How can employees assess if their unicorn startup is truly successful?

Employees should look beyond fundraising announcements and focus on core metrics like revenue growth (ideally over $100 million). They should also check product analytics to see if users are engaged, retain their subscriptions, and actively use the product.

What are the signs that a unicorn startup might be failing internally?

Look for signs of disengaged or incompetent senior management, a general 'malaise' among employees, and a lack of meaningful work. If talented employees are leaving and others are just doing 'make-work' to avoid layoffs, it indicates potential trouble.

Is it a good idea to move from a late-stage unicorn to an earlier-stage company?

Yes, it can be a smart move. You gain more experience, potentially more responsibility and equity, and could join a company with a better valuation relative to its revenue. This can be a more advantageous long-term career decision, even if it seems counterintuitive.

How many unicorn startups are expected to go public successfully?

It's estimated that only about a third of the roughly 1,400 unicorns are likely to go public successfully. The majority are unlikely to achieve a successful IPO, meaning employees often bear the brunt of the downturn.

Should I consider staying at a unicorn if its metrics, founders, and colleagues are excellent?

Yes, if the core metrics are excellent, the founders are highly focused, and your colleagues are smart and impressive, it's often a good sign to stay for a long time. Companies like Google and Facebook in their prime exemplified this stability.

Key Moments

Should You Quit Your Job At A Unicorn?

Y Combinator

Science & Technology5 min read14 min video

Oct 19, 2023|51,261 views|918|41

YC Y Combinator yt:cc=on

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Key Moments

TL;DR

Most unicorns (2/3rds) will fail, leaving employees with worthless stock options and facing acquisition buyouts that may not include their jobs.

Key Insights

An optimistic estimate suggests only one-third of the 1400 existing unicorns will go public successfully, meaning two-thirds are likely to fail.

Employees who joined late-stage unicorns will likely have stock options with strike prices tied to the high valuations, making them 'underwater' if the company is sold for less or fails.

Companies with less than $50 million in revenue, despite being 'unicorns,' should raise questions about product-market fit, retention, and pricing power.

For employees, analyzing customer engagement and retention through product analytics is a more reliable indicator of a company's health than media hype or delayed fundraising announcements.

Moving to an earlier-stage company can be a strategic move, potentially offering more responsibility, greater equity upside, and better-valued options compared to a late-stage unicorn.

A key indicator of a struggling unicorn is senior management appearing 'checked out' or disconnected from the company's reality, often masked by optimistic All-Hands messages.

The grim reality for most unicorns and their employees

With approximately 1400 'unicorns' (startups valued at $1 billion or more) in existence, the odds of all of them achieving successful IPOs are slim. An optimistic assessment suggests only about a third might succeed, leaving two-thirds to fail or undergo acquisitions. This failure disproportionately impacts employees, who often bear the brunt of the consequences. A primary concern for employees, particularly those who joined late-stage companies, is their stock options. These options typically have a strike price tied to the company's last high valuation. If a company is acquired for less than its valuation or fails outright, these options are likely 'underwater,' meaning their value is less than the price to exercise them, rendering them worthless. Furthermore, acquisitions often lead to layoffs or require employees to reapply for their jobs, potentially landing them at the very large tech companies they initially sought to escape.

Revenue as a critical indicator of true valuation

When assessing the health of a late-stage startup, revenue is a more reliable metric than its valuation. Companies generating $100 million or more in annual revenue can reasonably be considered strong unicorns. However, for companies valued as unicorns with less than $50 million in revenue, employees should critically examine the product's viability. Key questions to consider include whether users genuinely like the product, what the customer retention rates look like, if the company is charging appropriately for its value, and if true product-market fit exists. While asking such questions might be unpopular with management, they are crucial for understanding the company's fundamental health. The most direct way to gauge this is by observing customer behavior: are they actively using the product, renewing subscriptions, and continuing to engage long-term?

