A few unicorns make it in the real world

Contact: Brenon Daly

After two years of existing mostly on paper, unicorns have finally started making it into the real world. And in no small part, it’s thanks to companies that do the vast majority of their business in the real world. This year has seen a record number of seven sales of VC-backed companies for $1bn or more, according to 451 Research’s M&A KnowledgeBase. That’s as many ‘unicorn’ exits as the two previous years combined.

The increase in the number of ‘three-comma exits’ is largely due to the broader trend of digital transformation, as companies that used to only do business in the brick-and-mortar realm acquire their way online. For instance, last summer, e-tailer Jet.com sold to Walmart for $3.3bn, representing the largest sale of a VC-backed vendor in two and a half years. Additionally, consumer products giant Unilever, which traces its roots back to the 1890s and generates some $56bn in revenue, paid $1bn for four-year-old online retail site Dollar Shave Club.

Non-tech acquirers buying their way into tech were also visible in the next band of transactions, just below the fabled unicorn status. The list of the shoppers so far in 2016 that have paid $500-999m for VC-backed startups includes names that wouldn’t typically find themselves on a tech M&A hit list, notably Ritchie Bros. Auctioneers and General Motors. Altogether, nine venture portfolio companies have signed off on deals valued at $500-999m in 2016, which essentially matched the average of the previous two years, according to the M&A KnowledgeBase.

To the relief of VCs, this trend is likely to continue as old-line industrial and manufacturing vendors as well as retailers use M&A to find new avenues of growth. Many of these would-be buyers are also enjoying some of the highest stock prices they’ve ever had, which is boosting their confidence to do big-ticket acquisitions in untested markets. It’s unlikely there will ever be a stampede of unicorns into the physical world. But in the coming years, a few of the venture industry’s highest-valued startups will undoubtedly continue to make their way to acquirers that they probably wouldn’t have ever imagined when they first launched their startup.

Acquisitions of VC-backed startups*

Year Number of transactions valued at $500-999m Number of transactions valued at $1bn or greater
YTD 2016 9 7
2015 9 1
2014 8 6
2013 7 2
2012 7 4
2011 7 1

Source: 451 Research’s M&A KnowledgeBase *Includes estimated and disclosed deal values