According to a list published by CB Insights, there are currently 131 unicorns, with a total value of $485bn. Top of the list is Uber, said to be worth $51bn, closely followed by Xiaomi, the Chinese hardware developer, at $46bn. At the other end of the scale are 38 companies with a valuation of $1bn.
We have already written about the 'Icarus' subset of these companies, seen as being vulnerable for a number of reasons. These and some other unicorns also have valuations which seem to bear no relation to their revenues or their potential.
Now further worries about unicorns are being expressed as the turmoil in the Chinese markets spreads.
Valuations are one thing, but it would be interesting to know that amount of cash invested in these unicorns. Look down the list of the 131 unicorns and you'll see some well known investors, particularly from Silicon Valley, including Benchmark Capital, Accel Partners, Sequoia Capital and the legendary Kleiner Perkins Caufield & Byers. These are all traditional investors in the electronics industry, but the cash that used to be put into chip developers is now, to a great extent, invested in services.
It's not new. Around the turn of the Millennium, investors were fighting – physically, in some cases – to put money into websites that patently had no chance of laying the 'golden egg' which investors expect. However, one website investment by KPCB and Sequoia did pay off rather spectacularly – both put $25million into Google and saw a 55,000% return.
The VCs listed above don't expect to make a return on all their punts, but they do expect something like one in ten to succeed in a big way when they go public. But is there an appetite for any big IPO at the moment? Unicorns have their high valuations because people anticipate making a 'killing' when they eventually go public. Without that exit strategy, unicorns become less attractive, their valuations will decline, the cash gets burned as expenditure exceeds revenue and the pay out – if it comes – gets less.
This isn't to say it's a 'no brainer' to put money into a company developing services, but it seems to be a lot more attractive than funding chip companies. Today, investors will need to put more than $200m into a chip company just to get a leading edge product to market. With the days of high value acquisitions and IPOs seemingly over, there's no incentive for investors to do that.
But you have to wonder how many really good hardware ideas remain on the drawing board because VC funding isn't available?
