Thursday 5 December 2019 4:35 am

Society doesn’t need any more unicorns

In 2016, an American healthtech startup named Theranos completed what would be its final funding round, raising a jaw dropping $700m in investment. 

Just two years later, the company collapsed after a sensational scandal. 

The story of Theranos is bizarre. At one point, its paper valuation exceeded $9bn, and when the scandal broke, its founder Elizabeth Holmes went from being worth $4.7bn to almost nothing overnight. 

The problem? The cutting-edge technology that Theranos promised would revolutionise blood testing didn’t work. One honest worker described the tech as no more sophisticated than a school science project. 


How is it possible that some of the most respected investors and venture capitalists in the world were fooled to the tune of hundreds of millions of dollars by a student straight out of college and her so-called “unicorn” company?  

Far from being mythical creatures, startups that are valued at over £1bn are now relatively common. Go back to January 2015, and there were just 82 companies that could be classed as unicorns. Now, according to TechCrunch, there are 484 members of the unicorn species. 

Sadly, this is not down to four of the most innovative years in technological history. Rather, it’s a reflection on the drastic impact that rapid-growth models are having on investment — a trend where great waves of finance now circle the globe hunting for unicorns. 

The need for VC funds to seek out unicorns is obvious. These are companies that can cover the losses and write-offs in a portfolio, while simultaneously multiplying the value of the fund. 

Yet, those who remember the dot.com bubble of the late nineties should not be alone in viewing the huge rise of new companies valued above £1bn as a clear sign of something troubling within the market. 

Theranos is a dramatic cautionary tale in its own right, but it is also a symptom of a model that is broken to its very core. 

This is a model where a few select companies attract mountains of private capital, while 95 per cent of VC-backed firms are not profitable and at least 75 per cent fail, never to return any cash to investors. 


Unicorns instead represent a bet. They are a financial game played behind the smoke and mirrors of the investment industry. Often, they fail to live up to expectations. The recent rejection of WeWork by public capital is a clear reflection of the issues of over-valuation in the private arena.  

The aim of unicorns is to swell in size from private capital and then challenge existing markets. They do so by being disruptive — a term that is now used positively. They play the game aggressively, ignore the rules, and undercut the market. 

They are rarely successful through doing real business and usually make huge losses, while their values still skyrocket. Uber’s instant success, for example, has subsequently become a battle for its licence with Transport for London, as the debate rages over passenger safety, choice, and the livelihoods of its drivers.  

The UK needs to invest in innovation again, not in disruption. Society doesn’t need any more unicorns; it needs robust, stable-growth companies that can develop new ideas to tackle our complex problems while contributing to the economy.

An environment that fosters unicorns doesn’t provide that.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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