But, not all unicorns reach incredible valuations based on true information, so that’s why the term “fake unicorns” has become more popular now. Some startups can reach a high valuation using misleading claims.
In this article, we will explore the most recent examples of fake unicorns, how they had the chance to rise fast, and how exactly they fell in the industry.
Theranos
A unicorn startup that reached a $9 billion valuation at its peak, founded by Elisabeth Holmes, Theranos has claimed that it can perform hundreds of blood tests with just a single drop of blood from a patient’s finger. At that time, Theranos stated that they had a completely new and revolutionary blood-testing technology, but in reality, the main blood-testing device didn’t work as expected.
It seems that in this startup fraud, Theranos used other third-party machines such as Siemens to perform all of the blood tests. Even more so, multiple patients stated that their results were completely inaccurate.
So, the founder of Theranos was accused in 2022 of wire fraud and conspiracy, resulting in the loss of millions of dollars in investments.
Nikola Motors
With an impressive valuation of $34 billion at its peak, Nikola Motors claimed to be working on trucks that had zero emissions based on a hydrogen-electric technology. They even made an impressive promotional video in which it shows a truck driving peacefully on a desert highway to show that it has zero emissions.
Incredible right? But what if I tell you that the advertised truck has no engine? YES!
It seems that the “zero-emissions” truck has been dragged to the top of a hill and rolled down to film the video. So, everything that was advertised, in reality, was completely false.
The founder, Trevor Milton was convicted shortly after, for wire startup fraud, in 2022.
Better.com
Founded by Vishal Garg, Better Company has reached approximately $7.7 billion valuation. Better represents a digital mortgage lender, but during the merger process of its Special Purpose Acquisition Company (SPEC), this unicorn company managed to manipulate its financial position.
Instead of relying on a sustainable business model, in reality, the Better Company depended on the refinancing boom due to low interest rates. Even more so, the unicorn company struggled with various management issues and a poor business culture.
So, after just a simple Zoom meeting call, the company’s CEO decided to fire about 900 important employees in December 2021.
The reputational issues were extremely serious, and this situation has affected profoundly the Better.com company, which experienced a drop in its valuation.
Fast
Founded by Doom Holland, this startup is not really considered a unicorn company due to the fact that it was valued at only $580 million. But it is still worth talking about the Fast company.
At first, the company claimed that revolutionized the checkout industry with its 1-click checkout idea. It indeed seemed that that time was a good idea, but Fast tried to amplify the user numbers along with the adoption rate to attract high funding.
So, instead of investing in the actual technology, the Fast Company only focused on marketing, burning over $10 million in marketing campaigns and sponsorships, considering that it has less than $1 Billion in revenues annually.
As the name suggests, this unicorn company was closed down rapidly in April 2022.
HeadSpin
With a valuation of a little above $1 billion, HeadSpin unicorn startup reported a completely false report, where they claimed more revenues in order to blow up their valuation.
But in reality, the founder has been found guilty because he allegedly provided manipulated financial data to all investors. This situation escalated after multiple audits showed that the real revenue was indeed far lower than the initial declarations.
As a result of this situation, the company’s valuation has drastically decreased to 300 million.
Zenefits
Zenefits was founded by Parker Conrad and was accused of allowing employees who were unlicensed to sell various health insurance, which of course was illegal.
So, it seems that Zenefits especially created a software tool that was focused on helping employees trick the training sessions for a license. With the help of this custom software, there have been thousands of insurance policies sold by brokers without a real and valid license.
Shortly after, the Zenefits unicorn company received fines from California and other state judges, and from about $4.5 billion valuation, the unicorn company decreased to a valuation of under $500 million.
IRL ( In Real Life)
Founded in 2017, In Real Life company was a social calendar app that claimed to have more than 20 million active users every month. At first glance, investors considered it to be an interesting investment, and by 2023, the company had reached a $1.2 billion valuation. In reality, almost all 20 million users were fake or even bots, so this social calendar app managed to lie to its investors about the company’s records. After 6 years, in 2023, In Real Life was shut down, while the SEC investigated the startup fraud allegations.
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