Most startups will never be unicorns–and that’s OK

There’s a wide gap between the haves and have-nots among entrepreneurs seeking venture capital, though it’s not one that’s getting a lot of attention right now. After all, it’s hard to pay attention to unfunded startups when Uber is living up to its namesake superlative, reportedly nearing a valuation of $50 billion (yes, with a “b”).

The ride-sharing service has become the leader of a big and showy pack of private companies that seem to get new VC money each time they sneeze, says inc. There are so many “unicorns”–startups valued at more than $1 billion–that now it’s acceptable to drop the very unfortunate new term “decacorn,” meaning startups worth more than $10 billion. There are currently 90 of the former, including nine of the latter, according to the Wall Street Journal.

As Slack co-founder and CEO Stewart Butterfield recently told the New York Times, “It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians.”

Not so much. (No offense to the pharaohs, who knew something about hoarding their wealth.) Historically only 1 percent of startups actually get venture funding, according to a 10-year survey from the Kauffman Foundation. That percentage, published in 2010, has likely grown over the past five years; the amount of overall venture capital invested certainly has.

But recent data indicates that, as is so often the problem with money, you have to already have some VC funding in order to get more VC funding.

“Rather than backing the number-two player, you see investors agreeing to higher valuations to get a piece of the market leader,” says Atish Davda, co-founder and CEO of EquityZen, a startup that lets employees of private companies resell their shares.

Rebecca Lynn, general partner at venture fund Canvas, says she doesn’t see a growing divide between the haves and have-nots of the startup world: “Right now is a very good time to raise money, if you are a startup,” she wrote in an email.

“We are in a cycle where there is a lot of capital in the system,” she added, “and that capital is chasing good deals and willing to pay up for” sound investments.

But even as investors throw more money at unicorns (or potential foals), they’re pulling back on their number of investments. CB Insights counted only 805 VC deals in the first quarter of 2015, the lowest number of deals in more than two years and the fourth-straight quarterly drop in deal activity.

That’s not necessarily a bad thing, even if many startups wistfully dream of getting enough money to match just the catering budget for Uber’s next investor meeting.

“Getting huge amounts of venture capital is not always good news and it’s not always healthy. People tend to waste huge amounts of money as well,” says Sramana Mitra, the founder of virtual accelerator One Million by One Million.

“The best way to use venture capital is if you have a venture-scale idea,” she says, adding that many more “niche ideas” are worth building businesses around, too.

In other words, as Mitra aptly puts it: “Not every company can be a unicorn.”