Zero To One Billion: Demystifying The Unicorn

Since the Great Recession, the global private tech ecosystem has witnessed a remarkable paradigm shift. The advent, growth, and proliferation of “unicorns” have led to a fundamental change in the way all stakeholders of the tech ecosystem inter-operate. While this unicorn phenomenon has been in the making for the past six to seven years, the ongoing private investing and fundraising trends seem to imply that it could be another decade for the Unicorn gold dust to settle. And, another five years for all the stakeholders to fully realize lessons learned from this fundamental paradigm shift.

Our game plan at SharesPost Research is to continuously analyze the drivers and market conditions leading up to the creation & proliferation of Unicorns, to debate for and against the “Unicorn Bubble”, and to review fundamental investment trends and issues at well-known unicorns. While doing so, we plan to analyze the current state of tech ecosystem and understand the motivations and biases of all stakeholders, including CEOs/Founders, employees, VCs, and non-traditional private investors. While we have no interest in joining the long list of crystal ball gazers, it is clear to us that an objective, analytical, and data-driven framework is likely to yield interesting insights and lead to spirited debates.

With this backdrop, in our first research report, we provide a big picture snapshot of unicorns today. We analyzed trends in VC Investments and unicorn creation since 2009. Key takeaways from our analysis are as follows:

Globally 170 Paper Unicorns & Counting

Today, Fortune magazine tracks 174, CB Insights’ identifies 169, & TechCrunch has a list of 168 companies. Approx. 52% or 90 out of the 170-ish Paper Unicorns (i.e., companies closing financings implying a value of $1B or more) are U.S.-based tech companies. This compares to roughly 70 real U.S.-based tech Unicorns “minted” since 2009, i.e. VC-backed tech companies with $1B or larger liquidity events i.e. IPO or M&A.

Zero To One Billion in 66 Months

Median duration for a VC-backed company to reach $1B valuation since incorporation is roughly 66 months. U.S.-based tech Unicorns tend to reach this status a tad later at 76 months. Non-U.S. tech companies that have become Unicorns do so at a median pace of 57 months after incorporation, with typical Chinese Paper Unicorns reaching this milestone in 53 months, or 4.5 years.

VC Batting Avg. Increased For Unicorns Founded 2005-2009

We estimate roughly 22,000 U.S. tech companies were founded & received VC funding since 1995, resulting in roughly 40 public, 30 acquired, & 90 Paper Unicorns. Excluding outlier years with very high (1996 & 2005) and very low (1999 & 2000) batting averages, we estimate a normalized VC batting average ranges between 80-100 at-bats (VC backed startups) for each “Unicorn Home Run” (or approximately 1.5%). And, recent Paper Unicorn proliferation implies that VC batting average increased 25% year over year for companies founded between 2005 and 2009.

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Median Age Of U.S. Unicorns is More Than Non-U.S. Unicorns by 18 Months
Source: NVCA, PitchBook, Dow Jones Venture Source, SharesPost Research; 2016 data through Q2 ’16
VC Batting Average – Number of Unicorns Divided by VC-Backed Companies
Source: NVCA, PitchBook, Dow Jones Venture Source, SharesPost Research

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