Unicorns: now and then with Aileen Lee | E1887

Episode Summary

Executive Summary: Aileen Lee, founder of Cowboy Ventures, discusses her 2013 unicorn report and its 2023 update with Jason Calacanis. The conversation covers the shift from consumer to enterprise unicorns (from 80% to 80%), the explosion from 39 to 532 U.S.-based unicorns, capital efficiency dropping from 26x to 7x, founder demographics (older, more diverse, not just Stanford dropouts), and challenges in the current market like delayed exits (93% still private) and inflated valuations from the low interest rate era.

Main Topics: Unicorn landscape evolution (Priority: 5/5): The number of U.S. unicorns grew 14X from 39 in 2013 to 532 in 2023, with enterprise now dominating (80%) versus consumer (20% value), and sectors expanded from a handful to 19. Capital efficiency decline (Priority: 5/5): Enterprise capital efficiency fell from 26x to 7x (valuation over capital raised), meaning many unicorns currently valued below $1B in secondary markets (40% trading below). Founder demographics and biases (Priority: 4/5): Founders are now older (mid-30s typical), have different educational backgrounds (only 5% Stanford), and prior entrepreneurial experience matters more than dropping out of school. Market cycles and discipline (Priority: 4/5): Low interest rates led to inflated valuations, low governance, and capital inefficiency; the current downturn offers better discipline and learning opportunities for founders. Geographic shifts (Priority: 3/5): Silicon Valley's share of unicorns dropped from 70% to 45%, with New York (19%) and other cities like Denver, Austin, Boston gaining ground. Diversity and inclusion in VC (Priority: 3/5): Despite progress, 75% (now 65%) of venture firms still have no woman partner; organizations like Allraise aim to change this.

Key Arguments: Experiential learning through early entrepreneurship, even failures, builds critical skills: 'Getting your ass kicked is a precursor to kicking ass.' The explosion in unicorns was driven by low interest rates, cloud/mobile/AI enabling easier software adoption, and COVID-19 pushing digital transformation. Many unicorns today are 'paper corns'—inflated valuations that won't hold; 40% of unicorns trade below $1B in secondary markets and 93% remain private. The best time to invest is now, as 'the next vintages of venture should be better'—valuations are lower and discipline is returning. Founders need to be 'learning animals' and demonstrate hustle and ingenuity, especially in pre-product/pre-seed stages. Venture capital is fundamentally a relationship business, and the culture of transparency and honest feedback is crucial for long-term success.

Data Points: Unicorn count (2013): 39 - U.S.-based venture-backed tech companies worth over $1B Unicorn count (2023): 532 - 14X increase from 2013 Enterprise vs consumer unicorn value share: 80% enterprise, 20% consumer - Reversed from 2013 where consumer was 80% Enterprise capital efficiency: 7x - Down from 26x in 2013 Unicorns still private: 93% - Only 7% have exited (3% public, 4% acquired) Unicorns in San Francisco (2023): 45% - Down from 70% in 2013 Unicorns in New York (2023): 19% - Up from approximately 8% in 2013 Stanford founder share: 5% - Of companies studied in 2023, much lower than earlier era Female partner in VC firms (still none): 65% - Down from 75% but still majority all-male GP teams

Pivotal Quotes: "Getting your ass kicked is a precursor to kicking ass." — Aileen Lee: Emphasizing the importance of experience and failure in entrepreneurial development. "The people who control the big funds and manage most of the money in industries still pretty much look the same and tend to look for themselves and their successors." — Aileen Lee: Discussing persistent lack of diversity in venture capital leadership. "I am a little worried... founders, we do a lot of seed, right? And we're telling our founders to just be, a lot of the people who could do A's could also do B's and C's. And so they've gotten pretty conservative... I think it's creating a little bit of a gap in A." — Aileen Lee: Describing the Series A crunch as multi-stage firms wait for more de-risked opportunities.

Implications: The current market favors disciplined, capital-efficient entrepreneurs and attentive VCs. Valuations grounded in fundamentals create better long-term outcomes. The geographic and demographic democratization of startup creation means more opportunities for diverse founders. Investors and founders must learn from the 2021 excesses to build sustainable companies and ecosystems.