Aug 30, 2016 · 5 minutes

Last December, CB Insights posted a Twitter poll asking whether or not people thought there would be more or fewer unicorns by this time next year. The results were about 50-50.

I came down unequivocally on the “more” side. And that was when I thought we’d actually see a meaningful correction this year.

My logic at the time:

These things take a long time to unwind. For all the talk of Yahoo and Twitter being “done” these are still companies valued at $31 billion and $16 billion respectively. Even companies that we consider “failures,” like Groupon and Zynga, are still worth billions. And those are publicly-traded “failures.” Private companies don’t have a liquid stock, which means valuations are even stickier. They are a lagging indicator of better times. If a private valuation is going to decrease, it typically requires some sort of transaction. Even the recent Fidelity mark-downs aren’t daily or even weekly, and are a matter of in-house accounting, not something that directly or immediately impacts a startup.

Nothing puts off a company-by-company correction like shitloads of cash.There were over 100 mega rounds of $100 million or more in just the first half of this year. And Airbnb, Uber, and the other big ones are still raising. The top companies have so much cash. Even if they are burning it, most can switch course, batten down the hatches, and still survive a year just fine. The burn rates of the moment are the “game on the field” as Bill Gurley put it in an interview last week. Because it’s the game everyone is playing, everyone has to keep playing it. When it changes, so too will the playbook. We’ve been talking ourselves into this correction for eight months or more. I can’t imagine there are many unicorns who don’t have an austerity plan. This is why I’ve argued it’s not the unicorns –who’ve already raised their mega-rounds – but the sub-unicorns that are most at risk should things turn.

The stubborn refusal of the market to give us a catalyst. There’s been no “thing” like the Lehman bankruptcy or the dot-com crash, to force everyone to change the game immediately. Everyone hoped it would be Square. But the IPO was not as bad or as great as either bears or bulls would have hoped. Instead there’s just air seeping out of the bubble in the form of trends like lower early-stage funding, smaller numbers of deals closing overall, and likely fewer unicorns being minted each quarter. But new ones will continue to get high valuations, even in a weak market.

Take all these thoughts together and ultimately, I’m betting the momentum will continue to mint new unicorns at a faster pace than cash will run out or companies will be forced into a deal that causes their valuations to slip under $1 billion. 

There were 145 companies worth some $506 billion back then. There are 171 unicorn companies now, according to CB Insights. That’s after filtering out the Theranoses of the world who likely aren’t worth $1 billion anymore, the research group says. In total they are valued at some $622 billion.  

Hard to imagine some twenty seven will go full on Theranos or worse in the remaining months of 2016… or that more won’t continue to eek out the magical valuation.

To me, this gives an alternative explanation to an earlier research note that CB Insights published, which argued that unicorns are overvalued because they haven’t been the companies getting bought for $1 billion this year. As I argued on Pando’s Facebook members group at the time, there’s an alternate explanation: These companies still believe in the future they sold investors and don’t feel enough pressure (from a crash that doesn’t exist) to sell right now.

This isn’t to say I don’t think these companies as a basket are overvalued. Despite the fantastic platform and reach of smartphones and the growth in emerging markets driving a good number of these deals, many of them are.

But it’s worth acknowledging: This is where we are as an industry. The unicorn flow has eased sure, but it’s nowhere close to the reckoning we were promised.

Bear in mind, only 45 venture backed companies have actually exited for north of $1 billion from 2004 to 2013, let alone $10 billion (Dropbox), $11 billion (Pinterest), $20 billion (Snapchat), $30 billion (rumored in progress for Airbnb), and of course nearly $70 billion for Uber.

Bear in mind -- again-- how many consumer Internet companies of the last era wound up being worth low single digit billions: Like Zynga, Groupon, Yelp. Those were comparatively the winners next to pretty much everyone but Facebook, LinkedIn, and Twitter. That’s right: Twitter wound up being a top three company out of the Web 2.0 era. LinkedIn-- which sold to Microsoft already-- was number two.

How much do you believe in the power of the iPhone, mobile and China? Do you believe that nearly four times as many pre-IPO companies could be worth what the industry churned out in nearly ten years?

Let’s look at the rarity of funding companies that actually exit for $1 billion another way: In the history of the asset class only three venture firms have ever funded eight companies to exit for north of $1 billion, according to CB Insights. Only 68 of all venture firm have ever funded a single company to exit for north of that price. That is just 14% of all active VCs.

Look how quickly it falls off:

Again: That is the track record of the top 14% of all venture firms. In the world. And the bulk of them were lucky to get one.

Gird your loins everyone: The stakes are slowly getting bigger, but they are getting bigger nonetheless.