Corporate Financing Analysis - Unicorn Rising To Continue In 2018 - 15 JAN 2018
The global venture capital industry has enjoyed a successful run over recent years, culminating in a bumper wave of VC-backed companies achieving 'unicorn' status in 2017. With key equity capital markets (ecm) around the globe predicted to see a slump in 2018 following a prolonged bull run (which has led to stock valuations in key markets into record high territory - as has been the case in the US), BMI expects the slew of VC-backed firms surpassing the USD1bn valuation mark to continue gaining momentum over the year ahead. Indeed, with the IPO exit route set to be far more restricted than it has been for some time, a growing number of young, high-growth firms will be staying private for longer, building up their market value in the process thanks to the support of eager VC investors in search of favourable returns, which is something that the unicorns have statistically shown that they can provide. Indeed, according to Preqin research, funds invested in unicorns outperformed all other venture funds for vintages 2007 through to 2014, with an average net internal rate of return (IRR) of 18%, which compared favourably to 13% for all other venture funds of the same vintage. Within this, the record net IRR since inception for funds invested in unicorns has been 2012, with 24.5% versus 14.3% for all other venture capital funds.
Fresh Funds Rushing In
With plenty of capital available for fundraising, and with lucrative returns on offer, it is hardly surprising that money continues to rush into this corner of the VC arena. In 2017, for example, as much as USD65.8bn was invested by VC funds into unicorns across 169 deals. Interestingly, this value of investments accounts for 37% of all capital which has gone into the VC industry in 2017, but just 2% of the volume of fundraising deals. This imbalance in market share suggests that, as VC-backed firms become bigger and achieve unicorn status, they are no longer settling for small investments and are, instead, scouting for fewer, but larger, sources of capital. This will serve to push valuations even higher. Such a trend is entirely as we predicted in early 2017 ( see 'Tech Unicorns To Outperform During US IPO Slowdown', April 12 2017), and nine months later, with the US IPO rally having extended for longer than many would have predicted, our view still remains largely the same.
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|2017* Proportion Of Unicorns By Industry, %|
|*Data correct to November 30 2017. Source: Preqin, BMI|