The number of start-ups valued above $1bn grew rapidly in the second quarter, as venture capitalists increased the size and pace of their investments following several blockbuster public listings in the US.
Private investors assigned billion-dollar valuations to a record 136 start-ups between April and June, according to the data service CB Insights, more than the total for all of last year.
The US produced the majority of the billion-dollar private companies, which included the social calendar app IRL and financing marketplace Pipe. Asia contributed 33 during the quarter, compared to 29 for the full year in 2020.
Billion-dollar start-ups, colloquially known as “unicorns”, have proliferated as deep-pocketed investors have grown accustomed to paying lofty prices for shares in young companies. The surge in valuations could raise renewed concerns about overheating in private tech markets, while creating difficult targets for start-up founders to meet.
Venture capitalists said the high valuations reflected the influence of firms like Tiger Global Management, which is in the process of raising a $10bn private tech fund, and a strong reception in public markets for tech companies that have listed their shares in the past couple of years, notably the enterprise software group Snowflake and the travel business Airbnb last year.
“Valuations are rich, and there’s a lot of capital in the market,” said Laela Sturdy, general partner at CapitalG, a tech fund that manages money for Alphabet.
But many investors had also underestimated the effect of cloud computing and other tech developments, she said, “resulting in opportunities being much bigger than anybody realised”.
Start-ups are on pace to double the previous annual fundraising record set just last year, when the coronavirus pandemic accelerated tech investment. Investors poured $292.4bn into minority investments in private companies globally during the first half this year, nearly equalling the total for all of last year.
The totals have been driven higher by huge funding rounds for some of the largest unicorns. Rounds greater than $100m in size accounted for almost 60 per cent of the total capital raised in the first half of 2021 but only 5 per cent of the total number of deals.
“When a company appears to be winning, there’s a lot of capital that is flowing to it or wants to flow to it,” said Anand Sanwal, chief executive of CB Insights. “There’s just a lot of capital out there and not enough opportunities.”
Tiger Global made the most investments in private start-ups of any firm during the quarter, striking 81 deals, or about 1.3 per business day, according to CB Insights. That pace represented an eight-fold increase from the same period last year.
Last month, Tiger Global told investors it “strived to remain disciplined, passing on opportunities we deemed good in favour of executing on great ones”, according to a letter viewed by the Financial Times.