In a series of end of year forecasts from Magister Advisors it suggests that valuation re-setting next year will slow the M&A market; that Unicorns, currently valued at .5trillion, are over-valued to the tune of $200bn and at some point in the next twelve months one of those Unicorns is likely, as Victor Basta, managing partner at Magister Advisors, elegantly puts it, “to be heading for the glue factory.”
Magister Advisors is predicting that Unicorn valuations will fall and while the majority of the 150 Unicorns currently operating are high quality, sustainable companies, they are over-valued. According to Basta, many are funded to their next round, not to break-even, and many will face a re-valuation during 2016/2017 as they are forced to raise additional money.
But not only will Unicorn’s see valuations decline many could end up raising insufficient funds, that inturn could lead to significant layoffs. As a result a number will have to start taking a hard look at their staffing levels and Basta warns that up to 20 percent of their workforces could be laid off.
Basta warns that a Unicorn (or two) is also expected to go under in 2016 and if that was to happen its impact will cascade down, affecting those aspiring to become Unicorns themselves - that is those businesses looking to raise $15-50m.
So be warned. If an aspirant hasn’t already raised enough money to see themselves through the next 3 years, they may very well get caught in the oncoming storm.
But while valuations may be reset, companies and investors become more cautious and we may see a growing number of business failures, could this be a welcome return to reality?
According to Basta, it will be and “it wont be a moment too soon”
