Watch out unicorns: A third of $1bn startups will fall in value

Lynsey Barber
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Not all unicorns will exit at that valuation (Source: Getty)

Startups worth billions with a so-called unicorn status face falling from their mythical standing back to harsh reality as new research reveals one in three firms will fall below the milestone valuation.

Around 20 to 30 of the current billion-dollar valued startups in the US will be worth less than that upon going public or being acquired, it has been estimated. That's around roughly a third of the 90 startups which boast a unicorn valuation on paper, research by SharesPost found.

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The investment platform came to the figure based on the prior success rate of the venture capitalists backing unicorn startups, giving a so-called batting average of 1.5 per cent, and said the figure is likely to be higher for the approximately 80 unicorns based outside the US.

The research, based on data from Pitchbook, CB Insights and other sources, indicates that unicorn success may be higher considering a potential better rate of VC success due to the greater number of business opportunities as a result of technology sch as cloud and mobile.

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"In addition, arguably, VC batting average for overseas investments could be higher than US investments, largely due to lack of incumbents or early mover advantages," the report said.

"Regardless, we believe that roughly 30 per cent of today’s paper unicorns will have a sub-billion-dollar outcome in the future. Put in a more positive light, 70 per cent of today’s paper unicorns are likely to become real unicorns," it added.