🦄 THE UNICORN ERA ISN’T OVER, IT’S UNDEAD

As funding continues to tighten and market optimism fades, the true health of startups is finally exposed. Truly resilient companies are proving to be the exception rather than the rule, and many once-celebrated unicorns are now displaying critical points of failure — forced to reinvent themselves or risk being left for dead. We’ll refer to these struggling entities as Zombicorns: startups trapped in a state of “undeath,” burdened by sky-high valuations, flatlining growth, and no clear exit path. Collectively, today’s ~1,250 unicorns represent over $4 trillion in paper value. This raises a pressing question: how much cash can investors realistically expect from this herd?

💸 From Boom to Bust: How the Herd Got High on Cheap Money

To understand why unicorns find themselves trapped today, we need to revisit the boom before the bust. In the years leading up to COVID-19, venture capital returns had gradually begun outperforming public market indexes (as shown below). When the pandemic hit in late 2019, digital transformation and software adoption accelerated dramatically. As public valuations soared, private valuations followed. Expectations that digital-first companies would suddenly become indispensable, combined with inflated public market multiples, drove startup valuations exponentially upward. Businesses previously reliant on paper contracts and face-to-face signatures had to adapt overnight, fueling explosive growth for companies like DocuSign, as customers found themselves with no viable alternatives.

Fast forward to 2021, and the startup ecosystem reached a fever pitch. The number of unicorns tripled in a single year, and nearly $850 billion was returned to investors — vastly outperforming the S&P 500. This led to two critical outcomes:
 
 1. Oversupply of capital
 
 2. Reduced investor discipline and due diligence
 
 With capital flooding the market, investors began deploying funds at a pace and scale that left little room for thorough diligence. Venture firms and startups alike raised money faster than ever, and many investors faced a binary choice: opt in quickly or get left out. As money poured in, differentiation became harder, competition intensified, and customer acquisition costs skyrocketed. With marketing spend ballooning, unit economics grew increasingly unsustainable. Companies like Uber operated at a loss for years, only recently reaching profitability.

While private innovation boomed and tech leaders like Uber, Airbnb, and Square delivered remarkable returns for early investors, rising interest rates and growing market volatility rapidly undermined macroeconomic conditions, ultimately shutting down the IPO market. As public market conditions deteriorated, institutional investors became over-allocated in private assets, the result of inflated valuations accumulated during the boom years. This imbalance prompted a reallocation of capital toward passive strategies like the S&P 500 — reflected in a 30% surge in passive index investment last year alone. This wave of capital further strengthened publicly listed companies by granting them steady, low-cost funding, disproportionately benefiting large incumbents.
 
 Conversely, late-stage private unicorns suffered. Going public now would mean accepting lower valuations, negatively impacting late-stage investors. As a result, many of these investors advised companies to remain private longer, while concentrating capital in fewer promising unicorns, hoping they would eventually grow into their peak valuations. However, by betting all of their chips into fewer companies, investors took on more risk — and with every failure, even greater returns are required from the winners.

⚖️ Winners, Stallers, and the Living Dead

As time passes, it’s becoming clear that many unicorns struggle with fundamental unit economics, leading to notable failures such as edtech giant Byju ($22bn valuation) becoming insolvent and DNA testing company 23andMe ($6bn) filing for bankruptcy. These examples signal that lofty valuations and Tier 1 investors are no guarantee against failure. And with roughly $4 trillion still tied up in unicorn valuations, the data suggests that Byju and 23andMe aren’t isolated cases — more startups are likely vulnerable. According to Carta, fewer than 30% of unicorns minted in the 2021 boom have managed to secure additional funding over the past three years — and among those who did, half were forced to accept down rounds. 
 
 In light of these challenges, not all unicorns are created equal. Across the herd of ~1,250 active companies, we’ve identified three broad categories that reflect where they stand todays:

In a world where maintaining all-time-high valuations is no longer feasible, the real question becomes: How do these companies survive their state of living death? With IPO exits effectively closed and inflated valuations becoming increasingly unsustainable, unicorns started actively exploring alternative exits — setting the stage for Big Tech’s strategy of selective extraction.

🚪 When Exits Close, Extraction Begins

Thanks to recent loosened regulatory oversight, we have started seeing movement on merger and acquisitions in the tech industry. Google’s recent $32 billion acquisition of Wiz, a cybersecurity unicorn founded in 2020, signals renewed appetite among tech giants for strategic acquisitions — but also underscores that only top-tier unicorns with critical technologies are likely to benefit from this reopening of the market. Encouraged by this activity, other high-profile unicorns such as CoreWeave ($23bn) and Klarna ($15bn) filed for IPOs in mid-March, hoping to capture similar investor enthusiasm.
 
