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Unicorns—private startups valued at over $1 billion—are very real. However, their ability to maintain rapid growth and deliver returns is increasingly being questioned. In the newly changing economic and volatile environment, these once-mythical creatures face significant challenges that could reshape the futures of the broader tech ecosystem forever. And in 2021 we got a little crazy…

Of the 1000+ Unicorns, really only 100 we all believe will truly deliver returns. There’s an estimated $3.4 trillion worth of Unicorns that will never make it to the promised land - that’s a lot of money locked up going to zero - which generally is expected, just not at this scale.

A recent article by Moses Sternstein, Unicorns Are Real, Right?, highlights how both public and private tech companies are grappling with revenue growth plateaus, delayed liquidity events, and shifting expectations. These issues don’t negate the existence of unicorns, but they cast doubt on their ability to sustain the qualities that made them so attractive to investors.

How Much Liquidity is Locked Up in the MegaCorns?

The total valuation of top unicorns (including ByteDance, SpaceX, OpenAI, Databricks, Stripe, and others) stands at approximately $974 billion. If these companies exit at their last valuations, here’s how much liquidity could be unlocked over the year few years:

The Next Wave of Potential Liquidity

Despite weak liquidity since 2021, a new set of market leaders could generate record-breaking exits in the coming years. These companies have raised billions in funding and are sitting on massive valuations:

• ByteDance – Raised $9.4B / $300B valuation

• SpaceX – Raised $10B+ / $350B valuation

• OpenAI – Raised $6.6B / $157B valuation

• Databricks – Raised $10B / $62B valuation

• Stripe – Raised $6.5B / $50B valuation

• Canva – Raised $572M / $39B valuation

• Flock Safety – Raised $380M+ / Estimated $4B+ valuation

• Wiz – Raised $900M / $12B valuation

If these companies successfully exit through IPOs (most likely) or acquisitions, they could collectively generate over $600B in liquidity, fueling a major capital cycle that would flow back into funds, employees, and new startups.

However, if exits are delayed further, it could continue to choke off new capital formation, slowing innovation and startup creation.

• Total VC Liquidity: $417B - $550B (assuming VCs own 50-66%)

• Total LP Liquidity: $334B - $440B (80% of VC fund carry)

Why This Matters:

• LPs Need Exits – Limited partners (pension funds, university endowments, and institutions) rely on liquidity to reinvest in new funds.

• Founder & Employee Wealth Creation – Employees with equity see their wealth materialize, which then flows into angel investing in hopefully new startups.

• Capital Recycling – A lack of liquidity means fewer new funds raised, making it harder for emerging managers and founders to access capital. Which is exactly what’s happening right now.

Unfortunately much of this capital is locked up because these companies are delaying exits, either by staying private longer or relying on mega-funding rounds instead of IPOs. If liquidity remains constrained, it could slow down the entire venture ecosystem.

Public SaaS Companies: Growth Hits a Ceiling

Sternstein highlights a key data point from Meritech Capital: no public Software as a Service (SaaS) company is expected to grow its revenue by more than 40% over the next year.

This revelation underscores the limits of growth for even the most scalable and successful SaaS models. Once celebrated for their ability to rapidly expand, public SaaS companies now face challenges like:

• Market saturation: The pool of potential customers shrinks as companies mature.

• Intense competition: The SaaS landscape is crowded, forcing companies to differentiate through pricing or niche features.

• Operational complexity: Scaling introduces inefficiencies that slow down growth.

This shift compels public SaaS companies to prioritize profitability and efficiency over the hyper-growth that once defined the sector.

The Future of AI: Vertical AI Will Dominate

While AI remains one of the most promising and hyped investment areas, the reality is that 99% of investors will only see real returns in the vertical AI application layer —not in general AI infrastructure LLMs etc.

• Horizontal AI (Infrastructure) is dominated by a few giants like OpenAI, Anthropic, and Mistral, with high capital requirements and deep technical moats.

• Vertical AI (Application Layer) presents far more investable opportunities, where AI is applied to specific industries like healthcare, finance, legal, manufacturing, and defense.

The biggest AI-driven exits will likely come from startups integrating AI within legacy industries, where automation can drive measurable business outcomes rather than speculative AI advances.

Are Unicorns Losing Their Sparkle?

Unicorns are not disappearing, but their futures are more uncertain than ever. The challenges of slower growth, delayed exits, and strained liquidity suggest that the ecosystem must adapt. Here’s how:

• Smarter Valuations: Investors must move away from inflated valuations based on speculative growth and focus on tangible performance metrics.

• Encouraging Faster Exits: Smaller IPOs and M&A deals could help restart the capital recycling process, even if immediate gains are lower.

• Profitability Over Growth: Startups must balance growth with sustainability to attract long-term investor confidence.

FIND ME: 𝕏 @Trace_Cohen / in LinkedIn

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