ASPEN, COLO. — It was in the second half of 2015 when the weather began changing in the tech world.
Unicorns — the term of art for fast-growing, privately held companies with billion-dollar valuations, such as Uber or Boston's DraftKings — started to feel the chill of investors questioning whether they were actually worth all that. Government agencies and regulatory bodies began to take a closer look. Perhaps you've heard of Theranos, the blood-testing startup once valued at $9 billion that was delivering unreliable results to patients and whose chief executive was earlier this month banned from running any laboratories for two years by a federal agency.
This year, many investors, analysts, and journalists have started to predict which of the unicorns might spend too much money too fast trying to build enduring businesses — and end up instead as unicorpses.
At one point last week at the Fortune Brainstorm Tech conclave here, Adam Neumann, chief executive of the next-generation office and apartment operator WeWork, asked Fortune writer Andrew Nusca onstage whether he'd rescind his assessment of WeWork as a company to bet against. (Nusca made the prediction before WeWork, valued at about $16 billion and with two locations in Boston and a third in the works, laid off about 7 percent of its staff.) Nusca demurred.
Underneath all of the talk about "moonshots" — Silicon Valley-speak for ambitious endeavors — and "driving value" for customers, there was a tinge of anxiety at the Brainstorm conference, and a feeling that living up to high-altitude expectations was actually turning out to be a whole lot of work.
The unicorn phenomenon can seem frivolous and irrational, but it happened because of a belief that these companies might have a major effect on the way we work, travel, communicate, and play.
On my trip to Aspen, it was hard not to notice the shortage of Ubers in the mountain village; when cars were not available, which was most of the time, I had to relearn the habit of looking up the phone number for a local taxi company, having them tell me when they could send a cab over, and crossing my fingers that the driver would appear. You might not be able to afford a $1 million slopeside condo here, but you can rent one on Airbnb; chief executive Brian Chesky announced at the conference that more than 100 million people have used the site to book stays.
But much of Chesky's stage time at the conference focused on how the company is negotiating with individual cities over whether people who rent out rooms or homes on the site need to be registered as hoteliers and collect lodging taxes. (A proposal to tax Airbnb stays in Massachusetts was announced by the Senate last week.)
And Airbnb isn't alone is realizing that disrupting an established industry, like hotels, often requires wrangling with regulators. Jeff Fagnan is a venture capitalist at the firm Accomplice in Cambridge, an early investor in DraftKings, the fantasy sports site that lets players bet (and potentially win) real money by building teams of athletes who perform well in real-world games. Many states have questioned whether this is fantasy sports (as defined by federal legislation in 2006) or illegal gambling.
When his firm first invested, "We never thought of what the lobbying and litigating costs were going to be with DraftKings," Fagnan said. "Did we worry about the regulatory environment? Yes. But we thought it'd be as simple as, it'd get shut down or not. Not that you'd have to do state-by-state combat."
There was a lot of talk in Aspen about a "return to fundamentals" and a renewed "focus on profitability," in the words of Roger Lee, a partner at venture capital firm Battery Ventures. By contrast, over the past few years, "investors were funding growth above all else," said Megan Quinn of Spark Capital, another VC firm.
Even mutual fund firms like T. Rowe Price and Fidelity Investments decided to join in on the unicorn rodeo, putting their investors' money into companies like WeWork and SpaceX, hoping that new approaches to office space and aerospace might yield big returns.
While those mutual fund millions allowed the unicorns to put off an initial public offering, the capital also subjected them to the scrutiny of number-crunchers who pored over the private companies' quarterly reports — and occasionally wrote down their purported value, in public filings. "They wanted to see consistent, stable numbers from quarter to quarter, like you were a public company," says Dave Elkington, chief executive of InsideSales.com, a Utah software company. "They don't care about the founder's two-year vision. It is dangerous for private companies to take money from those kinds of investors."
All the media coverage about doomed unicorns makes it hard to maintain morale inside a startup where everyone is expected to work long hours. Bad press "makes people feel your company is going in the wrong direction," says Jason Robins, chief executive of DraftKings. While the shifting dynamics and expectations of the past year have felt "gentle relative to the 2008 or 2001 downturns, everyone felt it," Robins says.
But don't expect the cowboy entrepreneurs and investors of the tech industry to suddenly hang up their chaps and become CPAs. This is still a business where people are willing to put millions of dollars into far-out ideas like specs that will superimpose digital imagery onto the real-world (Magic Leap) or supersonic aircraft (Boom).
Everyone is in search of "exponential curves" — fast changes in technology, demand, or consumer behavior — "that have previously been unseen," in the words of venture capitalist Ann Miura-Ko of Floodgate Capital.
Sometimes what they see turns out to be a mirage, or it just isn't as significant as anyone expected. But tech sector success is based on betting on things, in the words of Jason Robins, "that are not obvious to everyone — things most people would say will never work." And there's some irrationality inherent in that; not every vision of the future can be spread-sheeted and due-diligenced.