Cost of unicorns grows

BY Richard Summerfield

It is more expensive to become a unicorn in the US than ever before, with the median sum raised prior to the status-conferring round soaring to $126.1m in the first half of this year, according to Pitchbook’s 2019 unicorn report.

The sums raised by companies before becoming a unicorn – which are start-ups valued at over $1bn – are approaching all-time highs.

At midyear, there were 187 active unicorns in the US, with an aggregate private valuation of just over $600bn, down from the peak of $603.3bn recorded in 2018.

The growth of unicorns can be attributed to a number of factors, including burgeoning interest of non-traditional venture capital (VC) investors. 2018 saw a peak of $43.5bn invested across just over 100 transactions, while the first half of 2019 is going strong at $17.7bn invested and 53 completed financings of unicorns both old and new. Indeed, 2018 saw 12 deals worth a total of $4.8bn closed with only foreign investor participation. The first half of 2019 saw over $6bn of foreign capital invested in the unicorn space.

From an exit perspective, 2019 has already been a notable year, with a new record of close to $160bn realised across only 14 acquisitions or initial public offerings of unicorns, with around $142bn of that figure attributed to IPO exit value.

“Current unicorns will be truly tested by a significant market shock, which, given that nearly all have only existed within one of the largest bull markets in history, would present a challenge most have yet to face,” said Garrett James Black, senior manager, custom research and publishing at Pitchbook.

He continued: “It is difficult to envision any waning in investor willingness to fund companies to unicorn status unless there are significant market shocks to derail investing activity. The incentives for early exposure to rapidly growing, mature companies are still intact, especially given that several have validated their valuations in public debuts this year. The common limiting factor is the number of investment firms that have the resources and wherewithal to take on the inherent risk and potential outsized reward. There are enough such firms, especially as VC grows more institutionalised.”

Report: Pitchbook’s 2019 Unicorn Report

 

©2001-2019 Financier Worldwide Ltd. All rights reserved.