A business “unicorn” — a startup valued at $1 billion or more — was supposed to be as rare as the mythical creature after which it was named.
But lately a lot of companies command the label — familiar names like Airbnb, Snapchat, Pinterest — and more are being anointed annually.
Fifty joined the club in 2017, backed by venture capital invested at a “frenetic pace,” according to PitchBook, a Seattle-based research firm that tracks private equity, venture and merger transactions.
In its Venture Monitor report for the year, PitchBook reported that unicorns attracted a record high $19 billion in investments, or 22 percent of the venture capital pledged in 2017.
Overall, venture capital investment reached $84 billion last year, surpassing $80 billion for the first time since the dot-com era, according to PitchBook.
Curiously, though, the number of deals was down for the second year in a row, and the number of “exits” — venture investments being cashed out through a company’s acquisition or public offering — declined for a third year.
Venture capital firms raise money from the likes of insurance companies and pension funds to invest in promising, high-growth startups. There’s risk to the investment, since the startup could bomb, but there’s promise of reward, too, if the fledgling succeeds and the exit produces many multiples of the original investment.
A number of today’s unicorns are in the late stage of the typical three- to five-year venture capital cycle, but they continue to defer exit, according to PitchBook.
Kyle Stanford, an analyst with PitchBook, speaking during a webinar held last week to detail the Venture Monitor results, said “2018, 2019 hopefully will be a banner year for exits.”
“Angel” and “seed” investments in the youngest startups declined again in total deals, according to PitchBook, although the drop has slowed. Average investment per deal was up, however.
Noa Simons, executive director of the Upstate Capital Association of New York, which works to bring together investors and startups, took some exception to the findings
“I see increased interest in angel and seed investing on the ground in upstate New York,” she told me by email, ticking off efforts by groups like UpVentures in Little Falls, Launch NY in Buffalo, Hudson Valley Startup Fund in Rhinebeck and Eastern New York Angels in Albany.
Simons, an entrepreneur and investor who took the reins of Upstate Capital in 2016, said she thought PitchBook might not be capturing all the deals, “particularly at the earlier stages.”
Upstate Capital put out its own assessment of 2017 in January, the “State of Upstate,” which reported 252 investor deals, including 25 in the Capital Region. The Hudson Valley led with 91.
“We are increasing the number of organized angel and seed funds, raising second and third funds that are engaging new angel investors locally in each [upstate] region, and putting seed capital into companies,” Simons said.
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at email@example.com.