The Unicorn Hunters Need to Go

In the glittering world of San Francisco's tech start-ups, a worrying trend has emerged, one that may just be a bubble, ready to pop. The city, long revered as a tech Mecca, now risks becoming a breeding ground for high-stakes gambling disguised as investment. The crux of the issue? A bizarre, almost cult-like faith in the inherent value of untested tech start-ups, judged not on their market viability but on the hours logged by their engineers and the perceived skill of the founding team.

This surreal scenario is further exacerbated by a new breed of investor - the tech elite. Flush with cash from their over-inflated salaries at Big Tech firms, they eagerly pour millions into these nascent ventures. The result? Start-ups with sky-high valuations based on nothing more than wishful thinking and clever pitch decks.

Let's unpack this. On one hand, we have the start-ups: teams of brilliant minds often working on innovative ideas. The issue isn't their talent or ambition. It's the valuation model that's fundamentally absurd. How can a company with no market testing, no revenue, and often not even a functional product, be worth millions?

This is where the unicorn hunters, a term I use for these investors, come into play. They're not just looking for a return on investment; they're seeking the thrill of being part of the next big thing, the next unicorn. But this isn't just high-risk investing; it's more akin to playing the lottery with extra steps.

Consider some data to illustrate this point. According to a report by CB Insights, only about 1% of start-ups eventually become 'unicorns' (start-ups valued at over $1 billion). Yet, the valuations of many of these companies seem to defy gravity and logic. For example, WeWork, once valued at $47 billion, saw its valuation plummet to $8 billion in 2019; falling further to trade 96% down this year lending to compulsory delisting, after the stock traded for more than 30 days at less than $1 - a breach of New York Stock Exchange rules. subsequently filing for bankruptcy. This dramatic fall from grace is a stark reminder of the fragility of these unicorn dreams.

Moreover, this phenomenon is creating an echo chamber where the rich get richer, and the actual innovators struggle to get noticed. For every successful unicorn, hundreds of potentially viable start-ups wither away, unable to catch the eye of these unicorn hunters.

The real danger here is the creation of an investment culture that prioritizes potential over performance, and hype over substance. It's eerily reminiscent of the dot-com bubble of the late 1990s, where exorbitant amounts of money were thrown at companies with little more than a website and a dream. We all know how that ended.

The irony is that this approach is the antithesis of what made Silicon Valley successful in the first place: a focus on solving real problems with innovative technology. Instead, what we're seeing now is akin to the Wild West, a mad rush for gold that's likely to leave many investors empty-handed.

So, what's the solution? A return to basics: valuing companies based on their actual market potential, revenue, user growth, and real-world impact. It's time for the unicorn hunters to hang up their bows and arrows and start investing in businesses that show true promise, not just those with the shiniest pitch decks.

The SF investor ecosystem is teetering on the edge of reality and fantasy. If we're not careful, the bubble will burst, and the fallout will be felt far beyond the Bay Area. It's time for a reality check, for the sake of the tech industry and the economy at large. The unicorn hunters need to go, replaced by investors who value substance over smoke and mirrors.