Venture Capital Legend Says Trouble Lies Ahead for Some of the World's Hottest Startups

Being a highly-prized unicorn can be tough.

Why There Are 'Dark Clouds' Ahead for Unicorns

As growth slows in emerging markets and stock volatility picks up, there have been some questions about the future of so-called unicorns, or startups with valuations upwards of a billion dollars. 

Yesterday on Bloomberg TV, Alan Patricof, co-founder of venture capital firm Greycroft Partners, said there could be troubled times ahead for startups that have so far been much loved by flush investors. 

The funds have money. They are overflowing to a certain degree, and I have not heard of any fund not being able to invest because they're out of money. ... The money is there, the institutions have recognized that over a period of time venture capital is a higher-producing asset, the internal rates of return are better than they have in their traditional investments. 

The problem, according to Patricof, comes when startups try to monetize those lofty valuations and go public.

When these unicorns that have only one exit opportunity, which is to go public, when they get to a certain price, the number of potential buyers is very, very limited so they are going to be affected by the normal metrics that go along with a public company.

This is the stage when he sees things taking a negative turn, since investors tend to have extremely high expectations. 

I think they are going to be surprised when the market, all the things we've been talking about, when market comparable metrics hit, and when the first quarter you go public or the second quarter and you don't meet your targets and you don't have the kind of the extraordinary growth rates, investors are going to say, "Where's the beef?"

Patricof certainly isn't the only one to have brought this particular issue up. Marc Benioff, chief executive officer of Salesforce.com, said last month that startups putting a higher priority on valuations, instead of building their businesses, could be set for some struggles in the tougher market conditions.

In fact, when asked about Benioff's statement, Patricof responded, "Marc and I would agree, 100 percent."

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