Earlier today, The Exchange dug in on changing investor sentiment regarding growth and profitability. A new report Looking at Battery Ventures cloud and software companies, we calculated how investors reward faster growth from less unprofitable companies – dare we say, profitable businesses? — with the data indicating that, at least for now, growth is no longer sufficient to maximize business value.

For startups that are in the process of piling up new revenue with minimal burnout, the situation is good news. For companies that raised money when the money was cheap – and had high valuations based on past valuations – the news that profitability is back in vogue is far from welcome. Many unicorns are now likely caught between shifting investor preferences and a general compression in the value of software companies.

Why? Because many a unicorn was punched in the 2020-2021 era due to rapid sales growth more than anything else. And while revenue multiples stretched to the sky during that period, a large number of startups reached the $1 billion valuation threshold — or multiples thereof — thanks to small, albeit rapidly growing, revenue.

If revenue multiples have fallen, that’s bad news for unicorns. If revenue multiples have fallen and growth loses comparative luster to gains, high-burn unicorns that were once more valued for something otherwise are doubly tied to changing market conditions.

Even worse, Battery points out some tough facts about how many unicorns could go public in the coming years compared to the number of unicorns on the market today. There is a lining of good news in the data for really high profile startups. But for the standard unicorn, there’s more than just storm clouds on the horizon.

Why is the math bad?

In the past 10 years, Battery counts 200 software companies that have gone public. In contrast, the venture company counts more than 1,000 new unicorns minted in the same time frame. That’s a 5-1 ratio of IPOs to new billion-dollar companies.