Venture-backed giants are scaling up and transforming markets as varied fintech, electric vehicles, and healthcare.
Many kinds of personal financial transactions that used to be expensive, cumbersome, or downright impossible can now be completed with a few taps on our phone. Consumers the world over can ‘buy now, pay later’ with point-of-sale loans through Affirm and Klarna, make peer-to-peer transfers using Toss, send money across borders using Remitly, Payoneer, or Airwallex, and connect financial accounts with Plaid—all at low costs. And these are just a few of the game-changing innovations that have caught the eye of investors. According to PwC analysis using data from PitchBook Data Inc., unicorn companies specializing in payments raised US$12 billion in venture capital during the first six months of 2021—that’s double the amount raised by that group in all of 2020, and more than triple the 2019 total.
The surge in fintech investment is one example of the unprecedented amount of capital flowing into unicorns—defined as privately owned, VC-backed companies valued at $1 billion or more—which are in turn scaling at a never-before-seen rate. If 1999 was the year of the IPO, when companies going public raised a record $69.2 billion, the 2020s have ushered in an era of innovation overdrive that the pandemic has only accelerated. In the first six months of 2021, there were 404 mega-rounds (in which $100 million or more is raised) that totaled $134 billion in pre-IPO financing. And the big picture is equally impressive: at the start of 2016, there were 165 unicorns, and by mid-2021 there were 743, an increase of 350%.
This is not your typical tech that takes 20 years to scale. Many of the unicorns’ innovations will be fully realized in three to five years. Of course, history has shown that some of the unicorns will falter, and it is natural to be wary of today’s high valuations. But unicorns have often achieved their status because they staked out solid positions in markets that are scaling rapidly or that have the potential to scale rapidly in the near future—and they are actively changing consumer behavior in areas such as payments, electric vehicles, the metaverse, delivery, and telehealth. Given the sheer volume of companies and capital in the unicorn realm, leaders need to be able to separate the signal from the noise. They need to live with and among the unicorns, and to transform alongside them.
Unicorns here, there, everywhere
With so much opportunity (and hype), the first and most critical task is determining the innovations that are scaling and need to be on leaders’ radar. This is the purpose behind a recent PwC analysis of late-stage venture capital in the past five years. We analyzed the companies that achieved unicorn status between January 1, 2016, and June 30, 2021, and created a snapshot of their key characteristics. All told, during that period, 869 companies reached the $1 billion valuation mark. This is a milestone that was once exceedingly difficult and rare. For comparison, Crunchbase reports that between 2005 and 2010, only 14 companies became unicorns. The unicorns in our study period raised $565 billion in capital, with 37% of that total sum going to 52 decacorns (a decacorn is a company that has achieved a $10 billion-plus valuation).
Although they are spread around the world, unicorns are concentrated in the US and China, the world’s two largest economies, where roughly 80% are headquartered (and where 80% of the money raised during our study period flowed), and the remainder are based in 40 other countries and territories. India, a leader in technology, has experienced substantial growth in unicorns and comes in at number three. India was home to five unicorns at the start of 2016, and now has 31.
Whereas in the 1990s, nearly all venture capital was being poured into high-tech, internet, and telecommunications companies, today’s record-high funds are being invested in fintech (now the largest destination for pre-IPO capital), industrial tech, mobility tech, health tech, digital commerce, and entertainment and media. Tech is now influencing so many verticals that the investments and business processes in those verticals are evolving and beginning to blur industry lines.
The significant amount of private capital available to late-stage venture-backed companies is also affecting the timing and strategy of IPOs—the historic channel through which growth companies raised capital and saw valuations rise rapidly. Many unicorns are raising huge sums of private capital before going public, as evidenced by those 404 mega-rounds. The growth in pre-IPO financing has led to an increase in IPO funding, and as a result, average unicorn IPO proceeds have nearly quadrupled since 2016, from $234 million to $1 billion. Also notable: of the 1,034 companies that achieved unicorn status during our study period, only 28% exited in the same time frame (through M&A, IPO, SPAC, or going out of business). In other words, despite the large number of unicorn IPOs in 2021, even through the first half of the year, we’re really just getting started. And regardless of the near-term future of the IPO market, unicorns are sitting on hundreds of millions of dollars with which to innovate.
Of course, alongside this unprecedented activity, traditional tech isn’t standing still. During our study period, 106 enterprise tech unicorns emerged that are focused on artificial intelligence (AI), machine learning, data analytics, and robotic process automation. In the US, companies are mostly using AI to improve performance, gain greater insights from their data, or automate business operations. In China, AI companies are primarily focused on facial recognition and computer vision. Alarmingly, investment in cybersecurity hasn’t kept pace; of the $96 billion invested in enterprise and consumer tech unicorns during our study period, only $10 billion went to 41 cyber companies.
By Vicki Huff Eckert
Read the full article at https://www.pwc.com/gx/en/about/new-ventures/unicorns-five-trends.html.