The Cost of Chasing Unicorns: Lessons from the Product Bubble

The venture capital (VC) world has always been a bit like a poker game, with big bets placed on uncertain outcomes. In the recent "Product Bubble," this game reached a fever pitch. VC investments soared from $45 billion to an astonishing $620 billion, chasing an elusive prey: unicorns—startups valued at over $1 billion. This surge brought big wins for a few, but also costs that rippled across industries, communities, and even society at large.

But what was really happening beneath the surface? To understand, we need to trace the incentives that shaped this frenzy.

Venture capital operates on a principle borrowed from poker: creating “outs.” The idea is to spread bets across high-risk startups, hoping a few hit it big. It’s not about avoiding failure; failure is baked into the model. The aim is to make sure the winners pay for all the losers—and then some.

But in the Product Bubble, the stakes were raised. The flood of capital created immense pressure to deliver outsized returns. And delivering those returns required chasing unicorns. Unicorns are extraordinary by definition: billion-dollar companies born from ideas that often seemed ordinary at first glance. The problem was that creating them on such a large scale wasn’t sustainable.

At its peak, VC firms were deploying $300 billion annually into startups. The math behind their portfolios was brutal:

• 10% of investments would be home runs, generating most of the returns.
• 30% would break even or deliver modest returns.
• 60% would fail outright.

To meet these odds, VCs had to make a lot of bets. And when there’s too much money chasing too few good ideas, standards inevitably slip. Marginal ideas—the ones that wouldn’t have made the cut in leaner times—got funded. Suddenly, the market was full of startups promising billion-dollar visions, many of which had no business being there.

To understand how this played out, consider the kinds of businesses VCs funded:

• A SaaS analytics company with $70 million in annual recurring revenue? That’s plausible.
• A government contractor with $80 million in EBITDA? Also plausible, with the right patience.
• A social network with 5 million daily users? Feasible with viral growth.

But during the Product Bubble, it wasn’t enough to build a solid business. To attract VC attention, startups had to promise hyper-growth. That meant taking risks, stretching visions, and often pushing boundaries in ways that led to unintended consequences.

The defining feature of this era was hyper-scale disruption. Startups weren’t just trying to compete; they were trying to upend entire industries. Uber and Airbnb are classic examples. Both started with seemingly innocent ideas—ride-sharing and room-sharing—but grew into juggernauts that reshaped cities, industries, and livelihoods.

This kind of disruption had a dark side. Regulations were treated as obstacles to be skirted. Workers became disposable cogs. Quality and sustainability often took a back seat to growth. Consider the gig economy companies that flooded markets with subsidized pricing to undercut competitors. It worked—for a while. But when funding dried up, these models collapsed, leaving industries in disarray and consumers with fewer choices.

The Product Bubble is filled with stories of founders whose good intentions led to unintended consequences:

• A food delivery service grew into a platform that strained restaurants and exploited drivers.
• A room-sharing idea morphed into Airbnb, accused of driving up rents and displacing residents.
• A social app for friends turned into Facebook, implicated in misinformation and polarization.

These founders didn’t set out to harm anyone. They were chasing growth. But in doing so, they often overlooked the broader impacts of their decisions.

By the end of the bubble, the unicorns of the era—Uber, Airbnb, and others—achieved valuations of $100 billion or more. But their success came at a cost: skyrocketing rents, increased congestion, and precarious working conditions. The relentless pursuit of scale had outstripped the ability to manage it responsibly.

Why did this happen? Because the system was optimized for growth at all costs. Startups were incentivized to over-promise and under-deliver, cutting corners and sometimes ignoring regulations entirely. It worked, for a time. But now the bill is due.

The Product Bubble has burst, thanks in part to rising interest rates and a cooling economy. This is a moment for everyone—founders, investors, and communities—to reflect. Does every idea need to become a billion-dollar company? Is chasing the biggest possible returns always the best approach? The answers seem increasingly clear: no.

The future of venture capital doesn’t have to look like the Product Bubble. The focus can shift toward sustainable growth, responsible innovation, and long-term value. Founders can be encouraged to build resilient businesses that solve real problems, rather than chasing inflated valuations. The Product Bubble was a lesson in excess. It showed what happens when growth becomes an end in itself. But as the dust settles, there’s an opportunity to chart a better course. Future startups can be built on foundations of resilience, responsibility, and true value. The next era of innovation doesn’t have to be a bubble. It can be something better.