Unable to raise capital at previous valuations but not yet facing full market correction, they exist in a limbo state—not dead, but not truly alive. According to our analysis, as many as 25-30% of the 1,200+ companies that achieved unicorn status may now be operating in this zombie state.

What’s most revealing, however, is that these struggles aren’t random. Clear patterns emerge when analyzing troubled unicorns across sectors, from quick commerce to enterprise software, from consumer apps to fintech. Understanding these patterns can help founders, investors, and employees identify warning signs before companies reach crisis points—and potentially guide rescue efforts for those already there.

Growth at All Costs: The Dominant Dysfunction

The most prevalent pattern among troubled unicorns is the relentless pursuit of growth without regard to unit economics. This approach was rational in an environment of nearly unlimited capital, where the next funding round was all but guaranteed for companies showing steep growth curves regardless of profitability.

The Blitzscaling Hangover

Companies embraced what Reid Hoffman termed “blitzscaling”—prioritizing speed over efficiency in the face of uncertainty. This strategy can work brilliantly when a company has found genuine product-market fit in a winner-take-most category. But for many unicorns, it created fundamentally unsustainable business models that now require painful restructuring.

Rapid international expansion offers a clear example of this dysfunction. Many unicorns pursued aggressive global growth before solidifying their business models in core markets. Food delivery companies simultaneously launched in dozens of cities; fintech startups pursued licenses in multiple countries; SaaS companies established international offices before reaching stability in their home markets.

This scattered focus often prevented companies from achieving depth in any single market, leaving them vulnerable to more focused competitors. When capital became constrained, they faced the difficult choice of either abandoning markets they’d invested heavily in entering or maintaining an unsustainably broad footprint.

The Customer Acquisition Cost Trap

Heavy discounting and massive marketing budgets created another common problem. Companies regularly spent $2-3 (sometimes much more) to acquire each dollar of new revenue, operating under the assumption that customer lifetime value would eventually justify these economics.

But in many cases, this value never materialized:

• Customer retention proved more challenging than projected models suggested
• Pricing power remained elusive, with users resistant to full-price offerings after being acquired with heavy incentives
• Competition drove up acquisition costs while simultaneously putting downward pressure on prices
• The viral growth and network effects promised in pitch decks failed to materialize at scale

Many unicorns now find themselves with customer acquisition costs that fundamentally break their business models, yet reducing marketing spend leads to immediate growth deceleration that threatens their narratives with investors.

Revenue Model Deficiencies: The Empty Promise

Perhaps the most surprising pattern among troubled unicorns is how many raised massive funding rounds without clearly articulated paths to sustainable revenue. The assumption—often explicit in pitch decks and board presentations—was that scale would eventually lead to monetization opportunities through some combination of:

• Future price increases once users were dependent on the service
• Cross-selling and upselling opportunities to an established user base
• Data monetization through advertising or insights
• Network effects creating defensible market positions that would enable profitable operations

Yet for many companies, these assumptions proved overly optimistic or simply wrong.

The Enterprise Pricing Fallacy

In enterprise software, many startups offered heavily subsidized products to win market share from incumbents, assuming they could increase prices substantially once customers were locked in. 

However, several factors made this difficult in practice:

1. Sophisticated procurement departments increasingly build pricing review triggers into contracts
2. Open-source alternatives provide leverage to customers resistant to price increases
3. Competition from other venture-backed companies creates constant downward pricing pressure
4. The stickiness of products was often overestimated, with switching costs lower than assumed

Companies like Matterport, which provides 3D digital twins of physical spaces, exemplify this challenge. After going public via SPAC at a nearly $3 billion valuation, the company has struggled to convert its freemium users to paying customers at the rate investors expected, leading to a more than 90% decline in its market value.

The Monetization Mirage

Consumer startups faced their own version of this problem, often relying on vague notions of future advertising revenue or data monetization that never materialized at the scale needed.

Social audio app Clubhouse provides a striking example. After raising at a reported $4 billion valuation in 2021, the company struggled to implement monetization features that users would embrace while maintaining the growth that justified its valuation. Its user base began declining even before it had established a sustainable revenue model.

For these companies, the path forward is particularly challenging. Having built their user bases on the premise of free services, introducing effective monetization often creates friction that accelerates user departure—creating a downward spiral of declining usage and revenue potential.

Market Fit Fallacies: Temporary Traction

Perhaps the most fundamental issue faced by struggling unicorns was a misalignment between their offerings and genuine market needs. Many founders and investors confused initial traction—often driven by novelty, subsidized pricing, or pandemic-specific behaviors—with product-market fit.

The Pandemic Distortion

The COVID-19 pandemic created particular distortions in market fit assessment. Companies in sectors like remote work, e-commerce, and digital entertainment saw explosive growth that many assumed would continue in a “new normal.”

