The year of the unicorn
If there was a single trend that marked out 2015, it was the proliferation of unicorns – companies valued at $1bn or more – with enterprise IT and online services proving especially fertile ground.
A key reason for the rapid growth in unicorns is the greater amount of capital floating around in the VC space, at all stages. The success of Y Combinator and 500 Startups have helped encourage accelerators and incubators to open up, providing cash at pre-seed and seed stage.
At the same time, low returns in traditional areas have led pension funds, mutual funds and hedge funds to start making growth and later-stage investments to complement their other activities, and to pump more money into VC firms, which in turn inflates funding, and therefore valuations, at all stages.
The influx of cash has not only led to greater numbers of companies reaching 10-figure valuations, it has also led to some of the biggest companies delaying the IPO process, as money has to some extent been easier to raise privately than it would be on the open markets.
Uber is reportedly raising cash at an $80bn valuation, while Airbnb, Palantir, Flipkart and Airbnb have all raised funding at valuations of $15bn or more in the past six months. Of course, that proliferation of late-stage funding has also had another effect…
The big IPO squeeze
As more and more companies potponed going public in favour of raising large late-stage rounds, IPOs stalled, with only around 30 technology companies going public in the US – the lowest since 2009 and the financial crisis. Figures compiled by Dealogic showed the number of healthcare and technology IPOs by late November was down 43% from the same stage in 2014.
The going wasn’t easy for the companies that did make the leap either, with many, particularly in the healthcare sector, floating below their ranges. Mobile payment company Square’s November IPO, in which it floated below its $11 to $13 range, was seen by many at the time as a bellwether for the tech IPO space, but the fact its share price has since recovered to $12.57 (at the time of writing) suggests perhaps it isn’t as bad as all that.
Talk of a VC bubble has been around for some 18 months now, and as the year drew to a close the likes of GV chief executive Bill Maris and Salesforce CEO Marc Benioff began to publicly sound notes of caution over the logjam.
2016 will likely see them get their wish. These levels of late-stage funding aren’t going to be around forever, especially considering how crowded the space is becoming, and many businesses may find their high burn rates make an IPO more of a necessity than an option. Hopefully, the outcome will be a reinvigorated IPO space and some hefty returns for some of the corporate venturing units that have built up a base of unicorns.
Ride sharing accelerates
Last year’s trend feature detailed the rise of the ride hailing sector, as Uber raised $3bn and finished the year as a $40bn company, while competitors Lyft, Ola, GrabTaxi and Didi Dache all raised hefty nine-figure rounds.
This year, the industry went into overdrive, with Uber recruiting Microsoft and media firm Times Group as investors and pushing its funding past the $8bn mark, with billion-dollar expansion drives in both China and India. At this point it is the most valuable startup company in history.
Uber’s success in fundraising only served to accelerate the competition. Didi Dache and Kuaidi Dache merged to form China’s largest ride hailing company, Didi Kuaidi, and subsequently closed a monster $3bn Alibaba and Ping An-backed round in September.
Lyft meanwhile raised $680m, GrabTaxi secured $350m and Ola raised $900m across two rounds, with Didi Kuaidi investing in both Ola and Lyft. The four ended the year having sealed a strategic partnership to cooperate across borders, and the influence of other corporate investors may well have played a part. SoftBank is an investor in Didi Kuaidi, Ola and GrabTaxi, while Tencent has backed Didi Kuaidi and Lyft.
Lending platforms
Although the mobile payment space continued to expand, and hype began to grow around blockchain, the big activity in fintech this year revolved around online lending platforms. Renren, best known as a social media company, went as far as to reposition itself as a financial technology firm, building on the back of investments in the likes of alternative lending platforms SoFi and LendingHome.
SoFi is currently the most valuable company in the sector, having closed $1bn in series E funding in October at a $4bn valuation, following it a few weeks later with an additional $150m from Renren. Mortgage specialist LendingHome meanwhile raised $70m in April, after processing $100m of loans in its first year of operation.
Much of the growth in alternative lending platforms this year however happened in China, where the likes of 9fbank ($110m), Ppdai ($100m) and Jimubox ($84m) all raised significant amounts of funding. The sector appears to have quieted down somewhat of late after some frenetic activity in the early part of 2015, so it will be interesting to discover whether the companies have run into difficulties or whether they’re just drawing breath.