Unicorns are landing, changing the investment landscape.
It is no secret that a bumper crop of unicorn initial public offerings is expected in 2019, as venture capital, growth capital, mutual funds and other investors seek to cash out of their private investments. Some 20 unicorns were in IPO registration at the end of the first quarter, according to the 2019 PitchBook-NVCA Venture Monitor.
Industry experts agree that these unicorns will be going public larger and later than venture capital-backed companies in the past.
That can be good news for early investors in a company as long as their stake maintains its weight. But how later-stage investors, including growth equity, private equity and mutual funds, will fare will depend on whether the public markets will match the unicorns' sky-high valuations in the private market.
On its first day of trading May 10, Uber Technologies Inc., a much-watched unicorn, saw its shares open at $42, about 7% below its IPO pricing of $45. Shares closed at $41.57, giving the ride-hailing service a market capitalization of $69.7 billion, less than its $76 billion pre-IPO private market valuation.
Managers with investments in Uber include SoftBank Group's SoftBank Vision Fund; TPG Capital's TPG VII Ultra Holdings; Benchmark Capital Partners' Benchmark Capital Partners VII and Benchmark Capital Partners VI; and Summit Partners, according to research firm CB Insights and Uber's SEC filings. Almost a dozen BlackRock Inc. funds also hold stakes, documents show. Another Uber investor is the Public Investment Fund, the sovereign wealth fund of the Kingdom of Saudi Arabia, SEC documents show. The Sovereign Wealth Fund Institute estimates the assets of the fund at $320 billion.
Limited partners face additional challenges, namely getting a spot in future, larger funds, if they don't already have an existing relationship with a venture capital manager.
Now that the money managers are returning capital from their unicorn exits, investors have to reinvest the money, said Kevin Campbell, Paoli, Penn.-based co-founder and managing general partner of private equity fund-of-funds firm Taurus Private Markets LLC.
For this reason, larger venture capital funds are not as open to very many new investors because existing investors want to increase their commitments to the manager's new funds, Mr. Campbell said. Before forming Taurus in 2018, Mr. Campbell had been managing director of private markets at DuPont Capital Management.