There are 131 of them, actually, according to research tracking firm CB Insights. Unicorns, in this context, are privately held startup companies valued at $1 billion or more.
The term was adopted by investor Aileen Lee to describe billion-dollar startups because they were so very rare. In the past, such companies would have gone public before reaching such high valuations.
Selling stock to the public has traditionally been how growing companies get the capital they need to keep growing. An initial public offering of stock also provides more visibility to a larger pool of investors. What’s more, the company’s founders, employees, and investors enjoy the paydays that come with an IPO.
So why haven’t these companies — recent market turmoil aside — gone public?
For one thing, they haven’t had to. Investors have put round after round of capital into the companies, apparently satisfied with their progress and prospects for eventually realized returns.
Ride-on-demand company Uber, for example, which leads the unicorn herd with a $50 billion valuation, has raised nearly $6 billion in the past six years. Fellow unicorn Airbnb, the home-rental service with a valuation of about $25 billion, is attracting big investments as well, and even the smaller companies on the list (more than half have valuations of $1.5 billion or less) such as mobile software firm Shazam and social news organization BuzzFeed are raking in tens of millions of dollars.
That’s not to say unicorns never leave the pack. Pure Storage, which make data storage equipment, filed documents in August for a public offering. While its sales leaped to $174.5 million in 2015 compared with $42.7 million, its losses grew to $183 million in 2015 from about $78 million. As a unicorn, Pure Storage has a $3 billion valuation, according to CB Insights.
(For a take on biotech company IPOs, check the report from Michael McLellan on Bizmology.)
Regulation is another factor that might be keeping the unicorns private, according to Kevin Williams, a senior lecturer in the McCombs School of Business at the University of Texas at Austin. An entrepreneur and an investor, Williams was a partner in ARCH Venture Partners and COO of Sandefer Capital Partners, a private equity fund.
The dot-com crash at the turn of the 21st century, followed by the recession that began in 2008, generated a wave of regulation. Laws like Sarbanes-Oxley that made officers and directors personally liable for corporate malfeasance have helped tamp down enthusiasm for IPOs, he said.
“There was so much scrutiny and liability placed on company management that suddenly some of the advantages from a company standpoint of being public went away,” he said. “There’s this big regulatory oversight that made it less attractive to be a public company.”
Furthermore, Williams said, venture capitalists learned to be more patient after the dot-com bubble burst.
“A lot of venture capital firms understood they’re going to have to stay in longer and they weren’t going to have a ready IPO market for a lot of their companies,” he said.
And should investors want to get out of a company before it goes public, it might not be hard to find another firm to sell the shares to. Investors in some of the high-profile unicorns could probably find others willing to buy shares.
“They don’t necessarily have to have an IPO in order to find a market for that stock,” he said.
The market gyrations will certainly have an impact on IPOs, and unicorns with enough capital might be content to stay where they are.
|Top 10 Unicorns|
Source: CB Insights
Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.