lee notes in the biggest update to her thesis in 10 years. ?

The Unicorn Club is bloated and will get significantly culled, as a whopping 93% of unicorns are what she terms “Papercorns” — with inflated private valuations on paper only, which have not yet exited, compared with 36% of unicorns that fit that bill in 2013. Moreover, 60% of them are “ZIRPcorns” — last valued between January 2020 and March 2022, when interest rates were near zero and multiples were at their peak.

“Getting there is just one part of it, but keeping it up, continuing to grow your company and becoming sustainably successful is what’s really important,” Lee told LinkedIn News.

Here, then, are the top takeaways from her firm Cowboy Ventures’ 2023 dataset, which looked at U.S.-based, VC-backed tech companies most recently valued at $1 billion or more in public or private markets, founded in 2013 or later.

Unicorns now come from a variety of sectors

The bulk of the unicorns in Cowboy's data in 2013 (nearly 60%) were consumer-oriented, creating 80% of the aggregate value of $260 billion of the set. Among them, Facebook eventually led the pack, becoming a “superunicorn” worth more than $100 billion.

Today, consumer tech companies make up just 20% of the $1.5 trillion in aggregate value. Unicorns on the list today span a wider array of sectors, ranging from gaming and HR to climate and AI.

The numbers are based on last-round valuations, which is an imperfect gauge of these companies’ success, as Lee notes in the report. Three-quarters of the top 20 “unexited” companies today were last valued in 2022 or earlier, which means they are likely inflated.

Enterprise tech reigns supreme?

Many VCs will tell you that an enterprise product and business model is the way to go, because it more or less guarantees recurring revenue once product-market fit is found. That’s confirmed in Cowboy’s latest unicorn report.

A decade ago, just 15 of the 39 unicorns, or 38%, were enterprise tech companies, comprising $55 billion in total value. Today, there are 417 enterprise tech unicorns — making up the majority (78%) of the list, worth $1.2 trillion and driving 80% of aggregate value.

The path ahead is about to get arduous

While more unicorns were founded between 2013 and 2018, 2020-2021 created the most ripe conditions for the crowning of unicorns, with record-breaking round sizes and valuations due to a confluence of societal and economic factors. Near-zero interest rates, anyone?

But reality will soon play catch-up to a number of these unicorns, with the rosy days of 2020-2021 in the rearview mirror.

Since a chunk of these money-losing startups were last valued when interest rates were favorable and multiples were at their peak, they could soon be strapped for cash with their operating runways getting shorter. Around 40% of them are trading below $1 billion valuations in the secondary markets, according to Hiive data for 290 unicorns on Cowboy’s list.

Add to that a chilly M&A environment and investors pulling back, and some unicorn shutdowns are almost inevitable. In fact, it’s already happening — call them zombies or unicorpses.

But it’s not all doom and gloom, as previous downturns have often proved fertile ground for innovation and new unicorns to emerge, said Lee. Based on Moore’s law , as compute capacity, capability and usage increase, more unicorns are poised to emerge as well. The current momentum in AI will also fuel innovation and demand, she said.

“Even though we have had this fall back to earth, I'm a believer that hardware and compute advances are going to power more exciting software companies,” she said.

IPOs and exits may still be a distant dream

When chip designer Arm , grocery delivery startup Instacart and marketing automation company Klaviyo all filed paperwork in September to make their stock market debuts, the tech industry was abuzz with talks of a possible comeback of IPOs. Cowboy’s data paints a different picture.?

While the previous decade had 66% of unicorns either going public or being acquired, a paltry 35 of the 532 unicorns today (7%) are public or were acquired for more than $1 billion — due to availability of increased private capital, investors willing to invest at higher-than-public multiples, and a more challenging M&A environment in recent years.?

Plus, just 3% of these unicorns are public, versus 41% a decade ago. And there are actually more public unicorns that have struggled than healthy ones: At least 20 unicorn companies that went public in the last decade have eventually fallen below $1 billion in value. In terms of acquisitions, just 21 of these unicorns (4%) were acquired.

