The (Very Contradictory) Year in Unicorns

The cloud storage company went public at a market cap of $1.67 billion, which was $730 million lower than private investors had previously assigned.

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Stewart Butterfield, CEO and founder of collaboration startup Slack, on the importance of getting a $1 billion valuation: "One billion is better than $800 million because it's the psychological threshold for potential customers, employees, and the press."

Alan Patricof, founder of Greycroft Partners, on the struggles unicorn startups may face: "At some point all of these companies will be valued on a multiple of [profits]. If the IPO market goes away, or for any reason there's a blip in the outlook, people could be left holding a lot of inventory they wish they didn't have."

Jason Green, a venture capitalist with Emergence Capital Partners, coins the term "decacorns," referring to startups valued at $10 billion or more.

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At the annual South by Southwest technology festival, investor Bill Gurley spoke about dangerous attitudes at startups and venture firms: "There is no fear in Silicon Valley right now. A complete absence of fear."

Meanwhile, Goldman Sachs invades SXSW by offering friendship bracelets to tech startups.

Entrepreneur James Clark coins the term "unicorpse"for doomed unicorn companies.

Startups demand "one-on-one" deals, or $100 million investments on $1 billion valuations. In less frothy times, a startup would have asked for $100 million at a valuation of $500 million.

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So far there's Etsy, Box, a handful of biotechs, and not much else.

The Lyft-Uber ride-sharing rivalry was tense all year. Chris Sacca, an investor in Uber, fired shots, calling Icahn's $100 million investment in Lyft "a big mistake."

"I think there are naive investors with no discipline, throwing out term sheets at nine figures right now, with no diligence," he said in an interview with Bloomberg TV.

The lack of IPOs for billion-dollar companies only means the growth happens in private markets, which is good for private market investors like venture capitalists, the firm argued to its investors.

The fitness tracking company's shares jumped 50% on its first day of trading and remain above their IPO price.

The room rental company raised $1.5 billion, and added another $100 million to the round a few months later.

More than 100 startups raised funding rounds of $100 million or higher in the first half of the year. Venture funding in the US was on track to top $70 billion in 2015, beating last year's already-high $56.4 billion.

Have we hit peak unicorn yet?

At least six companies on the newspaper's list--ZenPayroll (now known as Gusto), Thumbtack, Okta, HelloFresh, Ele.me, Avant have since joined the billion-dollar club.

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It calls into question the sustainability of the entire ecosystem of "Uber for X" startups that have applied Uber's business model to other industries.

They're circling potential failures like vultures and hoping their portfolio companies can snap up talent on the cheap.

And some investors are feeling defensive. Vinod Khosla retorts, "Who cares whether they're overvalued or not?" in a tense on-stage interview.

This CB Insights chart shows just how crowded the unicorn club has become.

As unicorns proliferate, a class of businesses that cater to their specialized needs thrives, from artisanal office furniture and gourmet catering to recruiting services. TaskUs, a startup that provides outsourcing services to venture-backed startups, raised its venture funding of its own. WeWork, which rents office space to startups (and other small businesses), is a startup unicorn itself.

Startups serving other startups is a funny enough concept that the New Yorker made it into a cartoon.

Uber, Lyft and other highly valued startups that rely on contract workers face regulatory scrutiny.

Fortune's Stephen Gandel calculates that it could cost Uber $4.1 billion to convert all of its drivers to full employees.

Fortune counts 59 new unicorns for the year, but only three IPOs.

Getting kudos for a large fundraise is "like congratulating someone for taking on their mortgage," Qualtrics CEO Ryan Smith said at Fortune's Brainstorm Tech conference.

Venture Capitalist Michael Moritz argues that many unicorns are "subprime unicorns" -- not worth $1 billion. Prominent investors Brad Feld, Aileen Lee, Fred Wilson, Mark Suster and others chime in, predicting difficulty ahead. The VC warnings feel paradoxical--everyone believes a correction is coming, but no one believes their own companies are in danger. It's the "everyone but me" correction.

