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Decline of the Unicorns (A Startup Tale)

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This post has been republished in its entirety from its original source,

In advance of his upcoming course, ‘How to Finance and Grow Your Startup – Without VC,’ set to start 12 April 2016, London Business School’s blog recently spoke with Management Practice in Marketing and Entrepreneurship Professor John Mullins to gain insight into why we are starting to see a sharp decline in the value of so-called “unicorn” start-ups.

Mullins explained at a recent Regent’s Park campus event that a combination of hysterical marketing, excessive funding, and untenable appraisals have caused the so-called unicorns—businesses valued at more than $1 billion—to go extinct. Hence the term “unicorpse.”

Mullins cites social messaging app Snapchat and online marketplace app Living Social as two prime examples of the “unicorpse” phenomenon. “Venture capitalists were enamored with [Living Social’s] ability to support local businesses through daily deals,” Mullins explains to the London Business School blog. “The company explored going public…but Living Social never filed for an initial public offering and its workforce [fell] from some 4,500 at its peak in 2011 to around 800 today.” Living Social’s more imposing nemesis Groupon eventually went public to the morose tune of an 85% IPO discount.

Mullins hopes to use the unicorn/unicorpse phenomenon as a case study to debunk the notion that budding entrepreneurs need only seek out venture capitalists as their sole fund-raising tactic. He explains that the behavior of doing so is motivated by a myth the venture capital community perpetuated due in part to the overwhelming value this method has generated in the past.

“Taking the time to find the right type of capital to match the specific needs of your company can be a much better idea,” Mullins elaborates in the London Business School blog. Customer funding, Mullins argues in his 2014 book The Customer-Funded Business (Wiley), is a more stable yet highly misunderstood alternative to venture capital funding. Richard Branson, Bill Gates, and Michael Dell all know the reality, Mullins posits. “It’s about time entrepreneurs started to question how appropriate VC funding is for their business and look to alternatives, like their customers, instead.” Otherwise we’ll have mass extinction to look forward to.