Aileen Lee of early stage fund Cowboy ventures wrote a post for Techcrunch yesterday looking at the characteristics of 39 startups founded since 2003 that are worth over $1bn. She calls them ‘Unicorns’. There has been a lot of discussion since. Most notably Dave McLure who Tweeted that “The future of venture capital is not about picking unicorns more accurately — it’s about educating and empowering 2-5% of talented humanity w/ $50k/$5m capital” (which I largely agree with) and Fred Wilson who created a Hackpad to crowdsource a fuller list of $1bn companies.
Fred’s Hackpad lists $1bn+ value companies founded after 2003 and founded before 2003. In the pre-2003 cohort there is just one European company (Vente-Privee) whilst in the post 2003 cohort there are eleven (Klarna, Spotify, Skype, Zalando, Supercell, Rovio, King.com, Criteo, Wonga, Zoopla, Soundcloud). Now the list is not complete (e.g. it excludes ARM and Autonomy) and elements are debateable (I’m not sure Soundcloud has achieved a $1bn valuation yet) but even with those caveats its clear that Europe has made a big step forward in creating ‘Unicorns’.
Finally, if you’ve ever wondered why VCs care so much about $1bn exits, Aileen explains why:
Why do investors seem to care about “billion dollar exits”? Historically, top venture funds have driven returns from their ownership in just a few companies in a given fund of many companies. Plus, traditional venture funds have grown in size, requiring larger “exits” to deliver acceptable returns. For example – to return just the initial capital of a $400 million venture fund, that might mean needing to own 20 percent of two different $1 billion companies, or 20 percent of a $2 billion company when the company is acquired or goes public.
We have a small fund here at Forward which means we aren’t subject to this logic. We’d love our companies to be worth $1bn of course, and hope and expect that some of them will be, but we can make great returns for our investors even if that doesn’t happen and we support our companies in finding the right level of exit for them.