With great power comes great responsibility. The words of Ben Parker from the Spiderman movie will forever hold true. But even more relevant in this context is that, with great valuation comes great burden.

In law and philosophy, there is a concept called ‘Burden of Proof’. This concept requires a party in a dispute (or discourse) to provide sufficient evidence or warrant for their position. Simply put, the party has the responsibility of proving that their position is valid and true. In the startup business of raising unicorns, the ‘burden of proof’ lies on the startup to prove their worth – whether in the present or in the future. Either ways, being a unicorn is no guarantee of a smooth ride. If anything, it comes with its headaches.

Stewart Butterfield, co-founder and CEO of Slack – which is valued at $2.8 billion, told Fortune that crossing the $1 billion mark had a feel-good factor to it, that it makes a psychological difference because “one billion is better than $800 million [as] it’s the psychological threshold for potential customers, employees, and the press.” But what Stewart didn’t say was how difficult the unicorn tag has become for some of the startups.

Just last month, Square had to IPO at a valuation significantly less than private investors had given it. Dropbox is being asked to reduce its valuation if it must go public. Zenefits, an HR tech startup, lost half of its valuation after failing to meet up with sales goals and expectation. The almighty Snapchat has not been left untouched. Fidelity Investment, a  mutual fund that partook in Snapchat’s $500 million series F, “has quietly marked down the value of its stake in the company by about 25% in the most recent quarter.”

Seth Fiegerman of Mashable wrote, “The markdown means that Fidelity believes the value of its stake in Snapchat has fallen sharply… At the time of the Fidelity investment, Snapchat was said to be valued at a jaw-dropping $16 billion. Now it’s only worth $12 billion, at least in the eyes of Fidelity.”

The same valuations that serve as the source of joy for some unicorns (especially tech startups) is now becoming the pain in the ass as investors are said to be reassessing their positions. Derek Chu, a consumer VC at Menlo Ventures, said, “There’s just a lot of bad behavior going on. You have FOMO (fear of missing out) on the investor side, you have high cash burn on the startup side. Financing rounds are larger. Unicorn valuations have skyrocketed. Now more so than ever, a lot of flags are going up.”

For startups like Uber and Airbnb that are considered “truly innovative”, there is more confidence that they can go on to achieve the kind of success that Facebook has achieved. However, there are still strong factors that could negatively affect this. Both Uber and Airbnb are having to deal with regulation disputes and oppositions from many countries.

Uber, for example, deals with their drivers as contractors. This way, they keep cost at a minimum. But they are having a legal battle where it is being argued that the drivers should be considered employees and not contractors. If this ends up bad for Uber, their expenditure will skyrocket because they will have to start paying their drivers salaries, and you can trust investors to begin to reassess their positions.

With all said and done, it’s clear that it’s not ‘all so cool’ to be a unicorn.

Photo Credit: audrey_sel via Compfight cc

David Adeleke Author

Get the best African tech newsletters in your inbox