As Airbnb Plans 2020 IPO, A Reminder Of How Many Unicorns Still Need An Exit

Morning Markets: A reminder that recent unicorn liquidity is insufficient to exit the majority of unicorns before the business cycle ends.

As Stripe and Postmates add hundreds of millions to their accounts (extending their lives as private companies) and WeWork’s IPO is on hold, Airbnb isn’t targeting a public debut until 2020. It’s easy to find evidence that most unicorns are still incapable or unwilling to find liquidity for their private-market investors.

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This isn’t a new trend, but it’s worth remembering the scale of illiquid wealth that has been built by private companies and their private investors. Let’s quickly recall how much work exits have ahead of them as we trudge through another week of — for the current moment in time — above-average unicorn liquidity.

Unicorn Era

The unicorn era will be as large a part of startup history as the 2000-era boom. How it will be discussed in the future isn’t clear, as the majority of paper wealth built during this time has yet to be tested by an exit; most unicorn bets haven’t been vetted by an IPO, acquisition, or shuttering.

If many unicorns find an exit that their investors find attractive, the unicorn era may be viewed in hindsight as a period of investor and operator brilliance. If, in contrast, most unicorns struggle to maintain their worth during liquidity events, history’s view could swing negative.

As a year, 2019 has brought welcome liquidity to a number of unicorns. Uber and Lyft got out, a passel of software companies went public, and so forth. But despite progress in getting some unicorns public, the pace of private unicorn value creation appears to be accelerating.

I reckon that unicorns are regressing, adding more value on the private side of the market than they are managing to exit via IPOs and other transactions.

Making that point, according to the Crunchbase Unicorn Leaderboard, unicorn births are happening younger in the companies’ histories:

The more orange and red that you see, the less time it’s taking companies to reach the $1 billion valuation mark. So, the private market is getting more aggressive as time goes. And it’s doing so while the vast majority of investments into unicorns are illiquid.

On the same theme, there are more companies on the Crunchbase Emerging Unicorn Leaderboard (179) which tracks private companies worth $500 million to $1 billion, than there are on the Exited Unicorns Leaderboard (165). Both tallies pale in comparison to the current unicorn, unexited count (498).

From the same Crunchbase dataset, here’s how many un-exited unicorns are currently housed on the books of various investing entities:

It looks like Meritech Capital Partners, Morgan Stanley, Salesforce Ventures, and BlackRock are maybe 50 percent exited on their unicorn bets. Everyone else is less than half liquid.1

And that’s with markets at or near all-time highs, and quality software companies attracting higher multiples than we can figure out. It’s a good time to go public. And we’re still not seeing enough liquidity to begin to clear the unicorn roster.

It’s concerning!

Illustration: Dom Guzman.