Fortune calculates that if all 90 of the U.S.-based unicorns went public, IPO investors would have to buy $131 billion worth of newly issued shares. It'll be a stretch: Last year, only 22 tech companies went public, raising just $7.6 billion. The market for all IPOs this year so far is only $35 billion, down from the $56 billion average over the last 20 years.

Meanwhile the Wall Street Journal reports that IPO investors are have lost a median of 13% this year, and that tech companies made up just 14% of all U.S. IPOs this year, the lowest since the mid-90s.

"All I see is wistful sadness, like children at the end of summer vacation. All anyone really knows for sure is that hard work and more than a little uncertainty lies ahead," writes Fortune's Dan Primack.

In the dotcom bubble, private equity firms dipped down into the startup investing game, only to retreat when the market fell apart. They're at it again--KKR, for example, is raising a growth equity investment fund.

The payments company priced its IPO at $2.9 billion, far below the value of its last private round of funding of $6 billion. Despite strong first-day gains, Square stock has remained below the $6 billion mark. Because of its low IPO price, the company's later stage investors exercised "ratchet" provisions, which diluted earlier investors and employees in order to make the late stage investors whole.

The year closes with four tech unicorn IPOs: Pure Storage, Box, Square and Atlassian. (Two other startups that went public, Etsy and Fitbit, were not worth $1 billion while private.)

The mutual fund lowered the book value of its stakes in companies like Snapchat, Zenefits, Blue Bottle Coffee and Dataminr, which signaled Fidelity had less confidence in its investments. The markdown set off a wave of negative press for the private companies that had previously controlled the narrative around their growth. Funds managed by The Hartford and T. Rowe Price did the same.

In aggregate, the reports paint an ugly picture at many of the unicorns: Missed financial targets by Zenefits, a questions about a the business model at Snapchat, a cash crunch at Jet, an executive exodus at Rent the Runway. Dropbox faces doubts about its revenue potential. Theranos is losing business deals. And don't forget WeWork's highly risky real estate deals, and unrealized revenue projections at Lyft. Flipboard failed to find a buyer. Square priced its IPO underwater. Zirtual and Homejoy--not unicorns, but highly valued and highly funded all the same--abruptly shut down."

The accusations of fraud, impropriety are probably nonsense. Instead, People working very hard to try and will something new in reality.

-- Josh Elman (@joshelman) October 16, 2015

With each critical report on venture-backed startups, investors have taken to Twitter to defend the startups in question, even when they're not direct investors. Above, investor Josh Elman dismisses parts of a lengthy Wall Street Journal investigation of $9 billion blood testing startup Theranos as "probably nonsense."

Fidelity marks up its stakes in Snapchat and Dropbox. Got whiplash yet?

According to widespread reports, the world's most valuable privately held startup is now worth $62.5 billion. Notably, Uber's latest round of funding contains an investment from Tiger Global. That means Uber now shares an investor with rival Lyft, which is incredibly rare for any competing startups, let alone a rivalry as storied as this one.

Meanwhile, Lyft partnered with a spate of on-demand ride services from around the world, forming "a global anti-Uber alliance," a possible signal that Lyft will not pursue its own international expansion.

Almost all of the startup founders surveyed by First Round Capital say they expect it to be harder for them to raise funding next year. Three quarters of them believe we're now in a tech bubble.

WSJ reports that flash sales site Gilt Groupe will sell for around $250 million. The company, once valued at more than $1 billion, has raised $280 million in venture capital.

Meanwhile fantasy sports betting startups FanDuel and DraftKings are banned in New York and face a potential ban in other states, including Illinois.

Unicorn Tears-themed gear, including booze, purses, water, and vape-able e-juice becomes a hot holiday gift (in the Fortune offices, at least).

Startup employees, according to Bloomberg, or Wired, or the New York Times.

Not every unicorn is struggling. Collaboration software startup Slack, whose CEO we quoted at the start of this timeline, has spent the year amassing fame and glory. The company capped off 2015 with the announcement of an $80 million investment fund to back companies that build on its platform.

In other words, Slack has so much cash it is now spawning its own startups. It's the perfect example of a saying venture investors like to repeat: When the bubble bursts, there will be "haves" and "have-nots."

Becoming a unicorn, it turns out, was the easy part.