At the 2024 All-In Podcast Summit, Thomas Laffont, co-founder of Coatue, laid out a clear and data-driven look into the current state of the unicorn economy and venture capital. The talk was focused on the significant downturn in IPO activity, venture funding, and the liquidity crisis faced by venture capital firms, showing just how turbulent the startup ecosystem has become post-2021. ### The Slowdown in Funding and Liquidity Venture funding has seen a stark decline since its 2021 peak. In fact, according to Laffont, the most recent unicorns (those minted between 2021-2022) are struggling to find late-stage capital. This "bubble cohort" is facing an uphill battle, as fresh funding has dried up, and many of these companies are unable to exit through IPOs or mergers. Notably, over 1,400 private unicorns are now "stuck" in the market, creating a significant backlog. The graph titled _"Most Recent Unicorn Cohorts Falling Behind Most"_ starkly illustrated that many of these companies are falling short on funding rounds, IPO opportunities, or mergers, which is reshaping investor expectations. On the liquidity front, Laffont shared that VC firms are now returning less capital to their investors than they are raising. A graph labeled _"VC Cash Flows Are the Most Negative Ever"_ showed that venture funds are currently underwater, making it harder for funds to generate liquidity. Startups are taking longer to exit, and the IPO market is nearly frozen for the time being. With fewer than 100 tech IPOs since 2020, founders who once looked to IPOs as the ultimate exit strategy now face an uphill battle. ### IPOs and M&A: Exit Strategies are Drying Up Since 2021, the volume of tech IPOs has dropped off a cliff. Laffont emphasized that the days of quick IPO exits are over. From 2020 to 2024, fewer than 100 tech companies went public, many of which underperformed market expectations. A graph titled _"Exits Remain Depressed"_ visually demonstrated this steep decline in IPOs and M&As. This drying up of exit options has left many unicorns, particularly those that thrived during the 2021 tech bubble, stranded with limited options. Adding to this problem is the rise of regulatory scrutiny, particularly from the FTC. Under current leadership, the FTC has aggressively blocked mergers and acquisitions, making it even harder for startups to exit through M&A. In fact, a significant drop in tech acquisitions has rippled through the venture ecosystem. Laffont noted that the absence of these exits is leaving founders with few alternatives. For startups, particularly in AI and biotech, this has stifled growth, as being acquired was once the most common path to scale. ### Bridge Rounds and Prolonged Fundraising Cycles Another alarming trend is the rise of bridge rounds, where companies raise small amounts of capital to survive while waiting for larger funding rounds or an exit opportunity. According to Laffont, bridge rounds have surged over the past 18 months as startups scramble for cash. The graph _"Prolonged Fundraising Cycles and Bridge Rounds Increase"_ demonstrated the sharp increase in such rounds as startups delay larger fundraises. Founders who raised capital in the 2021 boom now face the reality of valuation resets, where the current market is demanding lower valuations and more stringent funding terms. This means that unicorns previously valued at $1 billion are now being re-evaluated under far less favorable market conditions. ### The Future of AI and the Darwinian Economy Despite the challenges, Laffont was bullish on AI’s potential to reshape the venture landscape. He pointed out that AI-driven companies like Nvidia and OpenAI are driving a new wave of innovation. The boom in AI infrastructure is expected to create a new generation of unicorns, but survival in this space will be Darwinian. As Laffont noted, the startups that can harness AI while maintaining financial discipline will thrive, while those that rely solely on growth without profitability will likely fail. In fact, the _"Triple Threat"_ framework Laffont outlined emphasized that future unicorns must excel in three areas: growth, profitability, and leveraging major trends like AI. Companies like Nvidia, which have seen exponential stock growth, serve as the new model for venture-backed firms, but only the most adaptable will survive this evolving landscape. ### So What? The state of the unicorn economy is fragile, and the days of easy exits through IPOs and acquisitions are over. Investors need to adjust to prolonged investment cycles, where profitability, rather than growth, is the main metric of success. Founders must be prepared for longer fundraising rounds, more intense scrutiny, and the possibility of down rounds or bridge rounds. Meanwhile, AI remains a bright spot in an otherwise challenging market, and those who capitalize on this trend while remaining financially disciplined could lead the next wave of unicorns. The future of venture capital will belong to those willing to adapt—both founders and investors.