The world’s unicorn herd is multiplying at a clip that is more rabbit-like. The number of such firms has grown from a dozen eight years ago to more than 750, worth a combined $2.4trn. In the first six months of 2021 technology startups raised nearly $300bn globally, almost as much as in the whole of 2020. That money helped add 136 new unicorns between April and June alone, a quarterly record, according to CB Insights, a data provider (see chart 1). Compared with the same period last year the number of funding rounds above $100m tripled, to 390. A lot of this helped fatten older members of the herd: all but four of the 34 that now boast valuations of $10bn or more have received new investments since the start of 2020.

The torrent of cash can be explained by two factors. The first is a divestment spree by the startups’ early venture-capital (VC) backers. These stakes command top dollar from investors desperate for exposure to the pandemic-era digitisation wave. Exits, via public listings and acquisitions, more than doubled globally year on year, to a nearly 3,000. The proceeds are flowing back into new VC funds, which have so far this year raised $74bn in America alone, nearing the record $81bn in 2020 in half the time. The venture capitalists cannot spend the dough fast enough. In the three months to June Tiger Global, a particularly aggressive New York investment firm, made 1.3 deals on average every business day .

The second reason for soaring valuations is greater competition among investors. Relative newcomers to the tech-investing business, such as pension funds, sovereign-wealth funds and family offices, are encroaching on the private markets that used to be dominated by VC firms from Sand Hill Road in Palo Alto. In the past quarter “non-traditional” investors in America took part in nearly 1,800 deals that together raised $57bn. Many may have been encouraged by the success of earlier forays by dabblers from outside the VC world. Their annual returns from exited investments in a first round of financing have averaged 30% in the past decade, reckons PitchBook, another data firm. That is more than double the 10-15% for veteran VCs.

This winning streak could yet end in tears. That is what happened two years ago, when richly valued firms with shaky business models either fizzled after their initial public offerings (like Uber and Lyft, two ride-hailing rivals) or never got that far (WeWork, an office-rental firm whose flotation was shelved after investors got cold feet). Many recently listed unicorns continue to bleed cash. According to The Economist’s calculations, those that went public in 2021 made a cumulative loss of $25bn in their latest financial year.

Assessing whether the remaining ones are worth their lofty valuations may be harder than ever. Like their predecessors, they do not disclose financial results. At the same time, extrapolating from the earlier unicorns, which tended to pursue growth at all costs in winner-takes-all markets, offers little help because today’s lot often aim to capture good margins by selling genuinely unique technology. This could be a more sustainable strategy—if the technology works. But it is harder for non-experts to evaluate, especially based on what is often little more than a prototype. Nikola and Lordstown, two electric-vehicle companies that listed in 2020 via reverse mergers with special-purpose acquisition companies (SPACs), are under investigation by American authorities over allegedly exaggerating the viability of their technology.