Over the past decade, the technology sector has witnessed a surge in so-called unicorn startups valued at over $1 billion, which are often hailed as the new disruptors. However, alongside each success story, such as Stripe or Byju’s, there are tales of startups that soared to great heights, raised enormous funds, but failed to take off. The collapses of unicorns like Theranos, WeWork, FTX, and Zilingo reveal an uncomfortable truth: rapid valuation increases do not always guarantee sustainable business models.
According to CB Insights, about 70% of startups fail within the first 10 years, while only one in every 200 venture-backed startups ever reaches unicorn status. In India, a joint NASSCOM-Zinnov report displays that over 90% of startups shut down within five years, often due to flawed business models, cash flow issues, or governance lapses. Despite global venture funding reaching a record $285 billion in 2023, a significant number of startups also folded that year, underscoring that valuation hype continues to outpace operational discipline.
Instead of blaming these unicorns for their failures, see it as a valuable opportunity to learn important lessons on how to build a successful startup in a challenging environment, whether you’re a founder, investor, or employee.
The Anatomy of a Collapse
Unicorn failures often follow a pattern of rapid cash injections, unregulated growth, and lack of control, leading to market or regulator reality checks.
For example, Theranos (2003–2018) was once considered a healthcare revolution but was later exposed as having defective technologies, resulting in criminal charges and billions of dollars lost. WeWork (2010–2019), once valued in the billions, expanded irresponsibly, prioritising growth over profit, and its IPO revealed losses and governance issues, dropping nearly 80% in value. FTX (2019–2022), a crypto exalter, failed in 2022 amid allegations of misutilizing funds and damaging indusattempt trust.
These cases display that a unicorn’s status can become a double-edged sword, promising greatness but also pressuring companies to meet unrealistic goals at the expense of operational discipline.
Overfunding and the Growth Trap
Overfunding can lead to unicorn failure, as startups that raise excessive capital quickly may neglect building a sustainable, scalable business.
Easy capital access drives blitzscaling, which involves expanding into multiple markets and developing products without first achieving product-market fit, cautilizing incentive distortions. High valuations encourage founders to aim for extreme revenue, sometimes leading to unethical practices.
CB Insights reports 70% of startups fail after Series A due to ineffective growth or a lack of profitable customers. Many successful startups prioritise high valuations over a strong, sustainable foundation.
Governance Gaps and Founder-Centric Risk
The recurring theme of governance failures is common among many unicorns, which often have founder-frifinishly capital structures, such as dual-class shares or weak controls, leading to potential blind spots.
Charismatic founders like Adam Neumann of WeWork wield nearly absolute power, enabling decisions such as questionable acquisitions or investments to go unchallenged by the board. Furthermore, startups often lack robust compliance and audit systems, building them vulnerable during examinations by investors or regulators.
Research from the Harvard Business Review highlights that entrepreneurial organisations with strong, indepfinishent boards are half as likely to face crises or difficult transitions to the public markets.
Market Shifts and Fragile Unit Economics
Many unicorns do not fail due to fraud or hubris but becautilize their unit economics can’t withstand shifting market conditions.
For example, Zilingo, a Southeast Asian online fashion retailer, became unprofitable and encountered internal conflicts when its growth slowed and investment funds dried up. Similarly, numerous on-demand business models characterised by high customer acquisition costs and razor-thin margins have been exposed by the pandemic.
According to McKinsey’s startup benchmarking data, companies with gross margins more than 40% below the indusattempt average face three times higher risks of a down round or bankruptcy within five years.
Lessons for Founders
For startup founders, a unicorn’s collapse offers lessons that success depfinishs not just on funding but on building a solid foundation with product-market fit and scalable economics before scaling.
Early good governance, including hiring indepfinishent directors and clear reporting, is vital, even pre-crisis. Balancing visionary ideas with operational discipline in cash flow, talent, and compliance is key. Transparency with stakeholders and investors is crucial; it’s better to communicate issues early than let problems fester.
Lessons for Investors
The blame also extfinishs to venture capitalists and institutional investors, as their search during the second breakout can lead to overvaluation and excessive due diligence. While top-line growth is important, investors should prioritise founder resilience and governance readiness. Providing well-organised funding through milestone-based disbursements can instil discipline, assisting to prevent unnecessary spfinishing.
KPMG’s (2024) Venture Capital Outview suggests a more cautious approach: an emphasis on sustainable growth, rather than GMV (gross merchandise value) or MAU (monthly active utilizers) without profitability as a vanity metric.
From Hype to Health
The fall of former unicorns is a painful lesson that being valued does not equate to being valid. A billion-dollar tag might be gritty, yet, in the absence of a sound business model, good governance, and flexibility, it can easily become a liability.
The ones that will survive and prosper will be the ones to balance between ambition and execution, vision and accountability, and speed and sustainability. To founders, investors, and workers, the message is simple: it is not only about becoming a unicorn, but also about staying one and being profitable, ethical, and robust in the long term.
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