Sep 28, 2016 · 5 minutes

Last week there were a few “unicorn reports” about how things have fared in terms of valuations in the first half of 2016. Yunno, the year we were supposed to have a huge correction.

What we have had -- champagne corks!-- is a slowing of new unicorn births and a sudden revival of actual exits worth more than $1 billion. Not “kinda IPOs” where Fidelity backs your startup because you won’t take it public and mutual funds have to put its growth-oriented money somewhere. Actual exits. The ones where investors and all those early employees who worked their asses off for other people’s dreams actually get to make money!

According to CB Insights for the first time in six quarters, there were more VC backed billion dollar exits than new private companies earning a $1 billion valuation.

This is a good sign right?

It’s certainly better than the direction things were moving in. Still, it’s almost impossible to believe all of the nearly 200 privately-held “unicorns” will actually be $1 billion exits.

Some perspective: The biggest exits typically come from IPOs and only 240 venture capital-based tech companies have gone public in the last ten years. Many trade for under $1 billion. Historically-- before the recent mania-- only four “unicorns” were created every year. And that includes private valuations. Each decade has “only” yielded one to three “super” unicorns.

As Aileen Lee wrote in her original essay on the topic:

Takeaway: it’s really hard, and highly unlikely, to build or invest in a billion dollar company. The tech news may make it seem like there’s a winner being born every minute — but the reality is, the odds are somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime. Or, more than 100x harder than getting into Stanford.

Indeed, even in this comparatively rebounded exit climate, more than 50% of the deals were for less than $50 million. Only 4% of exits were north of $1 billion.

Some have argued the mobile era and the surge in middle classes throughout the emerging world and maturity of markets like China simply have changed the reality. There are simply more $1 billion + opportunities.

And that’s not total bullshit. There are a handful of potential $1 trillion companies that owe their odds to the creation of the Internet. Still, even with something as big as the Internet, that number is a handful. Some hits may be big enough that all the misses are more than made up for in terms of aggregate returns. But “aggregates” don’t really help the VCs, founders or employees who aren’t in those one or two companies.

Let’s be generous. Let’s assume that we’ll see 100 tech companies from this boom go public-- half of the number that have filed in the last decade-- or get bought for $1 billion because of a fear they might go public and become a mega-competitor. That’s still far more than we’ve ever seen in history, and yet it still leaves half of those unicorns underwater.

Here’s the twist: The odds get worse, if you think about the companies that actually got all those $1 billion exits in the first half of this year.

Only half of them had private valuations at or above $1 billion. Put another way: 50% of the companies that actually wound up being worth more than $1 billion were regular old ponies just doing their job with their heads down, creating actual value. These included NantHealth, Afferent Pharmaceuticals, Cruise Automation, and Dollar Shave Club, according to data from Pitchbook.

And another one, AppLovin, which just sold to the little known Orient Hontai Capital wasn’t a unicorn either.

From Pitchbook’s write up yesterday:

AppLovin has taken a different approach to startup life than many of its peers, bypassing traditional venture capital entirely and raising a mere $4 million in outside funding since its 2011 founding.

Taking the road less traveled has now proven a wise decision for the mobile marketing platform: Orient Hontai Capital has agreed to acquire the company in a deal valued at $1.4 billion, a unicorn-level price tag without the fundraising frenzy that typically leads to such valuations.

Instead, AppLovin sought out angel investments from industry veterans including Eduardo Vivas, John Burbank and Maynard Webb. It could afford to eschew venture funding due to its sterling financials. The company generated $234 million in revenue in 2015, according to, and claims to have been profitable every year of its existence.

It’s a new twist on the whole unicorn debate: What if we do have dramatically more $1 billion exits than we’ve ever seen before but half of them go to companies who were more simply more conservative in their fundraising and valuation, and were never in the unicorn club to begin with. In theory, that means we’re looking at even more unicorns winding up woefully underwater.

How many? 80? 100? 150? It’s hard to know.

Already Honest is rumored to be the third $1 billion+ ecommerce exit this year. Seriously: Has ecommerce had this good of a year since the dot com crash? And yet, because Honest was caught up in unicorn fever, that deal-- if it happens-- would be a disappointment. It’s last valuation was some $1.7 billion.

If non-unicorns continue to do just as well as the unicorns in terms of the number of billion dollar exits, it will be vindication for those who’ve argued more money makes good companies less disciplined, or what I like to call the internal-screams-of-Bill-Gurley logic.

From his post that I like to call his “open letter to Uber”:

Loose capital allows the less qualified to participate in each market. This less qualified player brings more reckless execution which drags even the best entrepreneur onto an especially sloppy playing field. This threatens returns for all involved….

More money will not solve any of these problems — it will only contribute to them. The healthiest thing that could possibly happen is a dramatic increase in the real cost of capital and a return to an appreciation for sound business execution. 


Consider the three mega-acquisitions Facebook has done. Neither Instagram, Whatsapp, nor Oculus Rift were unicorns. The mega-deal for Whatsapp is particularly noteworthy, as it only raised $60 million in capital.

Sometimes that is what telegraphs strength, not raising mega-rounds and optimizing for “baller” valuations. And that kind of strength means a $1 billion exit isn’t a “disappointment” when it happens, it’s a celebration.

There’s another potential ripple effect if ponies get as many mega-exits as unicorns: The founders and employees of those companies will likely wind up far richer. And that means more angels to turn around and recycle that capital back into the market.