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Will ‘Unicorn’ Funding Consolidation Mean an M&A Exit for Your Company?

Unicorn sightings aren’t so rare anymore. There are now 393 private companies with valuations >$1 Billion, according to CB Insights. (1) But if you look at funding patterns and exit trends, while early-stage investing remains robust the volume of late-stage funding growth has actually plummeted as money consolidates behind these select few ‘supergiant’ rounds. And while unicorn IPOs garner news headlines and marketing-heavy brands get buzz, it’s in the M&A deals where the real volume of the action is happening.

What these trends mean for you is that it’s more and more likely your company will either grow or exit via M&A transactions. So you should be thinking about how to optimize for an M&A outcome.


  • Very early-stage funding is up 17.7% but late-stage funding is up only 2.1% and consolidating behind fewer and fewer companies.
  • So-called ‘supergiant’ funding rounds (>$100 million) have increased in the past decade from rarely (9% of all fundings in 2008) to the majority (67% of fundings in Q4 of 2018).
  • The 15 companies on the 2019 IPO calendar are ‘unicorns’ that have raised the bar in terms of marketing spend and investor-fueled land-grabs.
  • These ‘winner-take-all’ funding patterns mean that the chosen companies have war chests of cash on hand for strategic (and defensive) M&A to consolidate competition.
  • In turn, M&A deal sizes are getting larger (10 companies in Q1’19 garnered valuations >$200 million; 4 achieved >$3 Billion), and M&A has become a very lucrative way to exit.
  • Conclusion: all trends are aligning toward an M&A exit being more likely in your future. Which means that you should be thinking about how to optimize your company’s M&A positioning and valuation.

Below is a full analysis and research citations to support the argument above. In my next post, I’ll dive into how M&A valuations are negotiated, and the difference between ‘intrinsic’ value and ‘strategic’ value to a buyer.

Analysis: What’s going on here? 

After pouring over SEC filings and Crunchbase data one weekend, I could see some distinct patterns emerging between 2018 and 2019 funding. (2) Let’s first look at some data for deal #volume and funding $amounts comparing y-o-y growth from Q1’18 to Q1’19:

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Funding Consolidates into the Few: 

There is a steep drop-off in deal #volume as rounds progress, but this is normal investment behavior as companies that fail to gain traction drop out. Moreover, the funding dollar $volume increases as funding round progress, which is also normal behavior as the remaining companies step hard on the gas pedal to scale their operations.

But what the table doesn’t show is the concentration of those late-stage dollars: investments are flowing disproportionately into “supergiant” rounds of >$100 million. Ten years ago, only 9% of all funding rounds fell into the supergiant category, but in 2018, and especially Q4’18, the majority (67%) of funding went into supergiant rounds—the highest concentration ever on record. (3)

What’s going on is that a smaller number of companies are receiving a greater share of available funding dollars (more on this below).

A High (Marketing) Bar for IPO:

Looking at more data, SEC filings (4) so far this year show that 15 U.S. unicorns are on the calendar to IPO in 2019, and 9 have already gone out. Most of these companies became household brand names already long ago–and it appears that it’s their marketing dominance, not their profitability, that is driving investor activity.

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The IPOs that you don’t read about are the highly-profitable-but-boring infrastructure companies that are simply tapping affordable public markets for growth capital. Rightly or wrongly, the unicorn IPOs are early-investor liquidity plays, not true corporate capitalizations.


The companies on the 2019 list above had unicorn valuations and $ multi-billion funding rounds long before their IPOs. The trend among late-stage investors now is now to consolidate their bets behind a few ‘chosen’ winners to almost guarantee winner-take-all status by hoovering up all available cash. It’s the investment equivalent of sucking the oxygen out of the room.

In some companies, that late-stage cash is burned at astronomical rates to fund global expansions and/or vertical market land-grabs. In other companies, the money sits in a war chest used for strategic (or defensive) M&A to consolidate competition before they even gain traction.

M&A Deals:

If your company has not attracted supergiant funding to fuel global marketing campaigns and international brand notoriety, all is not lost. Exiting via M&A (acquisition, from your perspective) can be a sweet deal, because M&A deal sizes can be quite hefty also. (5) Uber spent $3.1 Billion to acquire Careem’s ride-hailing business in the Middle East, for example. Dynamic Yield sold it’s AI software to McDonalds for $300 Million; Gimlet Media and Anchor sold their podcasting operations to Spotify for $340 Million combined. Not bad exits for any of those companies!

In the list of the top-12 largest acquisitions among US-based, VC-backed startups in just Q1’19 alone, there is not a single deal smaller than $140 million:

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Why should you care (right now)? 

Most company founders aren’t thinking about their exits when they start their companies. You have a clever new technology solving an under-served pain point affecting a large potential market. All you need to do is scale, right? But the moment you take on investors to achieve that scale, you are setting yourself up for one of three end-games:

  • IPO exit
  • M&A (acquisition) exit
  • Lifestyle business (a.k.a. ‘Zombie’ in investor-speak)

Investors seek returns, so we can presume that no investor really wants to invest in a lifestyle business (unless, of course, it’s their lifestyle), so that leaves IPO or M&A. And the data shows not only that the IPO bar is high, but that the late-stage cash needed to get there is consolidating.

All of which means that you should be thinking about what your M&A opportunities are, and how to optimize your M&A positioning and valuation.

In my next post, I’ll dive into how valuations are negotiated, and the difference between ‘intrinsic’ value and ‘strategic’ value to a buyer.

Mark Addison is founder of XROCKET, and can be reached at