From what I know, most of the "unicorns" are neither profitable nor particularly modest with their spending. They are vulnerable to any sort of turn in investor sentiment, even if their revenue streams are real.
The key is that allegedly "overvalued" companies (like Uber say)are still under private investment which has a larger appetite for risk. Whereas in the last boom, most of the speculation were fueled by publicly traded tech stocks.
Edit: Grammar.
The buyout side of the PE market is leveraged, however, the investments in those investors' portfolios typically have big balance sheets to support the debt loads (and the interest payments).
https://en.wikipedia.org/wiki/Beta_%28finance%29
In this context, I a 'high beta investment' is likely to move with the market, ie) is dependent on some aspect of market performance. 'Beta capital' I think refers to using sources of capital that are likely to become more or less available depending on the market. I've never heard of capital sources being given beta values though, so I think this may be a finance/VC colloquialism rather than an actual calculated value.
Disclaimer: I am not a VC and may be totally wrong.
jkimmel explained what beta is. The Tech industry as a whole has a high beta, and the smaller loss making component (i.e unicorns) an even higher beta. I am using the term beta loosely here as most of the unicorns are not public so they don’t really have a true beta, but they do have a pseudo-beta. They are being funded by private equity funds in what are effectively private IPOs.
The problem is that private equity funds are a high beta asset class. In times of risk aversion investors pull their money out of high risk asset classes and put them into lower risk asset classes like large public companies and bonds. Relatively small changes in investor preferences can get amplified up the investment chain resulting in large swings in demand at the far end.
A hypothetical example might be 10% of investors pull their money out of private equity funds, the funds find that most of their money is locked up in illiquid assets like loss making high growth tech companies (i.e. unicorns). In order to return the 10% of capital requested they have to cut new investments by 50%. The unicorns find that they are not able to raise the money they need to expand at the pace they have been and so go on a crash program to achieving profitability. They lay off developers, cut back on outside services, and stop buying small start-ups. VCs and angel investors seeing this cut back on investing stop putting money into new firms further decreasing demand. All of this is not good if you are running (or wanting to start) a business based on rapid growth that needs lots of capital.
Small, early stage companies (say <100 employees, <250m valuation) that high profile investors are competing to get in on? If so, most of them are supposed to fail. The money is still small by systemic standards and so are the number of people affected. Volatility here is not dangerous, it's expected.
Or, are you talking about the Unicorns expected to go public any day now? The Ubers and AirBnBs? Thee are also kind of retrospectively Unicorns at this stage. If these guys go under, that's a problem. But, these guys aren't rely reliant on investor sentiment.
A start-up that's worth over $1B
Google didn't, but banner ads were around back then, and they were one of the main ways of making money off the Internet until the market bottomed out. DoubleClick was a pretty major player for years before Google bought them.
I remember lots of websites saying they suddenly had problems affording their hosting around 2000 because their banner ads suddenly started paying them pennies when they used to provide at least enough cash to cover the server bills.
And that started the trend of websites accepting more and more intrusive ads, because they made more money than banner ads. Pop-ups became popular because pop-ups made money and banner ads didn't.
Do they deserve their $1Bn valuations? Probably not. But do they have enough customers to give them $100M-$1B revenues? Yes.
If these startups were public companies, they'd still be valued at at least half of what their last Crunchbase entry says
Once the discounts go and they have to start charging market rates, I wonder how it will affect their prices. At market rates, I don't think most customers here will choose them.
But then again, while a cab company operates at, say, 20% profit margin to break even, Uber can probably operate at 5% margin thanks to its scale.
Of course there's still a large chunk of revenue today that is just recycling VC money - e.g. apps advertising in other apps, or AWS which is a huge sink of VC money from other startups. But there is a lot more "end user" money coming in from real people and companies that purchase products and services online. Even if that flow stops, the internet today is less of a ponzi scheme as a whole.