As a result, the falling number of new unicorns in 2023 can best be understood by examining the changes in valuation trends. Companies that secured substantial funding during the boom period are now being forced to optimize their operations and reduce their burn rates to stretch financial runways (but that comes at a cost – growth?). As a result, down rounds, exemplified by startups like Klarna, Instacart, and Stripe, have raised concerns around valuations and the bid/ask spreads in the secondary markets have widened dramatically.
We’ve seen valuations compress across all sectors, though SaaS companies seem to have seen the largest impact. According to Bessemer Venture reports, SaaS valuation multiples have decreased by 75% year-over-year, meaning each dollar of ARR is valued at just a bit more than 25% of what it was a year ago.3 In Q4 2022, FinTech companies in the SEG Index recorded a median EV/Revenue multiple of 5.4x, which is less than half the 19x multiple during the peak (Q1 2021).
This is putting a strain on many companies as they look to protect their “Unicorn” status (especially the most newly minted ones) and unfortunately, many will not be able to. According to Pitchbook data, currently about a quarter of global unicorns—337 companies—according to their last published funding round lie between the $1 billion to $1.2 billion valuation range putting them at risk of losing their unicorn status, potentially leading to net negative unicorn growth for the first time (ever) in 2023.4
The journey of unicorn startups has encountered a significant turning point in 2023, driven by evolving market dynamics, the imperative of profitability, and a redefinition of valuation paradigms. The once-coveted label of a unicorn no longer guarantees a privileged status as companies juggle with the challenge of simultaneously sustaining growth and achieving profitability. These factors underscore a new era in the startup landscape, wherein unicorns must navigate uncharted territories to retain their mythical allure and financial significance. Although challenged today, we think the unicorns of tomorrow will emerge to be stronger and more powerful than the ones of the past.