What Is A Zombie Unicorn Or Zombiecorn?
The term ‘zombiecorn’ or ‘zombie unicorn’ means a startup with a valuation of over $1 Bn that struggles to achieve sustainable growth or profitability after the funding runs out. Such unicorns have no product-market fit.
When Is A Startup Called A Zombiecorn?
Zombieicorn was coined in 2016 by venture capitalist Mike Maples Jr. for unicorns that are technically alive but are “not really living”. He said these companies are just shambling along, taking in money and not really producing anything.
When a startup achieves the coveted billion-dollar valuation but lacks the ability to generate sufficient revenue or have a sustainable revenue model, it becomes akin to a ‘zombie company’ that is barely surviving, therefore turning into a zombiecorn.
Several factors such as funding winter, outdated business models, focus on growth at all costs and others can lead to the rise of zombie unicorns or zombiecorns.
For instance, WeWork, which was once valued at $47 Bn, said in August 2023 that “substantial doubt exists about the company’s ability to continue as a going concern”. With the chances of the startup filing for a bankruptcy not ruled out, many have labelled it a zombie unicorn.
What Are The Risks Associated With A Zombiecorn?
Such unicorns can lead to market saturation and hinder healthy market dynamics by prioritising growth at all costs, leading to inflated valuations, misallocated resources, and market inefficiencies. These companies are often prone to layoffs and cost-cutting measures due to economic downturns or shifts in investor sentiment.
]A high valuation doesn’t guarantee the long-term success or viability of a startup. Chasing a high valuation often tends to stray the focus of founders from building sustainable business models, generating revenue, and achieving profitability, hence losing their credibility with investors and the market.
What Are The Characteristics Of A Zombiecorn?
Zombiecorns are loss-making startups with the valuation of a unicorn. Some of their key characteristics are:
- High Burn Rate: Spending cash faster than pace of revenue generation.
- Heavy dependence On Venture Capital Funding: These companies are non-profitable and, hence, rely heavily on venture capital for funding.
- Challenges In Scaling Business: Scaling is a major challenge as they don’t have a product-market fit.
- Customer Base Remains Stagnant: As the company has limited cash reserves, the expenditure on customer acquisition remains low. This translates into a stagnant customer base.