Venture capital executives will be watching the share price of Snap Inc., in coming months to see if unicorns really are magic.
They will be waiting to see whether Snap's share price stays above its IPO price — confirming its lofty valuation — or falls below. A large portion of the unicorn herd has reached the point of needing a capital infusion. There are typically three ways to get more capital: funding from a venture capital firm, growth manager, mutual fund or hedge fund; from a merger or acquisition; and from an initial public offering.
Asset owners also are keeping their eyes on Snap — the parent of Snapchat, the disappearing photo, video and messaging app — and waiting for their venture capital bets to pay off. Returns have been in a slump. The Cambridge Associates LLC U.S. Venture Capital index posted a 0.7% return in the quarter ended June 30, up from -3.3% in the first quarter of 2016. Venture capital returned -1.4% for the year ended June 30, the latest data available, on par with the Nasdaq's -1.7%. The annualized return for the 10 years ended June 30 was 13.2%, compared to 13.7% for the Nasdaq.
“The hope is that Snap's IPO will be the watershed moment that encourages other technology venture capital-backed companies to take the IPO plunge, said Kirsten Morin, senior investment manager, global venture capital, in the Stamford, Conn., office of Aberdeen Asset Management.
2016 was a bad year for venture capital-backed IPOs, with only 33 going public. Technology-related companies had a particularly tough year, with only 12 filing for an IPO last year, according to an Aberdeen analysis of Dow Jones data.
“Other companies are waiting to see how Snap trades,” Ms. Morin said.