Last Spring, we predicted that we'd see carnage among tech unicorns, particularly in consumer markets. (How many food service companies and "Uber for X" companies do we really need?) We didn't (nor would we), however, predict when the carnage would come.

(Timing markets has never been in my golden gut; anticipating technology relevance is. Watches and body cameras, for example, will never be mainstream, nor will drones or curved TVs. Ping me and I'll explain why. Or do this cosmo quiz to make your own prediction for consumer technology.)

As reported (and powerfully visualized by CB Insights), Unicorns are crowding the market. Look at the density of Unicorn logos starting in February 2014, three short years ago. It's astounding. Why this proliferation? Why now? Why so dramatic?


I believe three things have created and propped up the Unicorn valuations of tech startups:

  1. If you're an investor, there's no place better to put your cash. The returns on real assets are small. The returns on exuberance (like big fancy new houses) can be large. So investors have lots of cash to place bets on startups that might just pop.)
  2. The recent election, with a hoped-for impact of deregulation and infrastructure spending, left the market energized about the potential for growth. The market's up. So the potential for healthy exits and IPOs (even ones without a clear revenue growth model such as Snap's) is up.
  3. Consumer demand for digital services and business demand for digital technology is high. This one's real and sustainable. Consumers want more and better digital experiences and services. Business must transform, using digital technology to build products, accelerate growth, and operate with agility and efficiency. Both drive spend on Unicorns' offerings.

So the demand for new digital businesses is real and will grow. What's not real in my view is the profitability, hence free cash flow, hence real returns to investors. For example, the cost of customer acquisition and retention is high, and those costs are not being properly priced by the market in my view. So it's a waiting game to see when the Unicorn carnage commences.