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Unicorns Beat Bulls – Venture Capital Returns

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We have analysed the top value creators among VC backed startups:

– 40 Companies Create $ 102 bn of Value
– Top 3 Account for $ 37 bn
– Germany < 2%
– Top30 Beat DAX30
– Have VC-Valuations Peaked?

40 Companies Create $ 102 bn of Value in 2015

We have gone through a very interesting venture capital data set published recently by CB Insights. The data is build around the largest value creators among VC-backed startups and compares their respective 2015 valuations to the year ago period.

We found that 40 VC backed companies have increased their valuations by an aggregate US$ 102 bn or an average of 80% vs 2014. The distribution of value creation is fascinating as well. Top 3 value creators account for US$ 37 bn or more than 1/3. It is also exceeding the cumulated value of the bottom 30 companies (Top11- Top40).

This is clearly another confirmation of how important it is for VCs to cherry pick the right investments.

Only the US Benefiting?

The geographic split of value creation is another eye opener with the US bagging a whopping US$ 82 bn. German companies, on the contrary, are good for less than 2%. We would also like to highlight that total value creation of Top 30 VC backed companies exceeds the total shareholder return of all DAX30 companies taken together.

Have VC Valuations Run Too Far?

Nonetheless, VC data points need to be treated with caution for a number of reasons:

US IPOs have failed to live up to high expectations (or private valuations) and quite a few of them experienced an “IPO Down Round”. A very prominent example of a disappointing flotation in recent weeks was the going public of FinTech company Square. For a more comprehensive Bloomberg analysis on Tech IPOs in the US compared to Europe you can check HERE or with a more optimistic tone HERE.

As a general note of caution we would also like to remind that VC termsheets can have a materially positive impact on valuations. Terms usually guarantee specific protection rights for VCs/investors, which  include antidilution clauses, liquidation preference rights or the now famous ratchet (in German: Besserungschein, became famous for its role in Square’s IPO). Term sheet protections for VCs are by far exceeding protections for common investors in listed equity explaining a part of the VC value inflation in our view.

Finally, mutual funds such as Fidelity and Blackrock have taken severe hair cuts on some of their VC investments, which are not yet reflected in the above numbers. Nonetheless, news on the write downs has already sent shock waves through the sector.

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