Let’s Face It, 2015 Was A Pretty Lousy Year For Unicorns

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It’s been a pretty awful year to be a unicorn in 2015.

Box and Square went public this year at significantly less than their last private valuation, Box at a 30 percent discount and Square at a 40 percent discount.

Meanwhile, Gilt Groupe, a New York-based online shopping destination for designer clothing, is in talks to be bought for $250 million. That’s less than the $268 million it has raised from investors and an even further cry from the $1.1 billion valuation it was assigned in August 2014.

Altogether, just five companies with billion-dollar-plus valuations have gone public this year. They include Box (in January), Shopify (May), Pure Storage (October), Square (November), and Atlassian (December) as seen here on the CrunchBase Unicorn Leaderboard.

That’s a small number, compared with the 156 companies globally that are privately valued at above $1 billion, according to CrunchBase. In comparison, CrunchBase tracked 88 private unicorns this time a year ago.

There wasn’t much in the way of major M&A activity either. Just four unicorns were acquired during 2015, and two were acquired at significantly less than their last private valuation: Fab, which sold for the fire-sale price of at $12 million, and Good Technology,  which sold for 65 percent less than its last private valuation of $425 million.

Two that did better were Zulily, which had gone public in 2013 with a valuation of around $2.6 billion and was acquired this year by QVC for roughly the same amount, and Lynda, which sold to LinkedIn  for $1.5 billion — or  26 percent more its venture investors had valued it.

Part of the problem is that some of these companies genuinely aren’t ready. Then there’s also the much discussed argument that Silicon Valley companies are reacting to a deep-seated antipathy for going public following the dot-com burst of 2000, followed by the financial crisis of 2008.

Whether true or not, the rationale for some companies today is that it’s better to raise more money in the private market rather than in the public markets — and in some cases, much more.

Uber has raised $6.3 billion and Airbnb $3.5 billion in the last two years. In fact, the average private raise for a unicorn is more than $500 million, and the median is $275 million. The five unicorn companies that went public this year collectively raised just over $1.4 billion.

Large sums of money doesn’t necessarily mean froth; it can mean large opportunities.

Still, large sums of money doesn’t necessarily mean froth; it can mean large opportunities.

When VCs invest $800 million in Magic Leap, it’s because they believe it could be worth $8 billion at some point. When investors poured $3.3 billion into Uber, as they did over the course this year, at a $50 billion valuation, they were undoubtedly thinking that Uber will become a $150 billion-plus exit opportunity.

For investors, finding and funding those high-growth companies is critical to their success, and they’re everywhere, increasingly. North America is home to the most unicorns, including one company, Kik, in Canada. Meanwhile, 28 unicorns are based in China; 15 in Europe; 6 in India; and South East Asia, Korea and Israel each feature 2 unicorns of their own.

Collectively, the 156 private companies with unicorn club status represent $528 billion in total private valuation and have raised north of $81 billion in aggregate, according to the CrunchBase Leaderboard.

More look to be joining the club soon, too. On the emerging list, CrunchBase is tracking a further 39 companies that are valued between $500 million and $1 billion.

Bill Gurley, a general partner at Benchmark, stressed earlier this year that the late-stage financing of companies is a very different financing event from a public offering, where the scrutiny and focus on profitability of a company can be intense.

As he wrote in his blog, Above the Crowd, “As these late-stage private companies digest these large fund raises, they are pushing profitability further and further into the future, as well as the proof that their business model actually works.”

Gurley argued that: “Lost in this conversation are the dramatic differences between a high priced private round and an IPO.”

Yet therein lies the opportunity that investors are chasing. The notion of a bubble or bust is simply too generic. Some companies will flame out. Some companies will be billion dollar exits. And some will be a successes on a scale that we’re only now beginning to understand is possible.

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