Unicorns : Champions and Losers

Times have changed. It’s a new era for unicorn startups. Silicon Valley markdowns, the perceptive shift towards structured growth-based models, regional backing for domestic solutions, have changed the essential dynamics of how markets are seeing unicorns today.

Many if not majority of unicorns at present are incurring losses and will continue to remain non-profitable in the coming future. This however, does not mean they do not have a solid business model; they are meant to be focusing on growing revenue, not profitability. However, as they will eventually have to deliver, the burn rate is high, and the investments are finite, it is somewhat of an attrition war.

Looking at the reality with these new glasses let’s see which of the unicorn will grow bigger and which ones will see an end to the dream run.

• Huge monetizable non-marketplace user community.

Snapchat, Credit Karma, Pinterest

Snapchat is surely on cloud nine currently. But where is the guarantee their users won't switch overnight to something else; they can't possibly expect more than one generation of teens to keep using the same product.Enjoy the reign as long as you can.

The likes of Credit Karma survive with content which can't be found or moved elsewhere and being open. As much as we like Credit Karma, there is no reason why anyone else can't aggregate the credit scores like they do. It's fairly simple technologically, and all it takes is a deal with the credit agencies.Pinterest seems to be growing, although they will be more subject to the market fluctuations; but they will probably survive in long term.

• Technology Miracle.

Magic Leap, Theranos, Moderna Therapeutics,Oxford-Nanopore, 23andMe, SpaceX.

Majorly all biotechs. This is because the development takes years and is more difficult to copy / recreate than software; this is one reason why Magic Leap’s magic will sooner than later wane. Another would be that historically, a shop building a completely new technology could rarely transform into a revenue machine. Which means, someone must acquire them. With this kind of valuation and many alternatives in the works, it won't be easy to find a buyer.

Theranos is obviously out after the scandal which makes their technological advantage very doubtful, Moderna seems to be interesting but the outcome will depend on the outcome of their human trials. 23andMe lacks a convincing product. SpaceX: depends whether space becomes a much bigger market.

• App that everyone loves, not relying on a community, like Evernote.

It's just an app; Willy Wonka is a fairy tale, good design doesn't mean the users won't go to a competitor. Unless it gains an additional moat, it's a goner (seems to be a consensus in case ofEvernote). This is the reason there are not so many unicorns based on apps.

• Huge marketplaces.

Flipkart, Jet, Coupang, Delivery Hero, AirBnB

There is a chance that they remain successful for some time if they manage to keep their suppliers invested in the platform, and keep the costs down. This is the worst type of attrition war, especially when they are up against attrition war experts like Amazon.

This makes one doubt about the bright future of Flipkart and Jet. Delivery Hero seems to have better chances than the rest; they are localizing their branches instead of serving the same more or less generic content. They also stay out of the US for now. AirBnB is rock solid, it's difficult to switch to another portal, and they already have all the infrastructure needed.

• Cab Providers: Uber, Lyft, and their local equivalents.

Apart from running into regulations in some countries, the model seems to have proven itself. However, as the regulations will change, the costs of the conventional taxis might drop, and so these unicorns may expect a slide in value. Autonomous Driving may prove an interesting Black Swan Event which will promote some and topple others.

Uber seems to be prepared better than the others for the change, the large war chest, and Kalanick's ruthlessness and ability to come up with new features. On the flip side, with the self-driving cars, it's easier to build a large competitor: no more need for a community of drivers and the complex system with reputation points. This opens up a possibility of car rental companies like Hertz or Avis becoming competitors to a self-driving Uber by creating franchises (or Turo growing to become a unicorn); this could become a second mainstream investment route after real estate.

• Enterprise products and services, mostly software. Slack, Palantir Technologies, Zenefits, Dropbox.

It's less "easy come, easy go" than the others (enterprise users won't switch away to another provider easily), but it also has natural limits to growth. Slack grew phenomenally fast, but so did Yammer. If it was easy to join and start using Slack, someone else can do it, too. Dropbox can be easily replaced by multiple equivalents. Who would pay for something that comes as a free feature? Zenefits is in "strategic refocus" which sounds like the current focus did not work.