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Unicorns — privately-held tech startups valued at more than $1 billion — are on the rise. However, a new study by Fenwick and West suggests that these companies might be overvalued, gaining the necessary funding to qualify for unicorn status by offering unsustainably lenient terms to investors in order to surpass that elusive $1 billion valuation.

The study, which looked at “virtually all unicorn financings” undertaken by U.S.-based unicorns during a 9-month period from April to the end of December 2015, investigated the changes and trends in the financial terms behind unicorn valuations.

The authors found that after the first quarter of 2015, both unicorn financing and valuations dropped off sharply. But then, as the year was about to close, startups with valuations in the $1.0-1.1 billion range — in other words, those close to the unicorn valuation border — shifted to offer special low interest rates and “investor-friendly exit preference agreements,” such as “senior liquidation preferences, IPO protection terms and upside benefits.”

What this suggested was that the investor-friendly terms offered in the fourth quarter of 2015 were designed not just to attract last-minute investors, but specifically to attract enough funding for the startup to be valued at $1 billion or higher for the year — in other words, to become that rare beast, the unicorn.

That said, unicorns aren’t so rare these days. According to Venture Beat, there are 229 unicorns currently in existence, about 60 percent of which are based in the U.S. and therefore fell under the purview of the Fenwick and West study. Some American unicorns you might recognize are: Uber, Airbnb, Palantir, Snapchat, SpaceX, Pinterest, Dropbox, Spotify, and Lyft. The number of unicorns today stands in contrast to the number of unicorns in late 2013 when the term was coined, when there were only 39 in existence, according to Forbes.

The problem is that many of 2015’s new unicorns are hanging precariously onto that status. Investors should beware, the Fenwick and West study warned. Although startups were offering investors generous rights in the fourth quarter, those rights could be threatened or taken away entirely in the next round of funding, especially if the company is desperate to continue qualifying as a unicorn. If investors decide not to participate in future rounds of financing, a startup sometimes will deprive them of their rights to try to change their minds in a move called “pay to play,” or it can offer sweeter deals to other investors not proffered to their initial unicorn investors.

“The use of pay to play financings increases during downturns in the venture environment, when it is more difficult for companies to raise capital and companies look for ways to encourage investment,” the authors said. “Even if investors have sufficient voting rights or financial ability to protect their rights in pay to play financings, companies in need of additional funds might find it necessary to provide new investors liquidation or other rights superior to their unicorn (and other) investors to attract needed capital.”

On the other hand, investors can take away a small bit of good news. The rise of unicorns isn’t entirely due to unsustainably lenient offerings. According to Forbes, startups today enjoy tech advantages and customer bases that didn’t exist two decades ago, so there are more tools and a bigger market for privately-held tech companies, something that hasn’t changed during the nine months of the Fenwick and West study.

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