​When unicorns run head-first into reality

In the investment world, "unicorns" may be neither mythical nor rare, but many are increasingly having trouble getting a grasp on reality.

These days, unicorns are what investors call private companies with valuations of at least $1 billion. They earned the moniker because once upon a time for a startup to reach that valuation was a near-mythical accomplishment. But now, hordes of unicorns are roaming through the investment landscape: 229 startups have attained or surpassed that $1 billion valuation, according to VentureBeat.

Some unicorns are household names, such as ride-hailing service Uber and digital storage service Dropbox, with both ranking among the most highly valued of the group. But others are little-known companies providing business services, such as cloud-services company Nunatix and analytics firm Mu Sigma.

While many unicorns are chugging along, others are experiencing cracks in their magical reality, ranging from disappointing funding rounds to outright failure.

Take Powa, a British payments provider that was once worth $2.75 billion. In its early days, it attracted funding from U.K. Prime Minister David Cameron and received the largest-ever first-seed investment for a British tech startup. At one point, it was considering going public.

In the last few days, the one-time high-flyer has fallen into serious problems. One of its leading investors called in its loans last week and appointed accounting firm Deloitte to oversee its move into administration, a step British companies take to avoid liquidation. Most of the staffers have lost their jobs, with one telling The Financial Times it "was a bloodbath."

Like other unicorns, Powa had lots of hype and well-heeled investors, but that doesn't always ensure that a company will have a viable product or even a product that can be successful enough to support a $1 billion valuation.

These falls from grace are becoming so common that a new tool is now available for investors and the merely curious to monitor the ranks of "wounded unicorns." Called Downround Tracker, the site says 57 unicorns have suffered "downrounds," or raising rounds of money that gives them lower valuations than they previously held, since 2015. Among the walking wounded are Foursqure and Chinese mobile phone maker Xiaomi.

Other unicorns that have run into snags include Dropbox and health insurance brokerage Zenefits. Mutual fund giant Fidelity late last year wrote down the value of both businesses by 30 percent to 50 percent each, according to VentureBeat. (Separately, Zenefits has also received negative attention for its frat-house like atmosphere as The Wall Street Journal reported its staff was reprimanded for having sex in stairwells as well as drinking and smoking there.)

One of the highest-profile unicorns, Theranos, is coping with embarrassing revelations about its core business: providing blood tests through finger pricks rather than using the traditional method of drawing blood through needles and vials. Reports that the company was allegedly using only a small number of tests through its core method has prompted its main client, Walgreens (WBA), to halt new rollouts of Theranos blood-testing centers.

Once considered a prime candidate to sell shares to the public, Theranos' plans are now unclear. However, it seems unlikely it would want to go through with an IPO at the moment, given the greater level of scrutiny that face publicly traded companies.

The mismatch between hype generated by venture capitalists and the scrutiny of public markets may be one reason some unicorns are finding their outlook to be less than magical. Investors are increasingly tough on tech companies that fall short of their promises.

Consider GoPro (GPRO), which was boosted by a lot of hype when it sold shares in a 2014 IPO. Since it went public, however, GoPro has shed 67 percent of its valuation, thanks to disappointing financial results and its decision to stop offering quarterly guidance.

The bottom line: Sky-high valuations that tech companies can earn in the private investment arena aren't always aligned with the public markets. That might make some other unicorns look more like, well, goats.