The once-vaunted category of unicorn companies is losing some of its sheen. In 2014, more than 30 private companies worth US$1bn or more exited, and the average exit valuation rose to above US$9bn, according to data from CB Insights. In the following two years, 25 or fewer unicorns exited each year and the average exit price fell to below US$3bn. With the future of unicorn valuations in limbo, questions remain about how investor sentiment will continue to shift going forward.
Toppan Vintage, a trusted financial printing and communications company, in partnership with Mergermarket, is pleased to present the newest edition of M&A Pulse newsletter. This newsletter features responses from US-based senior corporate executives who shared their insights on the current and future state of unicorn companies.
Toppan Vintage question: Which regions are likely to see the most new unicorns appear in the next 12 months? Leading deal experts weigh in...
The United States currently dominates the globe when it comes to unicorn companies. It has 107 privately owned firms valued at US$1bn or more – more than the rest of the world combined (103). However, the surging economies of China and India are rapidly breeding new unicorn stock. There are now 54 such companies in China and 10 in India, nearly all of which have appeared in the last four years.
As a result, it should come as little surprise that our respondents believe these two regions will continue to produce the most new unicorns. Eighty-eight percent said they think North America will be among the top two regions with the most new unicorns in the next 12 months, and 68% said they think Asia-Pacific will be in the top two regions for such companies. Just 44% believe Europe will have the most new unicorns.
“Many investors are unwilling to pump more capital into unicorns, since many of them are losing value. This was bound to happen, as a lot of unicorns had a valuation much higher than their potential warranted and it was never going to be easy to sustain.”
Another sign of unicorns’ declining fortunes has been the fall in the stock prices of recently listed companies Snap and Blue Apron. The value of social media giant Snap dropped by 53% as of mid-August from its first- day price earlier this year, and that of meal kit service Blue Apron had gone down by 42%.
However, not everyone is so pessimistic on the valuation front. A managing director at a Bay Area- based private equity firm noted that the overall stock market has performed exceptionally well, creating fertile ground for further IPOs.
“The value of unicorn companies will slowly increase,” the PE managing director said. “As equity markets venture capital firm, said many more such firms are expected to appear in the region.
“China, India and other APAC markets are very important – a large number of unicorns are expected to rise there, with the advancement and development of technologies that cater to different sectors,” the managing partner said. “A push by certain Asian governments to create a capital pool that companies can tap into in their initial stages has also helped companies grow and achieve the threshold valuation of over US$1bn.”
One advantage held by US companies is ample access to venture capital funding, since many funds are based in North America. Overall in 2016, VC investment in the Americas stood at US$72bn, compared to US$39bn in Asia and US$16bn in Europe, according to a KPMG report.
“In North America, companies have managed to grow at a very quick pace because of the capital they have received,” said a managing director at one of the top 20 global alternative asset managers. “The availability of investors in the form of PE and VC firms has helped companies grow and expand successfully.”