Like the fictional animal, unicorn companies are supposed to be rare and magical.
Last month, the Wall Street Journal compiled its own “Billion-dollar club” – a listof 78 venture-backed private companies with valuations of $1 billion or more.
When a company hits a billion dollar valuation, most people assume the company is stable and on a clear path to sustainable success.
The companies we pays the most attention to are consumer-facing, low-margin companies that need to get people online and using their services without spending too much on customer acquisition.
To identify companies that could be in trouble, we first looked at companies whose employee base has stopped growing or started shrinking.
“So you look at some of these unicorn companies and you can see their employee count is kind of flat, or even maybe declining a lot or a little. And that’s a really bad sign because to IPO your company, you still have to begrowing pretty fast from a company perspective. Generally to grow revenue youhave to hire more people. It’s pretty uncommon to find some magical place where you can stop hiring people and your revenue still grows 100% year over year.”
The second major dead unicorn warning sign to look for: how are a company’s social media mentions trending? If mentions increase and web traffic from social sites increase, then a company may be spending more on marketing.
Looking at the data, we also found patterns of companies that could be in trouble.
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