Since January, 59 new startups got their unicorn horns—with brand-new billion-dollar valuations. Only three went public, and none were acquired.
This isn’t how venture capital is supposed to work. Even if you assume that $1 billion valuations for zero-revenue companies make sense, the purpose of funding them is still to generate a return. And the longer unicorns wait to go public—enabled by both the JOBS Act and VC tourists like mutual funds—the more risk funds assume. At some point investors in VC funds are going to demand their money.
Qualtrics CEO Ryan Smith said at Fortune’s Brainstorm Tech conference this year that getting kudos for a large fundraise is “like congratulating someone for taking on their mortgage.” And we all know what happens when too many mortgages are written without paying enough attention to how they’re going to be paid off.
To see The Unicorn List, visit fortune.com/unicorns.
A version of this article appears in the September 15, 2015 issue of Fortune magazine with the headline “The risks of being a unicorn.”