The current usage of the word unicorn makes me tired. I could rant about it for a while, but that would make me tired of myself ranting about it.

Instead, I’d like to focus on a word that appeared a month ago by Aileen Lee in Welcome To The Unicorn Club, 2015: Learning From Billion-Dollar Companies. That word is unicorpse.

Unicorpse by Brett Manning

From section #6 in Aileen’s post:

“Given how much capital our private companies have raised in the past few years, most likely have cash to fund 2-4+ more years of runway.  If private capital is no longer available in the future, these companies will seek a public offering or acquisition. Some will demonstrate strategically justifiable metrics and have fantastic ‘up round’ exits; others may see liquidation preferences kick in which will negatively impact founders and employees; others may fulfill the adage “IPO is the new down round”, which has been the case for more than half of the public companies on our list. Or worse, some may become “Unicorpses” :)).”

The word showed up again in Nick Bilton’s Vanity Fair article Is Silicon Valley in Another Bubble . . . and What Could Burst It?

“Indeed, contrary to Kupor’s argument at the Rosewood, it is this later-stage investing—with its shortage of regulation, tremendous envy, and Schadenfreude—that worries many bubble-watchers. “We basically doubled the number of unicorns in the past year and a half,” says Aileen Lee, the founder of Cowboy Ventures, who has herself become a mythic creature in the Valley after coining the term. “But a lot of these are paper unicorns, so their valuations may not be real for a while.” Others, Lee acknowledged, may never see their balance sheets add enough zeros to justify the title. They will be given a new sobriquet: “unicorpse.””

Yesterday, Erin Griffith had a perfect chance to use unicorpse in her article VCs have ‘Dying Unicorn’ lists, but they aren’t sharing them but she missed the layup and went with dying unicorn instead.

“But amid all the unicorns getting their horns, investors have warned of “dead unicorns.” In March, investor Bill Gurley made headlines with his pronouncement that “a complete absence of fear” would lead to dead unicorns this year. Venture capitalist Marc Andreessen warned in a tweetstorm that startups with high burn rates would “vaporize.” Last week Salesforce CEO Marc Benioff also predicted dead unicorns as startups seem to focus more on their valuations than their customers.”

Now, I don’t blame Aileen for the word unicorn. And I credit her for unicorpse, which I expect will be a lot more prevalent in the future. It’s not, in Bilton’s language, schadenfreude on my part. Instead, I believe that by focusing on the concept of a unicorn, we are paying attention to exactly the wrong thing.

I once simultaneously sat on the boards of three public companies that were all worth more than $1 billion. One went bankrupt, one was acquired for $0.14 / share ($40m), and one was acquired for $0.025 / share ($25m). I think you can call two of them as unicorpses and one of them a unicorpse with nothing left but dust where the bones should have been.

Don’t feel bad for me. I once was on the board of a company that had generated lifetime revenue of $1.5m and was acquired by a public company for $280m of stock which, by the time the deal closed, was worth around $1.1 billion. Two years later, the public company (which at one point was worth over $30b) was bankrupt.

None of these companies were ultimately worth $1 billion or more. Each of them stumbled for different reasons, but a lack of obsessive focus on product and customer was a big part of why they vaporized. They assumed, regardless of how much capital they had, that they could raise more. They didn’t focus on building a long term, sustainable business that had a huge protective moat around it. I don’t care how disruptive you are – if you don’t build a moat, someone is going to come disrupt you.

I’m encountering an increasing number of companies with burn rates in the stratosphere. I get uncomfortable when the net burn rate for a company goes above $500k / month. In fast growing companies with a balance sheet > $25m I can stomach a $1m / month net burn. But when I see $2m / month net burn rates, I vomit. And a $4m / month net burn rate, even if you have $100m on your balance sheet, makes me physically ill.

As an investor, would I rather own 30% of a company that is acquired for $300m in cash that had only raised $10m or 2% of a company with a paper value of $1b and $200m of liquidation preferences? As a founder, would you rather own 10% of the company that sold for $300m in cash or 2% of a company with a paper value of $1b and $200m of liquidation preferences? There is a lot more in the calculation of value, especially who gets what, than that $1 billion unicorn thingy.

Let me say it a different way.

There is nothing special or magical about $1 billion valuation. It’s just a number.

I’m not predicting a bubble or anything else. I’m not negative about where we are at in the cycle. I hope to live another 50 years as I think this is going to be the most interesting point in the history of our species up to this point.

