FANTASTIC BEASTS roam Silicon Valley. Locals are familiar with the unicorn, a startup valued at more than $1bn, the decacorn ($10bn) and even the hectocorn ($100bn). Lately, however, another creature has been stalking the land: the “zombie” unicorn, a firm once worth $1bn-plus but now a mere shadow of its former self. Their spread is keeping venture capitalists (VCs) awake at night.
By May 2026, 332 of the 1,900 unicorns in a database maintained by Ilya Strebulaev of Stanford University had raised money at a valuation at or below their peak (see chart). Of those, 212 were valued at under $1bn. As many as 383 had disclosed no new funding in the previous three years; 41 of these had lost unicorn status. As Mr Strebulaev points out, data on startups are notoriously noisy. Some unicorns may have raised no money because they did not need it. But others may be struggling to justify earlier mythical valuations. A growing number of unicorns appear to have joined the ranks of the undead.
When unicorn-spotting was at its height, plenty of those startups had scant revenue and sketchy business plans. Low interest rates encouraged investors searching for better returns to hand fistfuls of money to VC funds. In 2022 VCs raised a total of $223bn, according to Pitchbook, a data provider. Interest rates have since risen and fundraising has plunged, to a mere $66bn last year.
Some businesses seem simply to have been wildly overrated. Cameo, a video site where celebrities give personal greetings for a fee, was valued at $1bn in 2021 amid a pandemic-era surge in demand. Now it is reckoned to be worth $82m.
Even for unicorns whose businesses are on a surer footing, the fundraising downturn has punctured their ability to raise more money at their old valuations. Startups typically aim to spend five to ten years growing before listing on the stock market or finding a buyer. Zombies and their backers may find it hard to do either. VC agreements often allow investors to veto an initial public offering (IPO) if they believe they would do better to wait. Later investors who bought in at high valuations are especially incentivised to block an IPO that might value a startup at a lower amount than they did, in the hope that its prospects may later improve.
In the past the easiest option for startups has been to raise more from VCs. But now these investors are more interested in today’s buzzy AI firms than in taking a chance on ageing ones, says Peter Cohan, a tech investor. To persuade them to cough up, startups often have to accept a cut to their valuation, among other unenviable terms. Quora, an online question-and-answer service, was valued at $1.7bn in 2017. By 2024, it was raising money at a $500m valuation and seeking to pivot its business toward AI. “Our valuation is lower than our previous peak, but we are happy to finally be marked to this new market,” its boss wrote in a blog post.
Nearly half of the firms in Mr Strebulaev’s database that are now valued at less than their peak raised money in 2021. From late next year their investors will start needing to cash out, reckons PitchBook. It expects net cuts in valuations of between $500bn and $1trn as older startups reprice, scramble to find a buyer or go bust. That is quite a cull: PitchBook puts the total value of unicorns at $8.6trn, or $5trn once the ten most valuable are excluded.
Falling valuations spell horror for VCs. More recently launched funds have been returning markedly less money to investors than those of earlier vintages, according to research by the World Economic Forum. They have also underperformed the S&P 500 by a wide mark, particularly those that did not invest in a small club of artificial-intelligence superstars, says Mr Cohan. That will make backers like pension funds even more reluctant to fund VC firms outside the top ranks: already just 5% of them produce 90% of the industry’s profits.
Spooked VCs are experimenting with novel approaches. Some have shifted from conventional funds with predetermined lifespans to continuous ones that mix stakes in private companies with liquid holdings in public ones, allowing them to pay investors periodically. Others have turned to secondary markets for shares in private firms, which allow them to sell partial stakes, though most buyers are looking instead to get their hands on shares in the most in-demand startups.
Some VCs hope that if this year’s giga-IPOs of star AI companies are a success, public markets will become more welcoming to tech’s lesser lights. It may take more than that to bring the zombie unicorns back to life.