The enterprise software space provides numerous examples. Companies like Hopin (virtual events) and Lattice (employee engagement) saw explosive growth during pandemic lockdowns, achieving unicorn status almost overnight. When the world reopened, their growth not only stalled but in some cases reversed, revealing that what seemed like product-market fit was actually just a temporary environmental circumstance.

The Innovation Versus Value Gap

Another common market fit fallacy was confusing technological innovation with value creation. Some unicorns built genuinely novel technologies but overestimated users’ willingness to adopt new behaviors or pay for marginal improvements over existing solutions.

The autonomous vehicle sector illustrates this challenge. Companies like Aurora and TuSimple achieved multi-billion valuations based on technological breakthroughs, only to see those valuations collapse as the timeline to widespread commercial deployment stretched far beyond initial projections.

The technology works—but the path to creating and capturing value has proven more complex than early valuations suggested.

The Adjacent Expansion Failure

Many unicorns achieved initial success with a core product, then assumed they could easily expand into adjacent markets, often overestimating how well their brands and capabilities would transfer.

Peloton’s struggles with expanding beyond its core bike product to treadmills and rowing machines demonstrates this pattern. What worked in one category did not seamlessly transfer to others, despite surface similarities.

Case Study: The Quick Commerce Collapse

The quick commerce sector—companies promising grocery and convenience item delivery in 15 minutes or less—epitomizes many of these patterns. Between 2020 and 2022, companies like Gopuff, Gorillas, Getir, Jokr, and Flink raised billions on the premise that consumers would pay premiums for convenience.

They spent aggressively on dark stores (small urban warehouses), rider subsidies, and marketing to show the growth metrics investors craved. Cities around the world suddenly found their streets filled with couriers in branded jackets rushing to deliver six-packs of beer and pints of ice cream in record time.

But fundamental unit economics never worked:

1. Density challenges: Even in dense urban areas, average order values remained too low relative to the fixed costs of fulfillment centers
2. Customer retention issues: After initial curiosity, many users reverted to traditional shopping patterns
3. Margin compression: Competition kept delivery fees artificially low while grocery margins were already thin
4. Operational complexity: Managing thousands of SKUs with short shelf lives created substantial waste

After achieving multi-billion valuations, several players have either shut down entirely (Jokr, Fridge No More) or dramatically scaled back operations (Gopuff, Gorillas). Others completed fire-sale mergers or slashed valuations by 60-90% in down rounds.

The sector demonstrates how companies can achieve impressive growth metrics while building fundamentally unsustainable businesses—a pattern repeated across many struggling unicorns.

Misleading Metrics: When KPIs Deceive

Across troubled unicorns, another consistent pattern emerges: reliance on metrics that showed impressive growth but masked underlying business weaknesses.

Gross Merchandise Value (GMV) Obsession

Marketplace and commerce companies often emphasized Gross Merchandise Value—the total value of goods sold through their platforms—rather than their actual revenue (typically a much smaller percentage of GMV) or contribution margins (smaller still).

This allowed companies to present dramatic growth numbers that obscured fundamentally challenging economics. A company facilitating $1 billion in transactions might capture only $100-150 million in revenue, with much of that immediately spent on marketing and incentives.

The DAU/MAU Shell Game

Consumer apps frequently highlighted Daily Active Users (DAU) and Monthly Active Users (MAU) growth without corresponding evidence these users could be monetized effectively.

Companies would showcase exponential user growth curves while relegating actual revenue to future projections or supplementary metrics. When monetization efforts began in earnest, they often created user friction that reversed the very growth metrics that had justified high valuations.

The Logo Collecting Strategy

Enterprise software unicorns sometimes pursued a “logo collecting” strategy—prioritizing acquiring recognizable customers over deal economics. This allowed them to create impressive customer slides for investor presentations, even if many of these deals were heavily discounted or even free pilots with uncertain conversion to paid contracts.

This approach delivered growth metrics that impressed investors but built customer bases with unrealistic expectations about pricing and value, creating challenges when companies later needed to establish sustainable economics.

The Common Thread: Capital as Strategy

When examining these patterns together, a common thread emerges: many unicorns substituted capital for business strategy. Rather than developing sustainable business models, they used abundant funding to:

• Subsidize unsustainable unit economics
• Enter markets without clear differentiation
• Acquire customers without paths to profitability
• Outspend competitors in winner-take-all battles
• Defer difficult decisions about focus and prioritization

This approach worked as long as capital remained abundant. When the funding environment changed, these companies faced existential challenges that couldn’t be solved by simply raising more money.

The result is our current landscape of zombie unicorns—companies valued for growth and potential rather than business fundamentals, now struggling to adapt to a world where capital is neither free nor unlimited.

Toward a New Approach

These patterns reveal a fundamental misalignment that developed in the startup ecosystem. Founders, investors, employees, and even customers were making decisions based on what we now recognize were unsustainable dynamics.

The good news is that identifying these patterns gives us a framework for both rescuing struggling unicorns and building more sustainable companies from the start.