Is there a silver lining, you ask? It may be their leadership, with 75% of the founding CEOs of current public unicorns leading those companies from founding through an exit.?

Startups are getting less efficient

Another popular refrain (or rather, hope) among VCs is that making the right bets will likely yield outsize returns. That has historically been true, with the most successful VC-backed tech companies delivering returns for their investors in the tens or hundreds of multiples.

But over the past decade, tech has lost its capital efficiency edge, defined as the current valuation of a company divided by the private capital it has raised, according to the report. For example, capital efficiency of enterprise tech companies has plummeted from 26x to 7x in the past decade.

In other words, startups raised too much cash in the past decade — to their detriment. Almost a quarter (23%) of the unicorns on Cowboy’s list are worth less than 4x the capital they raised. Investors would have gotten more bang for their buck investing in public giants like Salesforce, Amazon and Microsoft, which are up 8x, 9x and 9x, respectively, in the past decade.

VCs have only themselves to blame, writes Lee. As rates fell, investors let their guards down and got caught up in a yearslong race to nab “hot deals,” looking at historical venture returns and overlooking valuations, business model margins, payback periods and burn rates.

“Companies raised so much and then spent so much that the distance between that gap became really big,” Lee said. “I'm disappointed that we lost so much capital efficiency.”

As VCs contend with this reality and struggle with their own set of challenges, expect more upheaval at VC firms , including raising smaller funds, downsizing teams and even closing shop. Even those that survive must evolve and move away from valuation as a measure of success, as chasing valuation without a focus on underlying fundamentals can lead to unintended poor outcomes, says Lee.

OpenAI is poised to be the next superunicorn, and AI is the new megatrend

Each prior wave of major tech innovation has seen the emergence of a “superunicorn,” or a venture-backed company that eventually grows to be worth more than $100 billion, like LinkedIn parent company 微软 , 思科 , 亚马逊 and most recently, Meta . The age of AI will be no different, says Lee, with OpenAI close to being the first AI superunicorn, reported to be raising money at a valuation of more than $100 billion at just 8 years old.

Often, these are category pioneers or disruptors, like Netflix , which is worth more than Comcast , Paramount and Warner Bros. Entertainment combined, or Tesla , which is worth the next five largest public automakers combined. So OpenAI stands a solid chance, as long as it keeps its eye on the prize and “stays ahead of the curve and continually innovates,” said Lee.

The downside? Superunicorns often end up becoming invincible. There are 15 VC-backed tech superunicorns at present, and they became a lot more valuable in the past decade. Take Meta as an example, whose value has skyrocketed 8x from about $122 billion in 2013 to about $962 billion today. The power of tech superunicorns is only poised to compound further in the coming years, with software consolidation and tighter capital constraints for smaller-scale players.

Diversity continues to be tech’s Achilles heel

Tech has had a longstanding diversity problem, and while remote work has contributed to the rise of tech hubs outside of Silicon Valley, there’s much room for improvement in other areas.

The progress toward improving gender diversity among co-founders has been slow. 14% of unicorns now have a female co-founder, versus 5% in the 2013 report, while 5% now have a female founding CEO, versus an abysmal 0% in 2013.

As the report says: “There are more founders named Michael, David and Andrew than there are women unicorn CEOs. At this rate, we won’t reach equal gender representation until 2063.”

One positive is that the work and school backgrounds among co-founders have become much more diverse. Only about 20% of founders went to a “Top 10 school” (as defined by U.S. News & World Report), versus two-thirds in 2013 — and no one school makes up more than a 5% share of founders’ educational background.

The report also busts the myth that founders must come from technical backgrounds, with 40% of co-founders among today’s unicorns coming from “non-technical” backgrounds such as business and the humanities, and just about 30% having previously worked in an engineering role.

Still, prior experience at a tech giant has its advantages, with 20% of co-founders having previously worked at a superunicorn — with a notable 6% having worked at Google. Are you ready for the Google Mafia web to expand?

To read the full report, click here . What stood out to you in the report? Share your takeaways in the comments.?