It's like asking someone playing roulette to value "13 black", after they bet on it.
There valuations are always based on expectations of huge growth, not current value. Growth predictions with an extremely low confidence level. VCs make up for it by making a lot of bets.
The companies NEVER have current profits (The actual measure of value) that would justify their valuation.
So, it's comparing gambling payouts to corporate valuations, aka "apples to oranges", which are not related.
When the predicted growth doesn't occur, the companies valuation becomes based on its actual value (profits).
Even worse, because you don't get better odds or payouts by persuading others to bet on 13 black, but you do when they invest in the company you've backed.
For companies that rely on outside investment to survive however it can become a slide to oblivion.
If the company itself is profitable, then typically it can continue. There's no interest rate on VC investment, and if profitable it can run forever. Customers, employees, users and so on are all fine. Investors? Well, they're potentially getting some returns through dividends, but its minor and not what they were chasing.
Of course the VC investment model is high risk. That's kinda the point. It's a bet on IPO or (valuable) acquisition. Most companies end up as neither.
Will this affect new VC funds in the future? Maybe in the short term. But there are still enough IPOs (like SpaceX now) and still enough greedy people willing to play the lottery. Sure the absolute amount of VC money may come down, but I don't think the model is going away.
Indeed it may start to lead to saner valuations along the way.
This isn't how VC funding works. The fund has a time limit, usually ten years, and has to wrap up and pay back in that time limit.
If your company is not profitable in that time limit, tough. The VC will exercise whatever rights they have and pull whatever they can out of it.
Cynically, I wonder how much of the insane (even in the moment) valuations were driven by VC firms trying to commit capital so they could collect management fees?
In other words, the sale wouldn't really achieve anything other than lock in the capital write-off. The return would be trivially small.
SpaceX’s valuation + “data centers in space” being taken as a serious pitch leads me to think it’s only getting worse.
I think it depends way more on where and how much the wealth is concentrated than anything else
TFA points specifically at "recent funds" that have underperformed public markets.
More recently launched funds have been returning markedly less money to investors than those of earlier vintages, according to the World Economic Forum. They have also underperformed the S&P 500 by a wide mark, particularly those that did not invest in a small club of artificial-intelligence superstars, says Mr Cohan.
Power law at play, apparently: High risk with high rewards only for the top 5%.
... already, just 5% of them produce 90% of its profits.Zune-icorn?
Zombicorn!
I know of some actual in use Microsoft Zune that have outlasted many companies that were predicted to become unicorns.
Same article:
https://www.businesstimes.com.sg/opinion-features/zombie-uni...