By: Roderick Berry, Managing Director at Hamilton Lane
In the investment world, the term “Unicorn” is widely understood to represent a privately-held company that has reached a billion-dollar valuation. In 2013, when venture capitalist Aileen Lee first coined the term, 39 such companies were in existence.
However, as of June 30, 2019, CBInsights reports that 366 unicorns are now in existence, with a cumulative valuation of $1.1 trillion. In fact, this number has continued to grow despite numerous high-profile IPOs and M&A deals.
The swelling number of unicorns has been attributed to a number of factors; but if we had to choose the most impactful, we’d argue it’s the significant increase in private capital available to companies, enticing them to stay private longer.
Where is this capital coming from? Glad you asked. In 2012, Congress passed the U.S. Jumpstart Our Business Startups (JOBS) Act. The JOBS Act increased the number of shareholders a private company can have before being required to disclose financials by a factor of four. Partially in response to the JOBS Act, there was almost a 300% increase in private capital invested in private software companies from 2013-2015, according to a report by McKinsey & Company¹.
Another major contributor to the influx of private capital has been the rise of non-traditional venture capital investors. The most prominent example of this phenomenon was the October 2016 launch of the SoftBank Vision Fund, which raised a casual $100 billion to invest in high-growth private companies. To date, the fund’s most notable investments have been roughly $10.4 billion in Work, Inc. (formerly WeWork) and roughly $7.4 billion in Uber, according to Reuters².