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From unicorns to unicorpses: Why billion-dollar startups and even VC firms keep imploding

The Silicon Valley funding pipeline is under pressure like never before.


BY JESSICA MATHEWS


In its prime, the Seattle-based freight network company Convoy was one of tech’s esteemed startup success stories.


Two Amazon veterans set off on their own in 2015 to build a platform that would connect shippers with carriers who had extra, unfilled space on their tractor trailers—making supply chains more efficient and reducing emissions. Flush with more than $1 billion in equity funding and debt it had accumulated over the years from some of the tech industry’s most prominent investors, entrepreneurs, climate activists, and lenders, Convoy had at one point hired 1,300 employees and built out a network of more than 400,000 trucks across the country.


By 2022, Convoy had started to dabble in a wide array of business lines outside its initial purview: a fintech offering for quick payments; a fuel card for discounts on diesel; a trailer-rental service. By the end of that year, Convoy’s gross margin had grown to a respectable 18%, according to a document seen by Fortune. But its hefty fixed expenses, including steep engineering and product team costs and an expensive lease in Seattle, were weighing down its financials, according to someone close to the company. Those expenses kept Convoy from turning a net profit.


Three years ago, that may not have been a problem. But the market had turned. Last October, Convoy became one of many casualties of a painful reset within the private markets. Just 18 months away from a fresh $410 million cash infusion from a Series E round and line of credit, Convoy suddenly laid off nearly everyone on its staff, shut down its core business, and, shortly after, raffled off its technology platform to another freight startup. In a memo to employees that was obtained by GeekWire, its CEO, Dan Lewis, said Convoy had hit a “perfect storm”: a collapse in the freight market, paired with a “dramatic monetary tightening” that “dampened investment appetite and shrunk flows into unprofitable late stage private companies.”


Convoy’s assets are now in foreclosure, and it is in litigation with employees who say they didn’t get paid. Its investors—including Alphabet’s growth investing arm CapitalG; Greylock Partners; Y Combinator’s growth stage fund; Amazon founder Jeff Bezos; Salesforce CEO Marc Benioff; and Al Gore’s climate fund Generation Investment Management, to name a few—lost the entirety of their investment, according to The Information. Convoy, whose investors determined it was worth a heaping $3.8 billion as recently as April 2022, is now worth nothing at all.


The world of startups is well-accustomed to failure: Approximately nine in 10 shut down. But those failures rarely attract the attention of the broader public. They tend to happen early in a startup’s life—when the people who run it are still in trial-and-error mode. As a company gets bigger and achieves enticing revenue growth, it gets more love from some of the thousands of thick-pocketed venture capital firms that write checks so companies can scale quickly. As those investors pour in more and more capital, failures become less frequent.


Or at least they used to. Since the first quarter of 2022, everything has changed. Macroeconomic forces have refashioned every link in the chain of the startup ecosystem. Those changes are now rippling through private markets in what has turned into a reckoning for startups—and especially for unicorns, the privately funded companies valued at more than $1 billion that are Silicon Valley’s most elite and prized darlings.


“It’s one thing to fail when you’re a small company and you fail to get product-market fit,” says Geoff Love, head of venture capital at Wellcome Trust, which has invested in several venture funds, including those at Accel and Venrock. “It’s quite something else to fail when you are at a valuation in the many billions and have raised hundreds of millions of capital. That’s awful.”


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  • Language: English
  • Special Attributes: Collector's Edition, Limited Edition
  • Publisher: FORTUNE
  • Topic: THE AGE OF UNICORPSES
  • Country/Region of Manufacture: United States
  • Subject: Business, News, General Interest
  • Year Printed: 2024
  • ISBN: 073361100931

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