Beyond the Unicorn Fever: back to the new normal in valuation

Endeavor talks about...
8 min readMar 28, 2023

Intro & data source

In 2021 and in the first half of 2022 the global VC and startup ecosystem experienced an exceptional amount of money inflows, large-size rounds with very limited investors’ due diligence and companies reaching over €1B valuations in very limited amount of time.
The world “unicorn” became probably one of the most abused in the tech space, reflecting the general market sentiment of growth at all costs.

Now that the situation has calmed down and the distortions caused by the market have been reduced, it could be interesting to understand how actually a unicorn would look like and which are its main features.
In this regard the paper “In search of European Unicorns: what do we know about them?” published by the European Commission in 202²¹, tries to give an answer (full report available here).

The document takes the form of a comparative study of unicorns from the EU, the US and China. The researchers conduct a descriptive analysis, focusing on elements such as:

  • Age of companies at which unicorn status is reached
  • The number of financing rounds
  • Overall amount of financing raised by the time unicorn status is
  • Investors which have backed unicorns

The data used in the paper has been extracted from Dealroom’s Unicorn Club Database. Unicorn Club includes tech companies² founded since 1990 that are currently valued at over $1 billion, as well as those that have successfully completed a $1 billion+ exit (the full -and unfiltered list- is available here).

The researchers restricted their analysis to companies headquartered in the US, the EU Member States and China and relates to the period Q1 2008 — Q2 2021. So the period taken in consideration is lightly affected by the VC market frezny of 2021 and part of 2022.

Considering this restricted sample, the total number of unicorns per region is: 147 ventures in 859 in US and 274 Chinese unicorns.

A few more nuances on the research process adopted by the authors:

  • The three samples (EU, US, China) were manually created through the Dealroom’s Unicorn club.
  • They are representative samples, hence they do not describe the entire population as entities with no data related to the amount of funding rounds were omitted from the analysis. In the same way, companies that are rumoured to have surpassed the $1b valuation mark but have not yet confirmed this to the media or through their financial statements were excluded from the analysis.
  • In the paper, the term “unicorn” has been used for all startups that have reached a value of over $1 billion. The paper distinguished between those which are still in private hands “private unicorns” and those which have been exited, either via IPO, SPACs or acquisitions, calling them “exited unicorns”.

Thus, the research didn’t take into account the rounds which happened in the last 1.5 years, but it constitute a good source of historical data (13 years taken in consideration) not that affected by the most recent tech bubble. Hence, the database could be cosidered reliable and could shed light on many characteristics of EU unicorns; comparing them with US and Chinese peers.

Main findings

The paper answered to several questions.

From which sectors the majority of unicorns come from?

In terms of industry, there are no particular surprises. As it is possible to observe from the chart below, the majority of unicorns ( in all the 3 macro-region considered) are coming from Software, Health and Fintech.

Exhibit 1:Breakdown of unicorns by sector between Q1 ’08 and Q2 ’21. Elaboration of the authors based on Dealroom’s industry segmentation (available here)

How long does it take to reach unicorn status?

In this regard, it is possible to observe considerable regional variations.

On average, it took 10 years for EU unicorns to reach a $1b valuation from the year they were founded. To obtain this figure the researchers took the ensemble of all unicorns in the reporting period (from 2008 to Q2 2021) and calculated the year of $1b valuation minus their year of foundation. This finding is consistent with a McKinsey’s study on Europe’s top 1000 start-ups published in 2021.

On the other side of the ocean, it takes on averge 8 years for a US startup to reach unicorn status. Lastly, it is possible to note that the average age to reach unicorn status is significantly lower in China for both private (5 years) and exited (6 years) unicorns, which means that unicorns in China are notably younger than US and EU unicorns.

Exhibit 2: Breakdown of unicorns by age in years (Q1 ‘08- Q2’ 21)

As the researchers stated, there is a wide average age distribution among unicorns. For example in 2018, ATAI Life Sciences reached unicorn status only three years after its foundation. At the other end of the scale, it took Czech firm Jet Brains twenty years to reach a billion dollar valuation, in 2020. It may be argued that the reason is that these two companies operate is different sectors and locations.
While this is true, considerable variations in age still remain, even when comparing peers in the same sector. Founded in 2015, takeway service Glovo took 4 years to become a unicorn in the EU, but five years later its competitor Gorillas took only one year (altough this achievemt was a clear result of the inflation that VC market experience post-covid).

