As unicorn growth slows, Europe stands out

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The Daily Pitch: VC

July 4, 2022

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As unicorn growth slows, Europe stands out

The PitchBook Unicorn Tracker shows that billion-dollar company formation continues to slow as investors rethink the fair price for high-growth companies:

June posted the slowest unicorn growth since December 2020, with 28 new unicorns created.

But year-to-date unicorn formation remains elevated, thanks to momentum built up in 2021. There have been 239 new unicorns created this year, compared with 267 in the first six months of last year.

European unicorns have become much more common, representing nearly 18% of all new billion-dollar VC-backed companies in 2022. But North America remains the top geography for new unicorns, with three-fifths of the total.

explore the tracker

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The market correction has come for Series A and seed startups

(DNY59/Getty Images)

After months of relative immunity to market turmoil, Series A and seed deals have started to feel pricing pressure.

Valuations for best-in-class Series A deals have dropped as much as 58% in recent months, according to Michael Kim, an LP whose firm, Cendana Capital, invests in dozens of prominent seed funds. Seed-stage startups are likewise seeing valuation declines.

VC firms, including Sequoia, are also starting to demand that companies show more robust revenue before seeking a Series A.

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The risks of opening the PE club to the mass affluent

(Joey Schaffer/PitchBook News)

The private equity market can be a hard place to get into. Compared to more accessible areas of finance, it's an investment approach that requires the kind of capital and investment experience that is beyond most individuals.

Traditionally, the PE asset class has been the domain of banks, pension funds, endowments and other institutional investors that have the wherewithal and patience to make big-ticket commitments for years at a time. But now another class of investors is making its presence felt: the mass affluent.

It is easier than ever for this group to gain access to PE funds—and vice versa. But as general partners start looking lower down the financial food chain, it's important to ask who benefits from this trend and what impact it will have on existing limited partners and their returns.

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VC market faces 'rational reality' reset, investors warn

(spreephoto.de/Getty Images)

Venture investors expect a widespread reset in investment activity as the market shifts to favor sustainability over growth. At the 2022 SuperVenture conference in Berlin, the impact of macroeconomic volatility on capital raising and valuations was at the forefront of the discussion, with most investors predicting tougher times ahead for startups.

"I think now we're entering a more rational reality," Balderton Capital partner David Thévenon said in a panel discussion. "Last year, rounds were closed sometimes in a matter of days, but companies need to realize that isn't going to happen now."

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Scores of newly public companies worth less than they raised from VCs

(Spencer Platt/Getty Images)

Over 140 VC-backed companies that went public in the US since 2020 had market capitalizations as of mid-June that are less than the amount of venture funding they raised, according to PitchBook data.

The tally—which includes formerly bright stars of insurtech, mobility tech and retail—underscores the punishment that has been doled out to tech companies whose growth prospects have diminished.

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Trial by fire for owners venturing into European soccer

(Caroline Suttie/PitchBook News)

Déjà vu all over again.

That's how some observers of ownership changes in European soccer might describe the recent turn of events at Burnley Football Club. The English soccer team, acquired in a debt-financed deal in 2020 by US investor Alan Pace, suddenly faces a world of new financial challenges after a poor season resulted in demotion to a lower league.

The relegation, which dropped Burnley into the far less lucrative second tier of English soccer, throws Pace's team-rebuilding plans into doubt and raises questions about the wisdom of debt financing in deals for mid- to lower-ranked European teams, which each season face the risk of relegation.

What Pace and his club are going through may simply be the latest example of an old saying that the best way to make a small fortune in soccer is to start with a large one. And by no means is Pace the first investor, foreign or domestic, to suffer from the vicissitudes of European soccer's league tables.

However, Burnley's experience is a stark illustration of how the threat of relegation can wreak havoc for team owners.

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