The ‘unicorn glut’ theory of startup woes –


Unicorns, tigers and bear markets! Oh my!

Unicorn Traffic Jammeet unicorn gluten.

Private market technology companies worth $1 billion or more have long been an indicator of investor enthusiasm. The number of so-called unicorns minted in a given time period was a workable indicator of how hot the venture capital market was at the time.

For example, the rate at which new unicorns were born grew sharply in 2020, per CB Insights data, rising from 25 new $1 billion startups in the first quarter of that year to 47 in the fourth quarter. Thereafter, the number of unicorns increased, reaching 115 in the first quarter of 2021 and a peak of 146 in the second quarter of the same year. Since then, the number has slowly declined, reaching 113 in the first quarter of 2022. It could fall into double digits in the second quarter.

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The raw number of new unicorns is only part of the dataset that matters. Venture capitalist and SaaS influencer Jason Lemkin recently noticed on Twitter that the “vast majority of” [venture capital investment] went into unicorns and decacorns in the past [two] years”, and not companies at an earlier stage. This means that the boom in venture capital totals was, to some extent, a unicorn bonanza.

The same data set from CB Insights reveals how many venture capital unicorns grazed last year. In 2020, for example, about $140.5 billion was raised in 633 nine-figure rounds — those of $100 million or more, a loose comp for venture deals that went to billion-dollar companies.

In 2021, those numbers rose to $366.6 billion from 1,569 nine-figure deals. The proportion of global venture capital dollars invested that went into deals worth $100 million or more rose from just under 50% in 2020 to nearly 60% in 2021.

(Speaking of mega rounds in 2021, we can’t help but mention the blazing pace at which Tiger Global put money into late-stage startups. That said, the company wasn’t alone in its temporary exuberance.)

As the unicorn venture market slows — CB Insights says 51% of venture capital went to nine-digit rounds in Q1 2022, or $73.6 billion in 364 deals — the largest deals with the most valuable startups that have cleaned up in recent years, and even more so the venture capital market peaked last year.

This helped shape the unicorn abundance. What is that? Lemkin describes it as a “huge surplus of growth investments that startups will take years to grow.” The problem, Lemkin continued in a thread, is that many of the biggest deals before 2021 will take three more years or more to “grow their valuations,” which could “slow growth investment in years to come.”


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