Adley Bowden May 12, 2016
It's been predicted that the current downturn in venture is going to lead to a pile of unicorpses. Sure, according to Keynes, "in the long run we are all dead." But for most of the 357 U.S. venture-backed companies valued at over $250 million, a 2016 fundraising downturn will not put them out of business, force a fire sale or necessitate a lifeline round full of dirty terms.
The reason why is that these companies took advantage of the 2014-2015 venture boom to stock up on significant amounts of capital. Here’s a look at how well-positioned or exposed these larger venture-backed companies ($250 million valuation or greater) are in terms of time since their most recent fundraising round.
Granted, just having a recently filled bank account doesn’t protect against failure. These companies must pragmatically put this money to use, building growing and enduring businesses. Sometimes it’s easy to forget that many of these companies have professional investors and experienced management teams running them, so there are pretty good odds that most of them can make this transition. If they don’t (or after doing so don’t have the business they thought they would) then they'll be in trouble, but that will likely happen in 2017.
Here’s a look at the same chart as above, but with actual company counts for each valuation bucket instead of percentage of companies.
Impressively, it appears the system has actually protected itself by pushing capital into these larger VC-backed companies over the past couple years. As most of these companies are generating revenue, presumably have a lot of growth-focused costs that can be trimmed and have the ability to raise debt if needed, it allows for an extension beyond the traditional 18-month timeline between rounds. Increasing the time to that next fundraise or exit gives these companies the opportunity to grow into their inflated valuations and ride out the current turbulence.