 While top-tier unicorns are capturing renewed investor interest, the vast majority — the herd of roughly 90% of unicorns valued between $1bn and $10bn — find themselves stuck in a precarious middle ground: too large to attract smaller strategic acquisitions, yet not large or proven enough to justify significant investment from Big Tech. In a recent discussion with M&A executives from one of the Big Five tech giants, they explained that acquisitions in the mid-tier unicorn range ($1bn–$10bn) have historically been unattractive, largely due to heightened regulatory scrutiny and antitrust concerns. Their strategic focus has shifted toward either smaller startups under $500m, which offer critical foundational technologies at lower valuations, or large-scale unicorns exceeding $10bn which will impact top line revenue of these goliaths. This leaves the majority of unicorns stuck in a ‘Death Valley’ — too costly and risky for strategic acquisitions, yet insufficiently established to warrant large-scale investment.
 
 An increasingly common — and somewhat unsettling — tactic employed by Big Tech players like Microsoft, Google, and Amazon involves structuring licensing and partnership deals with overfunded unicorns. Rather than outright acquisitions, these arrangements effectively serve as acqui-hires: they allow large corporates to access valuable IP and attract top-tier founding teams without incurring the full burden of inflated valuations or triggering significant regulatory scrutiny. The unicorn’s core technology and talent are selectively absorbed, leaving behind only a hollowed-out entity — a “zombicorn” stripped of its most valuable assets. Notable recent examples include Amazon’s AI licensing deal with Covariant and Microsoft’s strategic partnership with Inflection AI.
 
 We then have to ask ourselves: what are some ways for companies to survive? The first path is deceptively simple: consolidate and endure. For some teams struggling to reach product-market-fit, it’s the equivalent of a “get out of jail” card for the company, employees but also for their investors who can delay a write down — a merger with a stronger unicorn, often paid in stock (which might already be inflated), with hopes of survival through strength in numbers. 
 
 Take Gorillas, the German last-mile delivery startup. It was folded into Getir for $40m in cash and $1.2 billion in stock — a deal that looked, at the time, like a lifeline. But Getir soon found itself in financial strain, halting international operations before being taken over by Mubadala. Once valued at $10 billion, Getir’s valuation collapsed to $2.5 billion, and was eventually acquired for an undisclosed sum — wiping out nearly all remaining value for Gorillas’ investors. What began as an attractive acquisition opportunity instead turned into a zombicorn merger with limited prospects for recovery.
 
 This situation is not isolated. Other unicorns, such as crypto payments startup Moonpay, have pursued similar defensive acquisitions. Moonpay acquired stablecoin infrastructure platform Iron for $100 million in an all-equity deal, aiming to bolster its product offering and revenue streams, thereby justifying and sustaining its $3.4 billion valuation from 2022. Another more recent example was the acquisition of X (Twitter) by xAI, in a $45bn all-stock deal.

💀 Liquidity for the Living Dead

In our analysis from last year, we explored potential avenues for unicorns to generate liquidity, through secondaries, continuation funds, and private equity buyouts. A year later, it’s become clear that secondaries have emerged as the only consistently viable option. But secondaries do not provide liquidity to the company — only to investors and employees. According to recent data from Pitchbook, pricing in secondary markets has rebounded sharply, with transactions now often closing at nearly full valuation — significantly reducing incentives for new investors. While this indicates healthy demand from secondary buyers, it also means fewer opportunities exist to purchase stakes at attractive discounts. It has also become evident that the secondary activity was primarily focused on the best performing private companies, and doesn’t solve the issue for slower growing businesses. Consequently, unicorns facing liquidity pressures might find the secondary market less receptive, potentially limiting their options and intensifying the risk of forced down-rounds or more drastic restructuring measures.

While we won’t spend too much time on continuity funds, it’s important to cover why private equity hasn’t been as active in acquiring big tech unicorns as anticipated. On a recent podcast from 20VC featuring Mitchell Green, founder of PE firm Lead Edge Capital, they define the herd of zombicorns (which they call “living dead”) as companies growing 10–20% annually, typically generating between $50–200 million in revenue but remaining loss-making. As we highlighted before, those unicorns are unattractive acquisition targets for Big Tech due to their uncertain growth prospects and unsustainable economics, but they’re also too small and risky to meet private equity criteria. PE investors commonly apply the ‘Rule of 40’, prioritizing companies whose combined annual growth rate and profit margin exceed 40%. Unfortunately, many unicorns with inflated valuations fall short of this threshold, restricting their exit pathways and further intensifying pressure from investors eager for liquidity.
 
 This lack of interest from private equity and strategic acquirers creates a significant risk: unicorns caught in this position may linger indefinitely without viable exits, leading to stagnation or forced restructurings at significantly reduced valuations or even written off. Without a clear path to profitability or growth, these companies face increased pressure from investors seeking liquidity, potentially driving harsher down-rounds, secondary market exits at steep discounts, or even bankruptcy scenarios like those seen with Byju and 23andMe. Ultimately, the longer unicorns remain stranded in this valuation purgatory, the more severe their eventual outcomes are likely to become.

🧠 Lessons from the Zombicorn Era

In the end, the current market dynamics are likely to drive a much-needed cleansing of the startup ecosystem, filtering out the zombicorns — those companies kept alive solely by inflated valuations and investor optimism. This process, though painful in the short term, promises to restore a more efficient capital market, where dollars and talent flow to the best companies. With reduced competition, companies should see better unit economics and more attractive growth profiles.
 
