#128 VC Unicorns Update! 2023 vs. 2013

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Looking Back to 2013: The 39! Venture Capital Unicorns

Ten years ago, I was almost 5 years into my career as a LP investor. Aileen Lee at Cowboy Ventures wrote Welcome To The Unicorn Club: Learning From Billion-Dollar Startups (Techcrunch). In the article, she shared the following takeaways:

• “Many entrepreneurs, and the venture investors who back them, seek to build billion-dollar companies.”

• Why do investors seem to care about “billion dollar exits”? Historically, top venture funds have driven returns from their ownership in just a few companies in a given fund of many companies.

• We found 39 companies belong to what we call the “Unicorn Club” (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors). That’s about .07 percent of venture-backed consumer and enterprise software startups.

Welcome Back to the Unicorn Club, 10 Years Later (Cowboy VC)

Earlier this month, Aileen Lee and Allegra Simon wrote a “welcome back” piece. It was fun to read their perspective on how things have changed since. We highly recommend checking out the full post! Per Aileen on X:

• Increase from 39 to 532 unicorns

• Pendulum swung HARD from consumer to enterprise

• Unicorns became way less capital-efficient

• 93% are ‘papercorns’ & 60% are ‘ZIRPicorns”

• despite many fragile unicorns right now, we see many healthy ones too

• And with AI, we expect 1,400+ capital-efficient unicorns by 2033, which will make tech even bigger and more important

Big takeaways on the original analysis of 39 unicorns in 2013:

• The majority (62%) had “exited” - gone public or been acquired. 

• Most were consumer-oriented: ~80% of the value, ~60% of companies.

• Enterprise-oriented companies had great capital efficiency (26x), 2.4x better than consumer companies.2 

• One company in a decade became a “superunicorn” (worth >$100B): Facebook.

• Contrary to the prevailing stereotype, average age at founding was 34; 38 for enterprise software companies. 

• Co-founding teams of 3 with common work, school and tech experience were the majority. 

• The Bay Area was unicorn HQ (70%). NY, home to 3, was the second largest hub.

• There was very little diversity - no female CEOs, just 5% had a female co-founder.

2013 to 2021: a rising tide for VC funds, startups, and valuations

2022 to the present: the tide has turned

The Unicorn Club (2023): 532 Companies. Takeaways:

1. Unicorns ballooned 14x in the past decade, from 39 to 532! They now serve a wider array of sectors (we’re tracking 19) from climate and crypto to vertical SaaS. 

2. The pendulum swung hard to enterprise (78%), the inverse of 2013.

3. It’s a bloated herd that will thin in coming years (likely to about 350) because…• A whopping 93% are ‘Papercorns’ - privately valued companies. • 60% are ‘ZIRPicorns’ - their last valuation is from ‘20-22, when interest rates were near zero. Many are running out of runway.• Many are on the cusp: 21% are valued just at $1B (sorry?!)• ~40% are trading below $1B in secondary markets.4• BUT. There is lots of substance in this herd.• And we see evidence of a Software Unicorn Power Law - the US will be home to more than 1,000 unicorns by 2033.

4. There’ve been very few exits - only 7% (35 companies) vs. 66% a decade ago.‍

5. Capital efficiency declined significantly. This will be bad for exits, venture returns, founders and employees.‍

6. OpenAI looks to be the 1st superunicorn of the decade, and AI likely the megatrend.‍

7. The Bay Area gained in #s but lost ground as Unicorn HQ while other hubs grew. ‍

8. More unicorns and geos, more co-founders with diverse backgrounds - but some things didn’t change at all.

9. Diversity still wanted - still lots of opportunity to improve founding team composition.‍

10. If past is prologue, expect a mixed outlook for the current herd, and many more unicorns in the future. 

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