Regulatory hurdles add to headwinds for VC's exit-starved unicorns
April 29, 2023
- Share:
The number of US-based unicorns has surged over the last decade, largely due to an influx of private capital that afforded startups the luxury of remaining private for longer.
This privacy allowed these enterprises to develop valuable IP and other organizational assets leading to a proliferation of companies with enormous valuations and lofty growth prospects.
As of Q1 2023, there are over 700 unicorns based in the US—compared to just 35 in 2013—with an aggregate value of nearly $2.4 trillion.
Unfortunately, the economy is slowing down and cash is no longer falling out of the sky. Our data shows that the amount of capital demanded by startups far exceeds the estimated supply, even when factoring in record levels of dry powder.
Moreover, a frozen IPO market offers little relief for the growing capital supply-demand tensions observed in the venture ecosystem.
With nowhere left to turn, many of these businesses may turn their gaze toward M&A as an exit route. Unicorn acquisitions have created tremendous amounts of value over the years, and many popular products we know today have undergone an M&A transaction such as Meta's $19 billion acquisition of WhatsApp in 2014.
Unfortunately, times have changed. From Q1 2022 to the present, just $39.6 billion of US VC M&A deal value has occurred, making it the least active period since 2015.
The possibility of M&A is made worse by ongoing pressure and scrutiny from the FTC and DOJ. Recent regulatory hurdles have made pursuing acquisitions more costly and time-consuming for some would-be acquirers, particularly large tech companies like Meta and Amazon, and often these businesses may elect to forgo pursuing an M&A transaction altogether.
In an environment marked by a lethargic exit market, increased investor caution, and capital conservation, the fate of many unicorns, despite their growth and development in recent years, remains unclear.
For more data and analysis, download the free research note: The Decline of Unicorn Acquisitions in a Conservative M&A Market
This privacy allowed these enterprises to develop valuable IP and other organizational assets leading to a proliferation of companies with enormous valuations and lofty growth prospects.
As of Q1 2023, there are over 700 unicorns based in the US—compared to just 35 in 2013—with an aggregate value of nearly $2.4 trillion.
Unfortunately, the economy is slowing down and cash is no longer falling out of the sky. Our data shows that the amount of capital demanded by startups far exceeds the estimated supply, even when factoring in record levels of dry powder.
Moreover, a frozen IPO market offers little relief for the growing capital supply-demand tensions observed in the venture ecosystem.
With nowhere left to turn, many of these businesses may turn their gaze toward M&A as an exit route. Unicorn acquisitions have created tremendous amounts of value over the years, and many popular products we know today have undergone an M&A transaction such as Meta's $19 billion acquisition of WhatsApp in 2014.
Unfortunately, times have changed. From Q1 2022 to the present, just $39.6 billion of US VC M&A deal value has occurred, making it the least active period since 2015.
The possibility of M&A is made worse by ongoing pressure and scrutiny from the FTC and DOJ. Recent regulatory hurdles have made pursuing acquisitions more costly and time-consuming for some would-be acquirers, particularly large tech companies like Meta and Amazon, and often these businesses may elect to forgo pursuing an M&A transaction altogether.
In an environment marked by a lethargic exit market, increased investor caution, and capital conservation, the fate of many unicorns, despite their growth and development in recent years, remains unclear.
For more data and analysis, download the free research note: The Decline of Unicorn Acquisitions in a Conservative M&A Market
Vincent Harrison
Analyst, Venture Capital
- Share:
-
-
-
-
Tags:
Join the more than 1.5 million industry professionals who get our daily newsletter!