But I do think it’d be useful for more founders and investors to ponder unicorpses and spend less of their energy talking about, and trying to become, unicorns, lest you one day find yourself a pile of dusty bones.

  • Adam Marcus

    Hey Brad
    I completely agree. tcrn.ch/1NGySiS

    • Great post!

      • Adam Marcus

        Thanks Brad. Just trying to follow your lead.

    • “At the end of the day, it doesn’t matter how much money you’ve raised or what animal analogy you use to signify your company’s worth.”

      Great sentence…

      • Adam Marcus

        Thanks Mario.

  • Everything you say makes total sense and I agree…. but I still have this nagging feeling that it doesn’t matter – because most people don’t spend the time to think about these nuances. Unicorns get a TON of press… attract talent who think everything must be going amazing if they are worth $1B…. I see it now as company’s playing to (and taking advantage of) the hype. Certainly nothing wrong with that, but (as usual) all the attention goes to something that in the end is little indication of ultimate and long term success.

    • A wise man once told me “it all comes out in the wash.”

      • mark gelband

        Or at least one sock does…

  • 1. The last paragraph is perhaps something that needs to be expounded somewhere in the annals of business. Managing a fast growing company comes with its own set of problems that most of us are not even exposed to. You did mention the loss of focus on the product/customer but perhaps some of this can be avoided by the lessons of other Unicorns, successful or not, during their high velocity years.
    2. Also would like to see new ratios being defined at a macro-level for the betterment of the industry. For eg. (Valuations of Unicorns) / (Valuations of “Unicorpses” at their peak) could be tracked, a high number would probably imply either excellent businesses or a heated market – either ways providing some food for thought. Or even better, tracking of all the important metrics in a startup applied to Unicorns and “Unicorpses” in parallel (You have hinted at burn rates here)

  • tim logie

    Good thoughts Brad. I am a Portfolio Manager for a hedge fund and I’ve seen many a public company follow the same path you outline, whether it be resources or tech or something in between. I like your analogy about the mote and how important burn is. Thanks for sharing.

  • I have been pounding this drum forever. There are cycles, there always will be and when you see the results you know what is going to happen. The question is not if its just when and that can’t be answered.

    • Yup – and if you are playing a long game, you should be able to transcend the cycles. If you are trying to time the cycles, unless you get lucky, you are going to get screwed.

      • That is why you see so few angels like you that have done it for decades

  • Charlie Jackson

    The line that caught my attention was, “They assumed, regardless of how much capital they had, that they could raise more.” Indeed.

    I was on the board of an online retailer in the late 90s (I was the seed investor). The company raised VC money and went public. With no profit. Not too long after that, I began to say: we need to focus now on getting profitable. I was the only one saying it. The suits on the board said, oh no no no, the market is telling us to spend money now. I said, you do have to make money, you know. I left the board. Not too long afterward, almost overnight, there was no more money to be had. The suits were only concerned about one thing, their liability. So they sold the company for nothing.

    But not to worry, that could not happen this time (the money drying up), because, you know, this time it’s different.

    • It’s always different this time around. Until it’s not …

  • andredurand

    Many of the games being played right now with valuations are just that, games. When insiders price round after round, valuation integrity loses its legitimacy. Unless the funds are invested wisely to build sustaining market value, it becomes a game of musical chairs in which the public is the target for the last man standing when the music stops.

    • And ultimately the value will be determined either based on long term cash flow or an exit via a sale to someone who places a tangible value on the company.

      I don’t think the public is the definitive target for the last man standing. It’s an easy thing to point to (e.g. VCs will just endlessly hype and inflate prices until they take things public), but given some of the massive private raises AND hesitation to take companies public, there are many other dynamics at work.

      Ultimately, if you build a real business, you’ll have sustainable and durable value. That’s fucking hard to do, but there are lots of examples of it in our corner of the world. And lots more examples of companies that looked like they were valuable, but didn’t build anything either durable or sustaining.

  • josh

    This is great article. The good and bad thing about incentives is that they tend to work. Unicorns was created because it articulated what VCs were already trying to optimize for. Put a name on it and teach everyone about it, suddenly we have a ton of unicorns. Would this be bad if VCs didn’t eventually have to exit bc of their business model? in my mind anytime your goal is to sell you’re going to get some throw over the wall behavior. Not from everybody or everybody all the time, but outside of VC if the goal is to exit there’s bubble effects that can flow throw the whole industry as a result of the few (amplified by the credit cycle). I wonder if you’d get smoother returns and a healthier environment if VCs could somehow incorporate dividends. Not everybody would do it, but if your goal is to produce cash flow rather than exits it does change the dynamics of selling the company and it’s products.

