The cachet of a US$1bn valuation is proving irresistible to tech start-ups and there are now at least 80 tech start-ups in the world that are valued at more than US$1bn, according to a cover story in Fortune.
From Uber to Airbnb, SpaceX and Slack, you are nothing if you are not valued at over US$1bn apparently. There is even a more rarefied class – the decacorn – those valued at US$10bn and more.
A report in Fortune entitled The Age of Unicorns points to a headiness not seen since 1999.
Earlier this week fears of a bubble bursting were renewed when the latest figures from the National Venture Capital Association revealed that venture capitalists pumped US$43.3bn into US start-ups in 2014, the most since investors piled US$105bn into dot-com companies in 2000.
According to Fortune there are 80 start-ups now worth over US$1bn – full list here.
The question now is where will it end and if the unicorns don’t come gently clip-clopping to earth what impact will it have this have on the rest of the tech sector worldwide which doesn’t feed into the madness?
One of the highlights of the Fortune story was the story of Slack, a US productivity software company that wasn’t happy with a US$800m valuation and finally after raising US$120m in venture capital won its unicorn status by being worth over US$1bn.
Herds of unicorns
Now Silicon Valley is crowded with billion-dollar start-ups. Uber, which is valued at US$41.2bn, is valued more highly than 70pc of Fortune 500 companies. Grocery delivery player Instacart is worth US$2bn (it was worth US$400m last year) and Pinterest is understood to be worth US$5bn.
“It used to be that unicorns were these mythical creatures,” says Jason Green, a venture capitalist at Emergence Capital Partners whose investments include Yammer, which sold to Microsoft for $1.2 billion. “Now there are herds of unicorns.”
So could 2015 herald a bloodbath of unicorns if someone blinks?
The Fortune article correctly points out that after the dot com crash of March 2000 a wave of prudence swept the tech industry and tech companies, including Google or Amazon which were never worth over US$1bn as a private companies, kept their valuations low and tried not to overcapitalise.
However, the storm broke when Facebook came along and fluctuated when the iPhone arrived in 2007.
No one can doubt that this is not an exciting time in technology. Broadband and smartphone penetration are skyrocketing and the wave of innovation from start-ups at every corner of the globe is wonderful to behold.
But if there is a slaughter of unicorns, could ordinary and innocent tech companies and workers get caught up in the maelstrom?
I think you’re going to see a lot of failure in 2015,” said Bill Gurley of Benchmark Capital.
“If you’re a public company worth US$3 billion and your stock trades down to US$1 billion, you can survive it because you can still issue options to hire new employees, etc. If it happens when you’re private, though, it becomes immediately harder to hire or to get incremental investment.”
There’s more. “At some point all of these companies will be valued on a multiple of EBITDA,” said Alan Patricof of Greycroft Partners. “If the IPO market goes away, or for any reason there’s a blip in the outlook, people could be left holding a lot of inventory they wish they didn’t have.”
Let’s hope that when reality dawns, and it will, the implications aren’t felt by the rest of the world.
Unicorn image via Shutterstock
