The unicorn frenzy has slackened in the US when compared to 2014 and 2015, but still more billion-dollar companies are being created than are turning that valuation into cash. While several of these companies have completed successful exits this year, more value is locked in these unicorn companies than ever before.
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The 2017 Unicorn Report slices through data surrounding these billion-dollar companies, analyzing the trends around this small segment of the industry, and finding out what influences there are on investment. Included in the report are detailed tables full of terms and protections of these unicorn companies.
Report Highlights:
While accounting for less than 1% of completed deals in 2017, unicorn financings represent roughly 21% of deal value
After eight unicorn exits this year, 120 US companies remain with the distinction More than $156 billion has been created in unicorn valuations this year
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Looking past their name, unicorn returns have potential to reshape industry
Introduction
When the term unicorn was coined to denote a VC-backed company valued at $1 billion or more, achieving that status was a true distinction of excellence. Today, the term is thrown around and used without hesitation, though it may be followed up by a cringe from one of the parties involved.
Although representing a major chunk of overall value created by the venture industry, unicorns have never accounted for any significant portion of the entire
venture-backed company population. While their numbers are growing, the overall count is still a small fraction of the entire industry. These billion-dollar
companies do, however, play a major role, whether as a role model of the best of what Silicon Valley can achieve or to provide a reference point for comparison.
But more importantly, they contain unprecedented value that could produce the largest returns in venture history, should they be realizable. One of the primary reasons that value has not been realized is the same as what enabled the creation of such value at the later stage—the continued availability of plenty of capital at the later stage, which allowed unicorns to continue growing in private markets, and prolonged timelines to liquidity. We’ve already seen enormous distributions to limited partners in 2014 and 2015 recycle back into venture funds. Though distributions have since slowed, unicorns have the potential to foster a renewal.
Unicorns constitute a fifth of 2017 deal value
So far in 2017, deals attached tovaluations of at least $1 billion have accounted for less than 1% of the total number of completed VC financings in the US. That small fraction of deals is representative of nearly 21% of deal value this year, though, a quick reminder of the influence investments in unicorns have over aggregate industry figures. VC-backed billion dollar companies are still a somewhat new phenomenon, with just 176 US based companies ever holding the title.
Outside of 2014 and 2015, no more than 18 companies have ever attained unicorn status in a single year, highlighting both the difficulty in scaling to that size, as well as raising enough VC. Through early August, 128 companies have held the title of unicorn at one point this year, the highest per-year mark we
ave seen. Compare that number with its counterpart in 2004 and it seems astronomical, but since Liquidnet became a unicorn in 2005 somewhere around 85,000 VC deals have been completed. With eight exits completed so far, there currently stand 120 companies able to boast a $1 billion valuation, the highest being Uber’s $68 billion value achieved last year—though Uber is reportedly set to be repriced shortly with investment rumored in the near future.
The pace of unicorn
formation has slowed During 2014 and 2015, 87 companies became unicorns, with each year producing an outlying number when compared to the rest of the decade. Since then, not only has that pace slowed, but the overall number of deals made at these prices has dwindled (this includes unicorns raising follow-on rounds). 35 companies have received a new billion-dollar valuation since the end of 2015, including 17 so far during 2017. This year will also likely fail to reach 100 total unicorn financing rounds, the second consecutive year to miss the mark after a run of five from 2011 through 2015.
Nontraditional investors, such as hedge funds and mutual funds, were heavily involved with unicorn deals during the outlier years, but they have largely pulled back from these rounds, and from the venture industry in general. The reason for such a slowdown likely goes beyond that, however. For one, the pace of unicorn investment was simply unsustainable during those years. As nontraditionals have pulled back, VCs stayed disciplined, which has been reflected in the slower pace.
Even as VCs are raising larger funds and may have the ability to fund companies worthy of a high valuation, they have remained diligent and rational in order to stay away from overextending offers to reach a valuation. Both the median and average times from founding and the hold period from initial investment have grown marginally this year, suggesting that investors are looking for more robust business metrics before subscribing to a unicorn round. It should be noted this caution hasn’t been solely restricted to unicorns, as investors across the venture spectrum have set higher benchmarks for growth at every stage. In general, this has led to a decline in the pace of firsttime financings across the US over the past few years.
Full report can be found here