    • Money is going to get more expensive. Two things are going to happen. Interest rates are going up, and the stock market isn’t.

  • Seems like we have a #toobigtosucceed dynamic going on as some companies hit a ceiling on what they can raise, or at least find limitations.

  • With respect to this line, “by focusing on the concept of a unicorn, we are paying attention to exactly the wrong thing,” don’t larger funds and their LPs depend on this to drive returns and, as a result, contribute to the proliferation of the word and narrative? To invest before $100M prices and catch the billion dollar companies for a 10x or more?

    • LPs care (or should care) about realized returns.

      Presumably most care about cash on cash returns (although some focus on net IRR). Ultimately, as an LP in a lot of funds personally, I care about DPI (distributed to paid in capital). That’s it – how you maximize DPI, as long as it is legal, is fine by me.

      So – if you are focused on “investing in unicorns”, or “creating unicorns”, recognize that these are unrealized returns. While this can be TVPI (total value to paid in capital), until you return it to your LP, it’s still not money.

      There were lots of vintage 1999 funds that had TVPI of 2 or 3 in 2000 that resulted in DPI of $1 billion when it’s realized, either through an IPO or a sale to someone else, then it’s not particularly exciting. And, if the liquidation preference is $300m and it sells for $100m, it doesn’t matter what price you got in at.

      • Its the same at a company. “Cash does not lie” Everything else can be gamed.

      • Totally agree, so this would argue for smaller funds and definitely not ones close to $500m and up, but incidentally, that’s what most of the bigger big LPs want — they want the 10% ownership and to write a $35-50m check. Of course, I know you this but I think this is why the term has been used so much, b/c whether or not people like it, this is what those who provide the cash need to make the models work.

      • Mason Jones

        I’ve been wondering how LPs feel about all of the unicorns right now: until they reach liquidity, it feels like there’s an awful lot of money locked up right now. All of these unicorns postponing going public are holding this money and nobody’s seeing returns on it, if they ever do. As an LP, I would think that would make one nervous.

    • Matt Kruza

      Funds definitely depend on mega exits. The issue i think is largely driven by how SMALL the vc market is compared to the pension / sovereign wealth fund /endowement market is. This is incredibly back of the envelope but these institutions have somewhere between $15-40 TRILLION in assets. VC globablly is between $200-500 billion. So basically 1 – 3% of there assets theoretically can be in this asset class. Ultimately it makes the home runs they are trying to hit sort of irrelevant to their overall return, yet obviously VC’s have massive incentives to run billion funds. One analogy i like is how sure there were great VC returns when the industry is 20x smaller in the 1980’s and maybe early 90’s through beginning of the dotcom boom. But just because i turned $5 into a 100 in two days running a lemonade stand at my grandparents garage sale when i was 5, doesn’t mean i could now raise a million dollars and turn it into $20 million in two days. Basically VC can’t scale to the level which is meaningful for yield hungry institutional investors. Obviously individual companies can and still will be built but those are (high-level) the macro factors around VC right now i feel

      • Agreed, fund size definitely matters.

  • Agree. And founders trying to build a billion dollar business are focusing too much on run toward a wall versus build a good business. My thoughts, originally shared a few years ago: https://www.backblaze.com/blog/dont-build-a-billion-dollar-business-really/

  • Yup. There are some firms that should avoid VC capital altogether. It might behoove them to take angel money only, build a nice company for a few years and get acquired for $20-$40M, while they own a large chunk of the equity in the company. As you well know, later stage deals have stratospheric valuations for a lot of the reasons that you cited, it also filters down into seed. Entrepreneurs need to know that an angel who invests the same amount of money in 20 companies needs 30x on 2 companies to earn a 27% IRR and make it worth the risk/reward. 30X from a $6M-10M valuation is a lot different company than 30X of a $2M-4M. Data shows most companies sell for under $60M.

    • Agree completely. This is why I can’t do angel investing and don’t even want to hear the pitches. Even at $2mm pre the numbers start getting really hard for ideas.

  • Jamie Morton

    Great post. Glad to see the ‘counter-balance’ in the force is being discussed and brought to the fore.

