Zombie unicorns are haunting Silicon Valley

FANTASTIC beasts roam Silicon Valley. Locals are familiar with the unicorn, a startup valued at more than US$1 billion; the centaur, worth US$100 million; and the decacorn, with a valuation of US$10 billion.

Lately, another creature has been stalking the land: the zombie unicorn, a company once worth more than US$1 billion, now a mere shadow of its former self. It is a prospect that keeps venture capitalists awake at night.

By May 2026, 332 of the 1,900 unicorns in a database maintained by Ilya Strebulaev of Stanford University had raised money at a valuation at or below their peak.

Of those, 212 were valued at under US$1 billion. As many as 383 had disclosed no new funding in the previous three years; 41 of these lost unicorn status.

As Strebulaev notes, data on startups is notoriously noisy. Some unicorns might have raised no money because they did not need it.

But others might be struggling to justify mythical valuations. It seems that a fair proportion of unicorns have joined the undead.

When unicorn-spotting was at its height, plenty of those startups had scant revenues and sketchy business plans. But low interest rates drove investors in search of better returns towards venture-capitalist funds.

In 2022, venture capitalists raised US$223 billion, said Pitchbook, a data provider. Interest rates have since risen, and fundraising has fallen to US$66 billion in 2025.

Some businesses seem to have been simply wildly overrated. Cameo, a video site where celebrities give personal greetings for a fee, was valued at US$1 billion in 2021.

It is now reckoned to be worth US$82 million.

The value of SonderMind, a platform for finding mental-health professionals, has plummeted from US$1.1 billion in 2021 to a mere US$7 million.

Unable to raise money at old valuations

More broadly, the fundraising downturn has punctured the ability of these unicorns to raise more money at their old valuations.

Startups typically aim to spend five to 10 years growing, before they list on the stock market or find a buyer.

Zombies and their backers may find it hard to do either. Venture-capitalist agreements often allow investors to veto public offerings if they believe they would do better to wait. 

In the past, the easiest option has often been to raise more from venture capitalists. But now, they are more interested in today’s hot companies than taking a chance on ageing ones, said Peter Cohan, a tech investor.

To convince them, startups often have to accept a cut to their valuation, among other unenviable terms.

Nearly half of the companies in Strebulaev’s database valued at less than their peak raised money in 2021. From late next year, their investors will start demanding results, reckons Pitchbook.

It expects net cuts in valuations of between US$500 billion and US$1 trillion, as companies reprice, scramble to find a buyer or go bust.

That is quite a cull. Pitchbook puts the total value of unicorns – below the 10 most valuable – at around US$5 trillion.

Falling valuations spell horror for venture capitalists. More recently launched funds have been returning markedly less money to investors than those of earlier vintages, said the World Economic Forum.

They have also underperformed the S&P 500 by a wide mark, particularly those that did not invest in a small club of artificial intelligence superstars, Cohan noted.

That will make investors even more reluctant to fund venture-capitalist companies outside the industry’s top ranks. Already, just 5 per cent of them produce 90 per cent of its profits.

Spooked venture capitalists are seeking answers. Some have shifted from conventional funds with predetermined lifespans to continuous ones that mix stakes in private companies with liquid holdings in public ones, allowing them to pay investors periodically.

Others have turned to the secondary market for shares in private companies, giving investors a way to cash out.

But both ideas work best for startups and venture capitalists that are already doing well. They are less suited to rescuing the walking dead.

Some venture capitalists hope that if this year’s giga initial public offerings of star AI companies are a success, public markets will become more welcoming to tech’s lesser lights.

It will surely take more than that to bring zombies back to life. ©2026 The Economist Newspaper Limited. All rights reserved