What will happen to all the unicorn companies created before venture took a nosedive in 2022?
Catchy headline on this well-researched article from Katie Roof at Bloomberg recently (thanks Katie for including some Carta data in the analysis).
Here's the basic argument: many startups were wildly overvalued in the years running up to interest rates changing in 2022. Those that hit the $1 billion-valuation mark many have done so with much shakier financial footing than you'd expect.
So now what?
These startups can: 1) grow into the old valuation with the cash on hand, 2) take some unfavorable financing terms from investors if more cash is needed, 3) sell in an M&A deal that nobody really loves or 4) face closure.
Not a fun set of choices. Here's some harder data from Carta on US unicorns specifically:
Carta had 616 US companies valued at $1 billion or more on the platform on Dec 31st 2021.
Since then we know for sure that 14 have shut down (although we think that is an undercount) and 78 have had an exit of some kind (either M&A or IPO).
Of the remaining 524 companies, 150 have raised some financing after the beginning of 2022 (or 29%). However, only 112 of those rounds were "primary" rounds (meaning they were in the next named series from the round before and included new investors on the cap table). So perhaps only 21% of unicorns have raised a "real" round in the last few years.
67 of the 524 unicorns in question raised a down round (or just under 13%). Down rounds made up 45% of all rounds raised by unicorns minted before the end of 2021. That is a very large figure historically - for reference, only 11% of Series D+ rounds in 2019 were down rounds.
I'll repeat that last point: of the unicorns that have fundraised since the end of 2021, nearly half have taken a down round. Those overvaluations were flying fast and furious in 2021.
I'm optimistic that a solid portion of these companies will have the ability to continue growing at more normalized valuations. But mashing together investor expectations with market realities will continue to cause friction in the coming years.
Salute to the founders making tough choices out there 🙏
Link to the full article here: https://lnkd.in/gaTyVtTW
#startups #unicorns #founders #venturecapital
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