When the venture the capitalist Eileen Lee introduced the term unicorn, in 2013 there were 39 of them – approximately four cut each year. So far in 2021, 264 companies in the United States have reached such estimates. Around the world, many startups are becoming unicorns every day.
The staggering rate at which companies reach billions of dollars is just one of the ways in which venture capital has broken the charts this year. “We’re looking at $ 240 billion invested in VC-backed companies this year, which would have looked scandalous a few years ago,” said Kyle Stanford, a senior analyst at Pitchbook. “There is more capital and more interest in the company than there has ever been.”
Between July and September, more than $ 82 billion flowed into U.S. startups, according to a new report for the third quarter from Pitchbook and the National Venture Capital Association. That’s about as much as venture capitalists invested throughout 2017 — which at the time was the brand of high venture capital spending after the dotcom boom of the early 2000s. Globally, Crunchbase found that the total for the third quarter was $ 160 billion, a new record for each quarter in history. The size of the deals has also increased: The average early deal in the US is now $ 20 million.
This money is pouring into all parts of the start-up world, from angel investments to late-stage deals, from corporate software to financial technology. Greater interest comes from what Pitchbook calls “non-traditional” investors: those in private equity, hedge funds or corporations who have deeper pockets than the average Sand Hill Road fund. These investors have made their way to venture capital to try to get some of the excellent profits. In the market, the starting value – the amount a company costs after going public or acquired – is at a record high, exceeding $ 500 billion for the first time in a year (by another quarter to the end). This is already twice as much as last year.
Investors, of course, all chase the pot of gold at the end of the rainbow. “Everyone comes to dare because it’s one of the best performing asset classes in the last few years,” Stanford said. Over the past year, a number of companies have gone public with estimates of $ 10 billion or higher, including Coinbase, UiPath and Toast.
This huge return on investors has increased the VC cycle, says David Hsu, who is researching venture capital at the Wharton School of Business at the University of Pennsylvania. Investors see big exits, which “feeds VC’s appetite to invest in tomorrow’s startups.” Hsu also noted that new avenues for liquidity, including SPAC, have made it possible for more start-ups to go public quickly.
Hsu believes that emerging technologies, such as blockchain and AI, have led to a number of new innovations at launch. “Other companies have benefited from Covid’s economy, such as some areas of e-commerce and supply,” he said. Although these startups may receive more attention than ever from VC, Hsu warns that the durability of their business models remains to be seen.
Others are even less optimistic. “It’s very sparkling outside. “People are just throwing money around,” said Carrie Smith, founder of Unorthodox Ventures, an investment firm in Austin. Smith disagrees that VC’s current bonze is driven by start-up innovations that he says have remained more or less equal over time. “I guess even 1% of today’s startups are not viable businesses,” he said. Smith says that while VC expects many of their investments to be foolish, the founders may be fucked in the process. Raising a ton of capital at an overestimated risk carries its own risks: If you do not follow this standard, future investors may revalue your company and dilute your equity.