  • RBC

    bfeld OT, but thought you’d like this article on the NYT email strategy. The first half of the article is interesting, including a mention of a 3rd party to send out their marketing emails – don’t know if this is SendGrid.

    They lost me at the end though when they start using meaningless gobbedy gook like ‘radical flexibility’

  • mark gelband

    Whether it’s my children’s lemonade stand, sex toys, a couple kilos of coke, or SaaS, product & customer. The rest is rank speculation, and hopefully a bit of self-effacing “I could be wrong” and based on experience and instinct, luck.

  • While of course the valuation of some unicorns are inflated (Andreessen and others ague, I think justifyly so, that Uber and Airnbnb, sometimes cited as two examples of potentially overvalued unicorns, have substantial revenues and transformative (beyond disruptive) business models), a failing unicorn, which I think can and will happen, has some degree of not insignificant assets, so the word corpse is probably and exaggeration – to some degree – of its condition even if it becomes failing or does fail.

  • Andy Grolnick

    Good insights and perspective Brad. The focus should be on building great products, delivering customer success and a long term sustainable business. Of course, I guess being a unicorpse would be better than being a corpse, but that may be about it:))

  • Good thing you haven’t come close yet to some blockchain companies, as you’d be vomiting a lot 😉

  • Adebambo Gidi-Boi Busary

    But my horn shalt thou exalt like the horn of an unicorn: I shall be anointed with fresh oil.

    -Psalm 92;10

  • yranchere

    In the savannah, when animals are sick, scavengers play are fundamental role in cleaning up the environment. In Finance, when companies are mispriced, PE funds play that role. My guess, we will enter a Private Equity era for “startups” soon.

  • Ed Roberto

    It is important for a company to never believe it’s own press and stay focused on delighting their customer. Makes for a thoroughbred versus a mythical animal.

  • My 7 year old has a pretty good take on this. “I used to like my unicorn, but they just like a pony but with a pointy bit. What I want is one of those ones with wings” You want a Pegasus? “Yes thats it” “Why whats wrong with your unicorn”? “Dad sometimes you are so silly. Everyone wants a flying pony. No one wants a wonkey donkey.

  • Vishal Dutta

    Great post Brad! I wish some companies/investors in India would read this post. It is very disturbing when the only metric used to gauge a company is its plucked-out-of-thin-air valuation. For such a nascent ecosystem as ours, even a single unicorpse would do huge damage to the sentiment.

  • Tino


  • Marian Gazdik

    Interesting perspective, Brad. Surely, being a Unicorn is just a number, yet an important one. It’s one of many milestones that companies try to reach in order to get to the next level in terms of growth. There are other important numbers that are less talked about, like customer satisfaction (https://www.qualtrics.com/blog/customer-satisfaction-measurement/), etc.

    As Sam Altman put it in his recent blog post, those companies that raised a lot of money, are at particular risk: http://blog.samaltman.com/unit-economics

    I guess we will be seeing a few more Unicorpses popping up.

  • I appreciate your post encourages both entrepreneurs and investors to reconsider this – and from one second hand story have heard you were consistent with this advice in a real world opportunity – but I think the flaw largely lies with the latter group. There is something special about the $1 billion number, even prior to the term coinage: given their fund constraints the vast majority of venture capitalists expect small startups to be able to reach this type of capitalization, preferably in less than seven years.

    That may be a perfectly rational filter since they are time- and capital-constrained and one [ugh] unicorn can make the fund. The term originated with a VC and is almost only used by them in a non-ironic fashion: I never hear actual entrepreneurs use it save when trying to solicit financing, or when in a sarcastic mood. I concur you’d rather own 30% of a $300 million company but if you pitch that anywhere but perhaps the Foundry Group as even a base-case possible outcome you’ll get yawns instead of checks.

    Likewise, how many board meetings at a $50m or so valued companies are there where an entrepreneur says “I’d like to slow down spending, build a moat, and get to cash flow positive with lower growth” how many VCs say “sounds great!” The only VC vocally affirming this has been Bryce Roberts & Tim O’Reilly of Indie.vc.

  • Kimberly Klemm

    Middle English “unicorne”…Unicorpse? Middle English “corps”…Definitions: 1. “A human or animal body whether living or dead” 2. A dead body 3. Something discarded or defunct. “Uni” as a prefix is defined as single from the word “unus”..however the definition of “single” may differentiate from this interpretation as recently as the Latin language words.