Contact: Brenon Daly
The herd of unicorns gets bigger every day. But as the supply of these startups valued at more than $1bn continues to swell, we can’t help but note that on the other side of the equation, the demand isn’t really keeping pace, at least not outside a handful of elite investors. For the most part, the broader market hasn’t opened the exits for these unicorns to realize the value that’s being lavished on them.
So far this year, for instance, we haven’t seen any sales of VC-backed startups for more than about a half-billion dollars, according to 451 Research’s M&A KnowledgeBase. Further, in a 451 Research survey last December, four out of 10 (42%) corporate M&A executives told us they expect the M&A valuations for privately held companies to actually decline in 2015 compared with their valuations last year. That was the most bearish forecast for exit values of startups from their would-be buyers since the recession year of 2009.
Meanwhile, the IPO market isn’t particularly rewarding these days, either. Box – a unicorn that had been a darling of the late-stage investment community through nearly a dozen rounds of funding – hasn’t created any additional value as a NYSE-listed company than it did as a private company. (And based on the fact that an astounding 40% of Box’s shares are sold short, Wall Street is very clearly betting that its flat-lined valuation is still too high.)
Despite the recent muted returns for VCs, unicorns continue to get fed. For instance, Slack, a collaboration tool that’s less than two years old, has reportedly doubled its valuation since previously notching a $1.2bn price in an October funding.
Obviously, we’re looking at an extremely short exit period of just the first quarter of 2015. And we’re conscious that in most cases, investors are placing bets today that they hope will pay off maybe a half-decade from now. But for right now, when we look at both ends of the market for highly valued startups, we can see how you buy a unicorn but we wonder how you go about selling it.
Projected change in private company M&A valuations
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Source: 451 Research Tech Corporate Development Outlook Survey
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