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Anyone else wondering where all the unicorns have gone?

Less than two years ago, big-name venture capital funds lined up to put money into Clearco, bestowing mythical unicorn status on the e-commerce lender by boosting its valuation well past $1-billion. The company – formally known as CFT Clear Finance Technology Corp. – boasted backers such as SoftBank Corp. and executives at Apple Inc. Their cash funded a business with 500 employees, global expansion plans and a celebrity CEO and co-founder in Michele Romanow, a star of TV’s Dragons’ Den.

Clearco symbolized a new era in finance, with COVID-19 giving tech-savvy disruptors an opportunity to show how they could win customers away from ponderous, old-economy banks. Private companies in every sector raised money at similar lofty valuations. There seemed to be more unicorns in our tech markets than beavers in our rivers.

The same frenzy gripped public markets. Shopify Inc.’s SHOP-T e-commerce prowess made it Canada’s most valuable company. A series of tech plays went public at $1-billion-plus valuations, on the promise of eye-popping revenue growth.

On Monday, Clearco announced its latest round of layoffs, cutting 50 jobs to bring its head count down to 140 employees. Ms. Romanow handed chief executive officer responsibilities to former credit fund manager Andrew Curtis. Funds that backed Clearco and other private tech companies now face significant writedowns.

In public markets, Shopify’s stock price dropped 62 per cent over the past year. The initial public offering class of 2020 and 2021 has been a crushing disappoint for investors, with all but a handful of stocks trading for a fraction of the price they commanded when they made their debuts on public markets.

The fall from grace at Clearco, Shopify and other tech business – private and public – reflects a 180-degree shift in investor sentiment, according to fund manager John Ruffolo at Maverix Private Equity. “Both the public and private markets were valuing growth at all costs from 2019–2021,” he said. Potential profitability and “near-term cash generation have returned as key factors in determining value.”

Mr. Ruffolo also said the valuation on many public tech stocks is now in line with historic levels, after a year-long frothy IPO market.

Clearco’s struggles offer a case study in why so many growth-focused businesses are failing to deliver on the promise that won unicorn status. On Monday, Ms. Romanow said in an interview with The Globe and Mail that her company made mistakes in managing expansion, moving into too many markets, launching too many products and hiring too quickly.

In addition, rival bankers say Clearco’s approach to lending leaves very little margin for error. The company’s profit margins are relatively skinny, reflecting the narrow gap between the interest rate Clearco charges on loans to customers and the price the company pays to borrow money.

Clearco doesn’t have a bank’s capital reserves, so even a few bad loans translate into significant setback. When interest rates rose over the past year, and e-commerce companies began to struggle, Clearco struggled. The business, like many tech companies that went public during the pandemic, lacks the hard-won management experience that comes from navigating an economic downturn.

Clearco’s new boss, Mr. Curtis, had been advising the company as a consultant for several months, as the board conducted a strategic review – effectively putting the platform up for sale. To date, no white knight has stepped up. Rivals banks, the natural buyers of a company that makes loans, can simply pick off customers who need credit, rather than paying a premium to buy the entire platform and help SoftBank recoup its investment.

Other unicorns face the same bleak fate. These days, there are few buyers for growth companies that have stopped growing, and are now bleeding cash, with no clear path to profitability. To survive, seasoned executives like Mr. Curtis will need to cut costs and focus operations.

The unicorn era in private tech markets is over before the pandemic that spawned it.

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