A New Era and A New Herd of Unicorns

In the financial world, Aileen Lee's name may not ring as many bells as the term 'unicorn’, a concept her team at Cowboy Ventures brought into the limelight in 2013. These unicorns, characterised as U.S.-based, venture capital-backed companies valued at a minimum of $1 billion, have become a benchmark for success in the startup ecosystem. However, success isn't just about hitting the billion-dollar mark; it reflects a dynamic and evolving market that asset management firms, like ours, keenly observe for trends and opportunities.?

A Decade of Unicorns: Cowboy Ventures' Latest Insights?

Fast forward to January 2024, Cowboy Ventures released a reflective report on the past decade, unveiling new insights and terminology that redefine the venture capital landscape. But why should asset management firms pay attention to these VC market trends? The answer lies in the potential trajectory of these startups: emerging as competitors, transitioning to public markets through IPOs, and shaping the future investable universe. It's crucial to stay ahead of these trends, anticipating shifts and opportunities in the market.?

We reviewed the Cowboy Ventures' report, relating its findings to our High Street Asset Management funds. In 2013, they identified 39 unicorns which ballooned to 532 in 2023 and has projections of approximately 1400 in 2033. In this article we share some of the new breeds of unicorns that the report introduced namely: superunicorns, fallen unicorns, papercorns, liquid unicorns and ZIRPicorns.?

1. Superunicorns?

Startups valued at over $100 billion. Back in 2013, Meta (then Facebook) was a lone figure in this category. Today, they project OpenAI as a future superunicorn by 2033, highlighting the AI megatrend. Both Meta and Microsoft (who reportedly has a 49% stake in OpenAI) are holdings in the High Street funds.?

2. Fallen Unicorns?

Companies that once met the unicorn criteria but no longer do. This category reminds investors of the volatility and risk inherent in the startup world.?

The report notes that the average age of a unicorn in both 2013 and 2023 is 7 years old, and that being crowned a unicorn too early may be bad luck, citing Fair, Convoy and Knotel who were 3 years old or less. Furthermore, that there are more fallen public unicorns than healthy public unicorns in the 2023 herd.?

3. Papercorns?

These are companies with private valuations existing only on paper, as they haven't yet ‘exited’ via an IPO or acquisition. They represent potential yet unrealised value. The report noted that 93% of the 532 fell into this category in stark contrast to the 2013 list of 36%.?

Below is a table from the report of the top 20 most valuable unicorns in 2023. Notably, 75% of them are ‘unexited’ and last valued in 2022 or earlier, so it is likely that this list will change in time.?

4. Liquid Unicorns?

Unicorns that have successfully listed or been acquired for more than $1 billion, transitioning from theoretical to actual market impact.?

Only 35 of the 532 unicorns became liquid and just 14 (3%) are public; in contrast, 41% of the 2013 list were available in the public domain. The average time from founding to becoming a liquid unicorn was 6 years.?

5. ZIRPicorns?

Unique to the January 2020-March 2022 period, these unicorns emerged during a Zero Interest Rate Policy (ZIRP) era, marked by high public multiples and abundant liquidity. There's speculation that these companies might face valuation down rounds.?

The report identifies 60% of the list of 532 unicorns fitting into this category and adjusts the total number of unicorns for 2023 to approximately 350 as a result.?

The report refers to ‘low rates, overconfidence in historical returns, and competition caused many (VCs) to overlook valuations, margins, payback periods and burn rates.’ This is most notably observed in the capital efficiency rates below.?

Below is a table detailing the value distribution of the 2013 and 2023 unicorns. According to the report, approximately 40% of the 2023 unicorns are trading below the $1 billion mark in secondary markets.?

Conclusion?

As we analyse these categories, we further understand the broader market dynamics and the forces shaping the future of business and investment. We aim to offer our clients a forward-looking, informed approach to their investments, balancing risk with the pursuit of growth in an ever-changing financial landscape. In the world of asset management, staying informed about these evolving trends isn't just about keeping up – it's about staying ahead.?

Images generated by DALL-E,?figures and graphs directly taken from Cowboy Ventures report, available at: https://www.cowboy.vc/news/welcome-back-to-the-unicorn-club-10-years-later?