 The current private market environment should also serve as a critical wake-up call for Limited Partners (LPs). Just as venture firms poured capital into startups with insufficient diligence, LPs have similarly allowed inflated TVPIs to go unchecked, often performing inadequate due diligence on funds themselves. Moving forward, LPs must embrace greater responsibility to enforce investment discipline and rigorous governance oversight. Heightened scrutiny and stronger due diligence processes will be essential to restoring balance, reducing vintage risk, and fostering a healthier, more sustainable venture ecosystem.

Read more on the subject ⬇️

• Market Update: Exits and Liquidity — Redpoint Ventures
• Mitchell Green on the Living Dead Unicorns — 20VC Podcast
• Silicon Valley’s Unicorns Are Desperate for Cash — Bloomberg

In case you missed it…

General Technologies 🚀

🚀 Tech Startups Spark IPO Revival Amid Market Volatility — AI data center firm CoreWeave is eyeing a $4B raise at a $35B+ valuation, with Klarna also planning a $1B IPO. Bankers hope these high-profile listings will revive a quiet IPO market, but shaky conditions could keep 2025 subdued if they falter. Read more about it here.

📈 ASML: The Backbone of AI Chips — Tucked away in the Netherlands, ASML builds the world’s only machines capable of making the most advanced AI chips. Giants like TSMC and Intel depend on its $350M EUV systems. While rivals race to catch up, ASML’s decades-long lead remains firm. Dive into the story here.
 
 🛡️ Google’s biggest acquisition — In its biggest deal ever, Google is acquiring cloud cybersecurity startup Wiz in a $32B all-cash transaction. Wiz, used by half of the Fortune 100, is on track to hit $1B in recurring revenue. The move marks Google’s boldest attempt yet to challenge Microsoft in cybersecurity. The deal is expected to close in 2026, pending regulatory review. Learn more about it here.

🎧 What We’ve Been Listening To:

🎙️ FT Tech Tonic, “Will AI Ever Make Money?” — Billions have poured into generative AI, but where’s the return? FT’s Madhumita Murgia explores the search for AI’s killer app and how it’s really being used at work. Listen here.
 
 🎙️More or Less, Silicon Unscripted — Sam Lessin and friends break down the month in tech: Waymo’s expansion, Oracle’s TikTok play, and what AI means for software development. Tune in here.
 
 🎙️ 20VC: Andrew Feldman (CEO, Cerebras) — Feldman talks AI’s future, why inference costs are rising, and why NVIDIA shouldn’t stay on top forever. Global tech rivalry and U.S. policy also take center stage. Hear it here.

Sustainability 🌍

🌍 The nEU Deal on the Bloc — The EU is investing €1.4B in eleven major hydrogen and electrification projects, from green steel to EV batteries. Each is backed by signed offtake deals, ensuring buyers from day one. The goal: derisk scale-up, draw private capital, and build Europe’s net-zero industrial base. Learn more here.
 
 💨 France Strikes (Hydrogen) Gold — A massive natural hydrogen deposit in Lorraine could be the world’s largest, with over 250M tons of clean energy potential. The discovery is reigniting interest in “gold hydrogen” as a scalable, carbon-free source. Startup GeoLith aims to begin extraction by 2030. Read more here.
 
 🔥 Transformer Fire Grounds Heathrow Flights — The transformer fire that grounded flights at Heathrow isn’t an isolated event — it’s a symptom of a global shortage affecting critical grid hardware. With demand soaring and production lagging, the transformer crunch may soon hit closer to home. Read more here.

Blockchain & Crypto 💸

⚖️ Regulation

• The SEC clarified that proof-of-work mining and mining pool activities are not considered securities offerings.
• OCC clarifies that banks may engage in certain cryptocurrency activities.
• Senate Banking Committee advances stablecoin bill with bipartisan support.
• SEC delays Dogecoin, XRP ETF filings pending Paul Atkins’ confirmation.
• Trump signs order to establish strategic bitcoin reserve.
• SEC Crypto Task Force to Host Roundtable on Security Status.

🏦 Financial Institutions

• Kraken acquires NinjaTrader, the leading US retail futures trading platform for $1.5B.
• Coinbase launches Verified Pools, a tool for institutions to access DeFi in a permissioned and compliant way.
• Robinhood partners with Kalshi to offer in-app prediction markets access.
• Moonpay acquires Iron to compete with Stripe on crypto payments.
• Kraken is getting ready to IPO in 2026.

🔥 Top Stories

• CME announced first trades of Solana futures.
• Bitwise partners with Maple Finance to offer institutions access to DeFi and onchain credit.

🔎 Research
 
 📄 Multicoin releases research and valuation reports on Jito Network.
 
 📄Paradigm conducted a survey on Traditional Finance professionals and more than two-thirds are currently looking at DeFi.

Podcasts & Videos

🎙️ Blockworks discussed the impact of Strategic Bitcoin Reserve.
 
 📹 Bankless invited Dragonfly’s Haseeb Qureshi to discuss Trump’s crypto impact.