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The Age Of Unicorns Is Coming To An End

Summary

A change in sentiment towards tech unicorns is occurring.

Uber's unbelievable P/S ratio, the Snapchat and Dropbox reevaluations, and the challenges to the Theranos model are symptoms.

Square's IPO is a test for the unicorn model and will shape the IPO market of 2016.

Source: HMS Insurance and financial services

Straight out of Greek mythology, unicorns swarmed into our lives a few years ago aiming to change different aspects of our everyday lives: from taking a cab and instant messaging a friend to finding affordable lodging abroad. These unicorns are privately held startups worth more than $1B, according to the description by venture capitalist Aileen Lee, who coined the phrase in a TechCrunch blog post in 2013.

At the beginning, there were just a few unicorns; however, as consumer technology boomed in recent years with the emergence of many new smart devices (tablets, smartphones, smart watches, smart TVs, etc.), supported by an incredible network of behind-the-scenes applications, more opportunities were created for startups to evolve at a rapid pace. In 2013, there were 39 unicorns (mentioned in Aileen Lee's original post), and now there are 125, according to WSJ's Billion Dollar Startup Club.

In the normal life cycle of a startup company, one of the first stages is to raise money to fund the company's activities before it is able to generate enough money on its own. This is a healthy procedure in which the startup receives funding to materialize its initial idea, and the investment firm receives an equity stake in a company that could be worth millions in the future. However, this healthy mechanism started to crack as bigger companies looked for bigger funding and more investors entered the private equity markets.

There is a fundamental difference between an early investment in small startup seeking to raise a few million to develop a prototype or expand globally...


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