Private securities marketplace EquityZen has issued a report that notes 28% of unicorns are now trading at less than $1 billion. These former unicorns have been impacted by the overall decline in markets as well as a stumbling economy, which has impacted valuations and access to capital.
EquityZen shares that in 2013, there were just 39 unicorns, while today, there are around 1200 unicorns worth an aggregate amount of $3.7 trillion. While inflation has something to do with it, the rise of private firms reflects the increase in private capital available to fund these firms. At the same time, companies today try to remain private for as long as possible.
As for fallen unicorns, the report points to Bolt as emblematic – once valued at around $11 billion, the company recently announced a share buyback at a valuation of just $300 million.
EquityZen asks the question as to how many former unicorns no longer qualify to top that $1 billion hurdle, noting that more than 400 unicorns have not raised money since 2021.
Leveraging their secondary market data, EquityZen reports that transactions over the past two years, 28% of these firms are trading at valuations less than $1 billion, thereby losing their unicorn status. Extrapolating to the broader environment, EquityZen predicts that approximately 330 firms are no longer unicorns.
The company states that 17% of all VC investing rounds in Q3 of last year were down rounds versus 5% of funding rounds in 2021. Referencing Pitchbook data, the report states that 44% of later-stage funding rounds were flat or down in 2023. EquityZen predicts that down rounds will be the norm this year, and more companies will officially lose their unicorn status.
As for performance by sector, Real Estate, Healthcare, and Industrials led the way to diminished valuations, as around half are said to have lost their unicorn status.
At the same time, Fintech, Food & Beverage, and Artificial Intelligence (AI) have been more able to maintain their unicorn status, with fewer being demoted.
Enterprise Software-as-a-Service (Saas) and Information Technology (IT)have lost 30% and 25% of their Unicorns, respectively, as displayed by trading on EquityZen.
Historically, companies tend to trade at a discount on EquityZen, with fallen unicorns trading at around a 30% discount and current unicorns trading at a 15% discount.
“This data shows that when it comes to valuations, it’s not a one-size-fits-all market and specific companies and industries can buck the broader trends, keeping more of their Unicorns horned.”
EquityZen does not believe this is a new normal but more of an adjustment where companies see a decline in valuation – at least temporarily. While some unicorns raised money at 100X of sales at the height of the market, NASDAQ traded firms currently trade at just 4.6X times sales.
While EquityZen is seeing the average private company trading at a 30% discount to their last funding round, this is an improvement when compared to December 2022, when the discount was 51%. The company says this is indicative of a market that has stabilized with valuations normalizing.
EquityZen states:
“While some late-stage companies will inevitably become Unicorpses, as more late-stage companies continue their shift to profitability, we’ll start to see new leaders emerge who are continuing to grow and innovate within their respective industries. The market’s obsession with the term Unicorns over the past decade paints a picture of a market focused solely on valuation growth. So maybe it’s time to redefine the term, or come up with a new one to recognize the emerging private companies leading the way in this new market paradigm. Perhaps they will be the Phoenixes rising from the ashes.”