Public Market Verdict: The Unicorn Binge Wasn’t Crazy; It Was Really Profitable

It’s hard to imagine, but there was a time not too long ago when billion-dollar startups were exceedingly rare.

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Back in 2013, venture investor Aileen Lee, founder of Cowboy Ventures1, penned an essay coining the term “unicorn” to describe VC-funded companies valued at $1 billion or more. At the time, she could count just 14 still-private companies less than a decade old that qualified for the title.

Since then, of course, the number of private unicorns has steadily ballooned. Today, Crunchbase counts nearly 700 globally with just over 300 in the United States alone. Collectively, the U.S. cohort is valued at around $945 billion, based on last known reported valuations.

Until recently, the fast-multiplying herd sparked considerable consternation about whether it could possibly fetch high enough exit valuations to deliver returns to investors. In 2019, the implosion of WeWork’s planned public offering raised some doubts, as did Uber’s underwhelming IPO. And early last spring, few expected a booming IPO market amid the pandemic, particularly for companies in hard-hit sectors such as travel.

But then came the latter part of 2020. It was a pretty rotten period for many things, but an absolutely spectacular one for recently and newly public venture-backed companies.

New market entrants including Airbnb, Snowflake and DoorDash debuted to massive valuations. Companies that went public a few quarters earlier, such as Zoom, Moderna and CrowdStrike, meanwhile, saw their market capitalizations soar.

Taken individually, each of these companies has a gargantuan valuation. When you add them up, the numbers hit some really exorbitant levels.

How big? Forty of the most valuable have a collective public valuation of around $1.1 trillion. That’s based on a Crunchbase News analysis of U.S. venture-backed companies that went public in roughly the past two years and have recent market capitalizations of $6 billion or more.

We list them in order of market cap in the chart below:

Public valuations build over time

One thing that stood out when compiling the above list is that many companies on it were worth only a fraction of their current value a few months or quarters ago.

Zoom, for instance, exceeded expectations in its April 2019 market debut, going public at an initial valuation of $9.2 billion. Now it’s a $115 billion company, and a go-to substitute for the face-to-face meetings and social gatherings we attended before the pandemic.

Uber, recently valued at around $99 billion, has also seen its market fortunes rise. Its shares have more than doubled from lows hit last March. And shares of Moderna, developer of one of the two U.S. COVID-19 vaccines, are up by around 600 percent from their 52-week low.

We in the startup press are accustomed to writing about IPO day stock surges. However, we often miss the even bigger gains companies can rack up in the next few months or quarters after public investors have time to digest some earnings reports and contemplate adding a new name to their portfolios.

It’s these longer term valuations, however, that drive returns for venture investors and their backers. In addition to regulated waiting periods, investors often also opt to take time unwinding a position, particularly if they’re bullish on continued growth potential.

So yeah, looks like all that crazy unicorn funding has delivered returns

If you consider the combined market caps of the high-valuation private companies that have gone public, it indicates private investors have done well overall betting on the unicorn cohort.

Remember, the $1.1 trillion figure we cited above is just for 40 publicly traded unicorns that went public in the past couple of years and are valued at over $5.5 billion. That’s just one very large piece of an even larger pie.

There are dozens of other venture-backed companies that went public and have valuations of a few billion or several hundred million. Plus, there are those who sold in M&A deals, like formerly public Slack, which fetched $27.7 billion from Salesforce2, or Credit Karma, which sold to Intuit for $8.1 billion.

Then, of course, there are all those highly valued unicorns like Stripe, Instacart, Robinhood and Coinbase (which has begun the IPO process). Stripe alone was recently valued at around $36 billion on the private market.

At this point, the valuations of already-exited unicorns are greater than all North American venture funding for the past decade, as shown in the chart below:

Of course, valuation doesn’t translate directly into investment returns as VCs don’t own all the shares of companies they back.

But given the returns we’ve seen to date, it’s safe to say that if current, historically high valuations hold up, the grand unicorn venture funding experiment of roughly the past seven years has been a financial success.

Illustration: Dom Guzman