Why external signals like fundraising can be misleading

Relying on external signals such as fundraising rounds or media coverage to judge a company's success can be deceptive. Companies may struggle financially but still manage to raise additional capital. A common tactic involves announcing a fundraising round that occurred months or even a year prior, creating the false impression of recent funding. Therefore, using fundraising announcements as the sole reliable signal for a company's status is ill-advised. Instead, employees have a unique advantage: direct access to internal information. Product analytics, in particular, offer a clear view of user engagement, which is a leading indicator of a product's success and a company's long-term prospects.

The counterintuitive appeal of earlier-stage companies

For employees seeking growth and opportunity, now might be an opportune time to consider moving to an earlier-stage startup, even if it means leaving a unicorn. Such a move can be attractive because the equity in an earlier-stage company is less likely to be overvalued, offering greater potential for upside. Additionally, employees can often secure more responsibility and thus more equity. By applying the same critical evaluation used for unicorns, one can compare opportunities and find an earlier-stage company that might actually be performing better fundamentally. While friends might question leaving a unicorn for a smaller entity, history often shows that seemingly 'dumb' moves at the time can prove to be smart long-term decisions.

Internal red flags: Management and employee engagement

A significant internal indicator of a struggling unicorn is the state of its senior management and overall employee engagement. If founders or senior leaders appear disengaged, distant, or out of touch with the company's realities—perhaps making claims in All-Hands meetings that contradict observable facts—it's a major red flag. This detachment can be a coping mechanism when metrics are poor. Employees should also assess their colleagues: do they seem busy with meaningful work, or are they engaged in 'make-work' to avoid layoffs? When talented employees begin to leave, and a sense of malaise sets in, it signals that the company may be in decline, even if management tries to maintain a facade of success.

Strategic considerations and avoiding constant job hopping

While reassessing one's position is crucial, a pattern of frequent job hopping—moving to a new unicorn every 12-18 months—is generally detrimental to career growth and earning potential. Instead, if a company demonstrates excellent metrics, focused founders, and impressive colleagues, staying long-term can be a highly rewarding strategy, mirroring the success of companies like Google and Facebook. The decision to stay or leave should be based on rigorous, first-principles analysis of data, customer behavior, and internal dynamics, rather than hype or external opinions. Ultimately, employees possess the most relevant information to make informed career choices within their own companies.

Mentioned in This Episode

●Software & Apps

●Companies

●Concepts

Evaluating a Unicorn Job

Practical takeaways from this episode

Do This

Analyze company revenue growth (ideally $100M+).

Check user engagement and retention data.

Assess if the company can charge more for its product.

Look for signs of product-market fit.

Observe if senior management and founders are engaged and competent.

Ensure colleagues are busy with important work and are talented.

Consider moving to an earlier-stage company for more responsibility and equity.

Perform first-principles analysis based on data, not hype.

If metrics, founders, and colleagues are excellent, consider staying, especially in stable companies like Google or Facebook.

Avoid This

Don't rely on fundraising announcements as the sole indicator of success.

Don't assume investor backing guarantees company success.

Don't follow press or social media memes for company performance insights.

Avoid job hopping every 12-18 months; focus on building expertise.

Don't ignore signs of management disengagement or a company 'malaise'.

Don't dismiss opportunities at earlier-stage companies as 'stupid' without analysis.

Don't ignore the possibility of your options being underwater.

Don't assume a unicorn label guarantees a successful IPO or acquisition payout.

Unicorn Revenue Benchmarks for Employee Evaluation

Data extracted from this episode

Revenue Range	Indicator	Implication
> $100M	Reasonable Unicorn Status	Company may be performing well.
$50M - $100M	Potential Unicorn Status	Requires closer examination of user engagement and product-market fit.
< $50M	Questionable Unicorn Status	Strongly signals need to assess user interest, retention, and pricing power.

Common Questions

The primary risks include your stock options being underwater due to high strike prices tied to inflated valuations. Additionally, if the company is acquired, you may have to reapply for your job or end up at a large tech company you initially avoided.