It’s been a dreamy couple of years for the the so-called tech “unicorns” — the more than 140 well-funded, privately held technology businesses valued at more than $1 billion. But, according to recent data on venture investing and surveys of investment bankers, the good times are coming to an end.

That’s because the unicorns are about to get squeezed between increasingly skittish venture investors and a still moribund market for initial public offerings.

On the venture capital side, investors in North America pulled back in the second quarter, according to the Venture Pulse report from KPMG and CB Insights.

While large financing rounds by companies like Uber, Snapchat, and Chinese ride-hailing service Didi Chuxing buoyed VC investment numbers overall, the Brexit referendum in the United Kingdom, the upcoming U.S. presidential election, and an economic slowdown in China unnerved some VCs, the report said.

There were 1,117 deals into venture-backed companies in the second quarter, the lowest level of deal activity since the first quarter of 2012. What’s more, venture investors wrote fewer very large checks to any private companies in the quarter. North America saw just 14 financing rounds of $100 million or more in the second quarter, down from 37 in the third quarter of 2015 and 29 one year ago, according to the Venture Pulse report.

Finally, only seven unicorns got funded in the second quarter, down from 25 in the third quarter of 2015.

unicorns

In addition to fewer unicorns being created, however, and fewer garnering large funding rounds, existing unicorns face the challenge of what to do when their venture investors (and employees) want a liquidity event.

Despite the success of Japanese messaging platform LINE, which raised more than $1 billion on July 14 and popped 25% on its opening trading day, the IPO market is still frosty. A majority of investment bankers surveyed from the 2016 BDO IPO Halftime Report think the second half of the year won’t be any warmer.

While one-third (34%) of investment bankers predict that the pace of U.S. IPO activity will increase from the first half of the year, according to BDO, close to half (47%) anticipate IPO activity will remain at the same level as the first half of the year. Another 18% actually forecast a decrease in offering activity.

For unicorns, that means a serious correction in their valuations if they try to go public, according to 52% of the investment bankers.

“Last year, in order to gain additional funding, some of these businesses went public at valuations considerably below their most recent round of private financing,” according to the BDO report. “An overwhelming majority (85%) of bankers [surveyed] believe there will more of these type of offerings moving forward.”

Said Lee Duran, partner in the capital markets practice of BDO USA: “As new rounds of private financing reflect more realistic valuations, unicorns will increasingly be faced with a choice between being acquired or going public. Either way, the actual profitability of these businesses will be given much greater weight versus projections of future performance.”

And what happens if private valuations don’t become more realistic, i.e, they continue to exceed those of public markets? In that case, many of the investment bankers surveyed by BDO (55%) think some unicorns will fail. The consensus? About 17% of the mythical creatures will not survive.

Image: Thinkstock

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