Unicorn probability of VC startups at about 1%: study

September 11, 2018 11:45
Startups dream of billion-dollar valuations, but only a tiny fraction actually manage to reach the so-called unicorn goalpost, a study has shown. Photo: Reuters

As startups proliferate in the tech world and shoot for the so-called unicorn status, the probability of such entities actually achieving the vaunted US$1 billion-plus valuations only stands at about 1 percent, according to CB Insights, a market intelligence firm.

After analyzing over a thousand startups that raised seed funding, CB Insights revealed in a report that about 67 percent of the entities stall at some point in the venture capital (VC) process and fail to exit or raise follow-on funding.

The research firm followed 1,119 tech companies that raised seed funding rounds in the US from 2008 to 2010 through to end-August 2018.

Among the cohort of tracked startups, 48 percent of the companies managed to raise a second round of funding, a 2 percentage point increase from a study last year.

However, the number of companies able to advance toward new infusions of capital and larger outcomes drops in every round. Only 15 percent of the tracked companies moved forward to raise a fourth round of funding, typically corresponding to a Series C round.

There are 12 companies, or 1.07 percent, in the analysis that reached unicorn status, i.e. a privately held startup company valued at over US$1 billion. The list includes Uber, Airbnb, Slack, Stripe and Docker.

According to the study, 30 percent of seed funded companies exited through an initial public offering (IPO) or a merger and acquisition (M&A) deal, up 2 percentage points from last year.

Meanwhile, 67 percent of companies end up either dead, or become self-sustaining, a 3 percentage point decrease since their last analysis.

"Also, some companies stumble on as zombie companies for years before calling it quits,” CB insights wrote in the report.

The study showed that 13 companies exited for market value at over US$500 million, a list that includes Zendesk and Twilio.

The full article appeared in the Hong Kong Economic Journal on Sept 11

Translation by Ben Ng with additional reporting

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Hong Kong Economic Journal