Are Unicorn Startups Too Good To Be True?

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tech bubble

Unicorn is a term that was recently introduced in the venture capital industry. The term denotes startup companies that have soared to $1 billion valuation or higher.  Just like unicorns, the billion-dollar startup was once considered a myth because it was so exceedingly rare for a startup to be worth a billion dollars. Today there are over a hundred startup companies valued over $1 billion.

According to CBS Insights, there is a total of 142 unicorn companies with a cumulative value of $506 billion. Moreover, CBS Insights in collaboration with The New York Times have predicted 50 future unicorn companies. The list of unicorn companies comprises companies such as Uber, Snapchat, Airbnb, Pinterest, Dropbox, Spotify, and Jawbone to list just a few.

The list of unicorn companies has been growing at a rapid pace, almost doubling within 2015. This proliferation of unicorns has many concerned that it is a sign of a tech bubble that is ready to burst. The investors and observers who believe that a tech bubble burst is imminent point towards companies they consider to be unreasonably over-valued, such as Uber, currently valued at $51 billion, apparently a higher valuation than the entire global taxi market. They state that low interest rates have pushed more money into venture capital investment creating a false sense of security.

However, many argue that what we are witnessing is actually a tech boom and these valuations are justified although tech stocks are at an all-time high, and startup valuations are hitting astounding numbers. They believe that these companies may be temporarily overvalued, but they have real revenues and the economies worldwide are shifting in their direction, taking into account the surge of the number of people connected to the Internet that increased from 450 million people in 2000 to 3 billion people in 2014 and the mobile revolution. They state that when you view these high-growth startups as a long-term portfolio, it is evident that there is no impending danger or risk of burst.

The question remains, are unicorns no longer a magical occurrence or are we witnessing a unicorn bubble?

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