The article discusses the "unicorn problem" in startups, which refers to the issue of companies with extremely high valuations that are not yet profitable. The author argues that this phenomenon is a natural part of the startup ecosystem and that it will eventually correct itself through market forces.
The author cites several reasons why the unicorn problem is not as severe as it seems:
- Self-correcting property: Technology markets emerge rapidly, grow exponentially, consolidate suddenly, and normalize ruthlessly. This process helps prevent the entire market from boiling over.
- Private equity firms bear losses: Investors in existing unicorn companies are largely private equity firms, who will sustain losses themselves rather than those losses being borne by the public markets.
- Valuations might contract, but other pressures relax: A down economy can bring relief to startups in various ways, such as fewer venture-backed competitive entrants, an easing of the tight tech labor market, and a willingness by customers to re-evaluate past purchasing decisions.
The author also argues that the unicorn problem is not unique to this era and that previous economic trends have shown similar patterns. The article concludes that the technology companies that survive will continue to transform every sector of the global economy, and it is this truth that is as immutable as the advent of electricity or the internal combustion engine.
Some key points from the article include:
- The unicorn problem is a natural part of the startup ecosystem.
- Technology markets have a self-correcting property that prevents them from boiling over.
- Private equity firms bear losses, rather than public investors.
- A down economy can bring relief to startups in various ways.
- The technology companies that survive will continue to transform every sector of the global economy.
Overall, the article presents a optimistic view of the startup ecosystem and argues that the unicorn problem is not as severe as it seems.
