VC is crashing---startups are going bankrupt, unicorns hit worst, expert consensus.

For years, the two of us have been warning of the dangers to America’s startup system posed by big startup losses. In 2013, angel investor Aileen Lee coined the term “unicorn” for startups that were valued at $1 billion or more before they went public. We have been documenting the unprofitability of these unicorns along with their huge cumulative losses (see here, here, and here). Furthermore, almost 60% of America’s publicly traded unicorns have cumulative losses larger than their revenues — a figure that doesn’t include the dozens of publicly traded unicorns which have gone bankrupt or been acquired in the past two years. Privately traded startups are almost surely doing even worse, because the best will IPO first. Thus, Morgan Stanley’s European head of research reported in late 2023 that even the top 25% of privately held startups have an average EBITDA of minus 30%. The Wall Street Journal, Financial Times and others are now confirming these risks. Scott Stanford, a cofounder and partner at ACME Capital, recently said that, “It’s not crazy to think half the VC firms that were actively investing in the last decade will be sidelined and eventually collapse.” Sara Ledterman, managing partner of 3+ Ventures, is even more pessimistic. She “estimates 3,200 funds have gone dormant over the past 14 months” while another “analysis found 8,538 VCs stopped investing in the past two years, leading to what some VCs have warned will be a “zombie reckoning in 2024.” Startup shutdowns rose at an accelerated pace in 2023. Pitchbook reports that around 3,200 startups failed in 2023 and more than 2,000 VC firms effectively halted making new investments in startups in the first nine months of 2023. Similarly, Carta reports that among users of its database, startup shutdowns rose to a record high of 264 in the first quarter of 2024 from 72 in the first quarter of 2022 . For publicly traded unicorns, eight went bankrupt or were acquired for below valuation prices in 2023 (Quotient technology, Coupa, Pear Therapeutics, Qualtrics, Blue Apron, Signify Health, Smile Direct Club, and Lordstown Motors). Several unicorns have followed suit so far this year: 23andme; Invitae; Nanostring Technologies and Fisker). Meanwhile, almost 400 tech companies have laid off workers this year so far, according to layoffs.fyi data — including two publicly traded unicorns (Gingko bioworks and Cue health). Endowments, pension funds, trusts and their peers are the limited partners (LPs) that are at the heart of the venture capital system, since they channel funds to venture capital firms. Business Insider recently reported that a growing number of limited partners have begun reneging on their commitments. LPs are legally liable for money they have promised the VCs, but few VCs want the bad press and possible domino effects from suing LPs. Better to pretend that all is for the best in this best of all possible worlds. Keep collecting fees and keep hoping that greater fools will soon appear.