2017 was another landmark year for unicorns

Source: Hans Splinter/Flickr

What a year for Startups! Data from PitchBook shows 57 startups reached a valuation of more than $1 billion, joining the unicorn club, Recode reports. Seven lost their unicorn status, though. This includes Shazam, which Apple recently purchased for $400 million, much lower than the $1 billion valuation it reached in 2015.

This is the third biggest year for unicorns, with only 2014 and 2015 seeing more $1 billion valuations with 62 and 81 companies respectively. Yet this year also shows the fragility of valuations.

In August, Bloomberg ran a story with the headline “Here’s How Unicorns Trick You Into Thinking They’re Real.” The story relies on a study that shows how companies boost valuation by valuing all shares equally rather than separating them by share class. A number of other tricks are also used.

For the startup community, the reasons why these methods are used are clear. Higher valuation makes startups look more appealing and thus attracts even more funding in the future. However, as recent acquisitions show, these high valuations don’t always amount to much.

When it comes time for an exit, acquiring companies or investors are going to decide themselves what a company is worth. Even if a high private valuation affects public perception of the company and leads to better IPO performance, the vast majority of exits are in the form of mergers and acquisitions.

At the Startup Launchpad conference last fall, KPMG associate director Angela Chiu said 97 percent of exits are M&As. Only 2.9 percent make it to an IPO.

(Source: 2017 Startup Outlook U.S. Report, Silicon Valley Bank)

(Source: 2017 Startup Outlook China Report, Silicon Valley Bank)

In the U.S., 53 percent of startups actually prefer an acquisition, according to Silicon Valley Bank. The complexities of going public may be considered too big of a burden for some. The situation remains different in China, where 59 percent of startups still see an IPO as their ultimate exit plan. That has more to do with the specifics of the China market right now.

An acquisition makes for a pretty clean exit and a nice payday for founders and early investors. In today’s hot startup market, though, fewer companies can be expected to hold onto that unicorn status when they make their exit.

The moral of the story here is that if you’re not a unicorn yet, don’t sweat it. It’s all made up, anyway. Just keep making great products. Then again, maybe 2018 is your year. Good luck!

Header image source: Hans Splinter/Flickr

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