A new unicorn in the UK every six weeks

 

 

 

Companies in Europe worth over $1bn
Screen Shot 2015-06-15 at 18.17.38

The above chart is lifted from a recent GP Bullhound report European Unicorns: Do They Have Legs?. It paints a pretty picture, for the UK and for Europe. In the last twelve months there were 8 new unicorns in the UK and 13 in Europe. That compares with 22 new unicorns in the US over the same period.

The fact that we’re creating larger numbers of big companies gives confidence to investors and provides fertile training grounds for the next generation of entrepreneurs and angels. It’s great to see.

That said, I’m going to finish with a caveat. For the reasons I gave above it’s critical that we create huge companies, but I think the pendulum has swung too far and the unicorn thing is now overdone. There are lots of great companies created which don’t get to $1bn value and at the earliest stages of investment the market opportunity generally isn’t clear enough to make investing in unicorns a viable strategy. The key discipline for every investor should be to ensure that every deal can be a fund returner, and with small funds that doesn’t require $1bn+ valuations. The real skill is putting yourself in a place to get lucky.

For Forward Partners that means investing in companies that can return the fund with exits in the £100-300m range but have a chance of going on to be much bigger. 60% of European unicorns are in the sectors on which we focus: ecommerce, marketplaces and software.

  • Rmicals

    I have to admit your strategy perplexes me. The VC business is about expected return and not frequency of return. It is inherently a risky business. If you believe given the huge amounts of uncertainty you have the talent to pick lots more £100-£300MM companies surely you’d be great at picking £1BN+ companies too. I suspect the truth might be you’re really practising loss avoidance without realising that you’ve severely trimmed your upside. This line of thinking also especially disappoints me as an entrepreneur (as I’ve mentioned before) as it diverts the flow of money to cash efficient software/marketplace models and underfunded ideas and almost totally rules out bold ideas. And also sure 0.6% of unicorns might have been in ecommerce in the past but technology is also about being on the next curve not the last one which requires a bold bet and a view about the future.

    I’d like to point you to an excellent study on VC returns (data going back to 1985 across 100’s of funds) on Andreessen Horowitz’ site that discusses the Babe Ruth effect in Venture Capital and how many misunderstand this power law . As can be seen from the charts the performance of funds is positively correlated to the percentage of Home runs (>10x return). Also,
    the great funds have a higher number of losing investments than good funds -http://a16z.com/2015/06/08/performance-data-and-the-babe-ruth-effect-in-venture-capital/.

  • http://www.theequitykicker.com brisbourne

    I can’t be expressing myself well. I think exclusively chasing unicorns is a mistake, but I do think that you can profitably target £100-300m exits and have a good chance of getting lucky.

    That’s consistent with an understanding of power laws.

  • Rmicals

    Well your statement – – ‘The key discipline for every investor should be to ensure that every deal can be a fund returner’ gives the impression you think the curve is flat not that it follows a power law distribution and that you believe one should focus on getting a return for every investment and hopefully get lucky on a few i.e. a fear of loss. The article link I shared actually makes a great point with 30yrs data on exactly why swinging for the fences works. Let me know if I’m missing something.

  • http://www.theequitykicker.com brisbourne

    I see it now. Fund returners don’t come round very often so to target them is to understand the power law returns of VC and swing for the fences. If we achieve two fund returners from a portfolio of 30+ companies we will be very popular with our investors. I think that’s where we’ve misunderstood each other.