Regional differences are smaller, but do also exist, when comparing the time it took for (privately held) unicorns to get acquired or going public. As Figure 3 shows, the average time to exit in the EU is 10 years for an IPO and 9.5 years for acquisitions or buyouts. In contrast, US unicorns spend 8 years on average to exit via an IPO and 10 years on average to exit via an acquisition. Chinese unicorns reach an exit event much earlier than EU and US unicorns: they spend 7 and 6 years on average to exit via an IPO and an acquisition, respectively.

Exhibit 3: Time from foundation date to exit for EU, US and CN private unicorns in the period Q1 ‘18- Q2 ‘21

How uncorns manage to reach a $1B valuation ?

VCs invested on average €125m per unicorn in the EU, €138m in the US and approximately €215m in China during the period Q1 2008 — Q2 2021

Exhibit 4: Average amount of equity raised prior to unicorn status over the period 2008–2021 Q2

The average amount invested in US and Chinese “exited” unicorns was higher than the average amount invested in EU “exited” unicorns, suggesting a possible low number of IPOs and M&A occurring in the EU.

Exhibit 5: Average number of rounds prior to unicorn status over the period 2008–2021Q2

Another point that is also worth to highlight is that China has an above-average equity raised and below-average number of rounds before reaching unicorn status. This implies that in China large rounds allow companies to reach large valuations sooner and in fewer rounds than in the EU and US.

Which are the best unicorn hunters?

Investors play an important and multifaceted role in the growth of promising start-ups and sometimes having a well-recognized investor in the captable could consitute a powerful signal for the capital market, self-reinforcing the venture scaling trajectory.
For this reason it is worth to highlight which have been the best performing VCs across EU, US China in terms of European unicorns in which they have invested between 2008 and Q2 2021.

As it is possible to see from Exhibit 6, 5 of the top 10 venture capital firms investing in EU unicorns are headquartered in the US (Palo Alto, San Francisco and New York), 2 of them in Asia and 3 in Europe.

Exhibit 6: Top investors by number of EU unicorns invested in over the period 2008–2021Q2

The 3 European VCs, among the top 10 investors, are HV Capital (focus on software-based companies at various stages of growth), Idinvest Partner (acquired in 2018 by Eurazeo) and Northzone (London-based VC which invested in companies such as Spotify, Klarna, Trustpilot)

Doing some basic maths, it possible to note that, out of the top 10 EU unicorns investor, US-based funds have invested in a total of 55 unicorns, EU VC in a total of 25, while Asian ones in 17.

To integrate the analysis with more updated data, it has been taken in consideration also the recenlty-published Dealroom report, titled:
Most prominent VC investors in EMEA 2022”.

The report takes into account (all-time) investors’ success in backing unicorns and future unicorns³, as well as their level of deal activity in the last 12 months.

For the overall ranking the methodology takes into account how early a particular fund invested in any one startup, weighting the investments with different factors based on the stage of the investment (more info here).

Exhibit 7: Dealroom’s most prominent VC investors in EMEA 2022

Final thoughts

Considering all the insights that have been highlighted in the article, it could make sense to reason backward and ask ourselves: how does a potential Italian unicorn would look like ?
More in detail, which could be the features of an Italian company -after its Series A- that could set the path towards a potential €1B valuation?

Exhibit 8: potential Italian unicorn features (in Series A stage)

In conclusion, after that the turmoil in the private capital markets has calmed down, investors and founders started to approach company valuations in a more cautious way and also the the term “unicorn” (luckily) stopped to be inflated in the broad tech ecosystem.

At this regard, the article could shed light on which could actually be the features of the new-generation of italian unicorns; cutting off all the hype that the tech market too often experienced.

Additional notes

(1) the authors of the paper are Giuseppina Testa, Ramón Compañó, Ana Correia, Eva Rückert.

(2) tech companies” are defined as “companies that have innovative branding or business model but are not necessarily a high tech company”. Dealroom exclude few sectors such as mining companies and other traditional companies, companies that VC investors do not invest

(3) Unicorns correspond to ventures with $1B+ valuation, future unicorns correspond to ventures with a valuation $250M-$1B.

Article by Francesco Giovanni Leonardi, Analyst Endeavor Italy



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