Photographer: Andrew Harrer/Bloomberg

Raising Money at a $1 Billion Valuation Has Been a Lot Easier Than Exiting for One

Why so many startups have been opting to stay private.

Have unicorns lost their magic?

With 2016 marked by very little news in the way of initial public offerings, a new report from research firm CB Insights sheds light on why so many startups have been opting to stay private. 

According to its "Global Tech Exits Report" for 2015, 70 members were catapulted into the exulted "unicorn" club of startups with valuations of $1 billion or higher, but only 11 such unicorns exited through IPOs or acquisitions in the same year. 

"After zero $1 billion-plus exits in [the third quarter of 2015], the number of billion dollar exits by quarter recovered in [the fourth quarter] to four but it was still a weak year for mega-exits.," the report said. "As we’ve seen for a while, it remained a lot easier to raise at a billion dollar valuation than to exit at one."

CB Insights

In 2014, there were 32 unicorn exits and 46 new unicorns born, according to the firm's unicorn list.  

Market turbulence that picked up in August probably played a role in this trend, along with startups opting to postpone any action until they could see the market's reaction to the Federal Reserve's move to end its zero-interest-rate policy.

The report backs this up: Exits slowed dramatically in the second half of last year. While 2015 saw more exits in total than 2014 did for all tech startups, including those valued at less than $1 billion, the final quarter of the year was the slowest since the third quarter of 2014. And a number of tech companies have recently gone public and then fallen, sometimes quite far, below their IPO price.

CB Insights

Now investors will be focusing on potential fallout from continued market turbulence, as well as how the industry may be affected by the recent struggles of unicorns Theranos Inc. and Zenefits and markdowns by money managers of investments in a number of high-flying names such as Snapchat Inc.

With a board observer to Uber Technologies Inc. and Airbnb Inc. predicting that valuations of closely held technology companies could decline by about 5 percent a month over the next six m0nths to nine months and the chief executive officer of Salesforce.com Inc. telling Bloomberg TV that he refuses to invest in tech startups that claim to be worth more than $1 billion, the future doesn't look as bright as it used to in Silicon Valley. 

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