How many VC-backed unicorns will remain unicorns? Lessons for interim secondary market investors.

Justine Huang and Wiley Miller at Industry Ventures have written a fascinating report based on their database of 700 fund investments and 400 direct company investments to answer the question how many privately marked unicorns should still be concerned unicorns. We summarize their findings here and added what we are seeing across global Next Wave markets..

Original article: https://www.eu.vc/p/thinning-the-herd-50-of-unicorns

Secondary markets for VC-backed assets require investors to focus on realism and fundamentals. At Nodem, we see valuations becoming more realistic, with a greater emphasis on fundamental business metrics. 

The 2020-21 hangover of inflated valuations is still with us in emerging markets VC. Still, this exuberance is not reflected in the PE/strategic buyers to whom many companies will ultimately be exited.  

  1. 30% of All Active Unicorns Have Already Been De-Horned Based on Secondary Valuations

+30% of 2021 unicorns have fallen below the $1 billion threshold, as indicated by recent secondary market transactions. This appears to be a mixture of exuberant valuations in 2021 and missed growth/profitability targets. Based on our internal emerging markets data, we see a similar % of unicorns losing their 2021 unicorn status. 

  1. Many Unicorns Now Resemble “PE Targets” Based on Revenue and Growth Metrics

Justine and Wiley split the paper unicorns into four buckets (see below): Bubblecorns (3%). PE Targets (28%), Unicorn Potential (19%), Real Unicorns (50%). The fact that 28% was also the number of Indian VC-backed exits to PE in 2023 is not a coincidence. We expect this exit to grow from a low base across all emerging markets.

The companies that fell into the “PE target” bucket had moderate revenue scale but slowed growth, and so were more obvious sponsor-to-sponsor buyout targets.

Source: Industry Ventures
  1.  Unicorn Sectors Are Not All Created Equal

Their analysis reveals significant performance disparities across different Unicorn sectors. Enterprise SaaS remains the largest and most resilient, accounting for nearly 40% of Unicorns across all time periods. Crypto and EdTech have experienced a decline in new Unicorns and valuations, reflecting a more challenging market environment. AI has emerged as a bright spot, attracting significant investment and producing a new wave of high-growth companies.

Disclosures
The views set forth herein are solely those of the authors and do not necessarily reflect the views of Nodem Capital. The information and views expressed are generic in nature and are not an offer to sell or the solicitation of an offer to purchase interests in any investments or services. Certain information contained in this article may constitute “forward-looking statements.” Any projections or other estimates contained herein, including estimates of returns or performance, are “forward-looking statements” and are based upon certain assumptions that may change. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. There can be no assurance that the forward-looking statements made herein will prove to be accurate, and issuance of such forward-looking statements should not be regarded as a representation by Nodem Capital, or any other person, that the objective and plans of Nodem Capital will be achieved. 
This material does not constitute financial, investment, tax or legal advice (or an offer of such advisory services). It should not be viewed as advice or recommendations (or an offer of advisory services).
Certain information contained in this article (including certain forward-looking statements and information) has been obtained from published sources and/or prepared by other parties, which in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, neither Nodem Capital nor any general partner affiliated with Nodem Capital or any of its respective directors, officers, employees, partners, members, shareholders, or their affiliates, nor any other person assumes any responsibility for the accuracy or completeness of such information.

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London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.

London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.

London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.