It wasn’t long ago that startups refused to reveal their valuations. It makes sense—valuations are paper money, after all. They’re based on the company’s ability to hit future growth milestones, which is a big “if.” Announcing a high valuation to the world makes a startup look like a guaranteed success, even if the reality is far from that.
That’s all changed, though, in the age of the unicorns. More than 130 startups are now worth $1 billion or higher, according to Fortune's latest Unicorn List, and fundraising announcements today lead with the valuations—sometimes going so far as to call it "unicorn status" in PR pitches. The New York Times even made a list of 50 future unicorns, startups it believes are likely to hit that once-elusive $1 billion mark.
But amid all the unicorns getting their horns, investors have warned of “dead unicorns.” In March, investor Bill Gurley made headlines with his pronouncement that “a complete absence of fear” would lead to dead unicorns this year. Venture capitalist Marc Andreessen warned in a tweetstorm that startups with high burn rates would “vaporize.” Last week Salesforce CEO Marc Benioff also predicted dead unicorns as startups seem to focus more on their valuations than their customers.
Investors are happy to predict failure, but they refuse to point any fingers. It’s understandable given the clubby, interconnected nature of Silicon Valley, and the fact that it’s bad form to be a “hater.” (Not to mention, they’d hate to admit having dead unicorns in their own portfolios.)
Whenever an investor does predict a major startup failure, it sends shock waves throughout the Twittersphere, as happened when Khosla Ventures’ Keith Rabois tweeted that Foursquare, the local discovery service, would have to be bailed out with a “Hail Mary” acquisition. Rabois was quickly called a hater and compared to Donald Trump and Turtle, the freeloading character from Entourage.
Behind the scenes, though, some venture firms are quietly keeping tallies of unicorn startups they expect to die. None that Fortune spoke with would admit as much, even off the record—no one wants to appear to get enjoyment from someone else’s failures. (When their own portfolio companies fail, they simply remove the startup’s logo from their homepage and quietly tiptoe away.) But those who operate in the orbit of those VCs—limited partners, portfolio company execs, angel investors—have shared multiple “dying unicorn list” email chains with Fortune.
Why would a venture capitalist want to track startups that are failing? Opportunity. Cash-strapped startups are chock full of valuable employees who may be ripe for recruitment, or outright acquisition, by a competing portfolio company.
So which companies are on the dying unicorn lists? None that would surprise anyone playing close attention. If anything, the ones Fortune saw were disappointing in their lack of creativity. They include Gilt Groupe, the luxury commerce company rumored to have raised a “down round” below its $1 billion valuation earlier this year; Jawbone, whose struggles with strategy and lawsuits have been widely documented (including this year in a Fortune feature story); and Bloom Energy, a fourteen-year-old fuel cell startup that has raised more than $1 billion in funding in a category that has proven challenging.
A Bloom Energy spokesperson said in a statement that the company is experiencing strong demand from new and current customers, citing a new partnership with Exelon to support 61 megawatts of fuel cell deployments. Representatives from Gilt Groupe and Jawbone declined to comment.
The value of such a list isn’t lost on the companies selling the pick-axes in our era’s gold rush. CB Insights, a venture capital data provider, has created a list of early-stage companies it believes are likely running out of cash. To access it, you'll need some cash of your own—it costs $6,895.