We analyzed over 2,600 seed-stage startup investments made on AngelList dating back to 2013 to determine the likelihood of any startup achieving unicorn status today.
Jul 15, 2021 — 5 min read
Unicorns—companies worth over $1B—are being minted at a greater clip than ever before. According to CB Insights, 245 companies earned valuations of $1B+ in the first half of this year. That’s more new unicorns than all of 2019 and 2020 combined. Pitchbook reports the average pre-money valuation for late-stage startups jumped to a staggering $1B, while the median valuation swelled to $112M.
This tracks with data we’ve collected at AngelList. As our Q1 report indicated, startups are seeing record high valuations and markup rates.
With data suggesting more startups achieve unicorn status than ever before, we started thinking: What are the chances of any early-stage startup achieving unicorn status today, and how has it changed over time? To answer those questions, we took a look under the hood at our data. Here’s what we found.
According to AngelList data, a venture-backed seed-stage startup has an estimated 1 in 40 shot—or 2.5% chance—of achieving unicorn status today. This result is based on an analysis of 2,622 seed-stage investments made on AngelList between 2013 and 2019 (we stopped the analysis in 2019 to include only investments with a reasonable shot at raising a subsequent priced equity round).
To arrive at that estimate, we evaluated the number of seed-stage investments on AngelList that increased in value (48%), determined how much of an increase was needed to reach a $1B valuation (27.5x, based on five recent unicorns seeded on AngelList when factoring in dilution), and then calculated the probability that any given company would return that multiple (5.1%).
If 5.1% of winning seed-stage investments achieve a $1B valuation, and 48% of venture-backed seed-stage investments on AngelList are winning, then we'd expect about 2.5% of seed-stage investments (at least those made on AngelList) to become unicorns.
This number is a drastic increase over the most recent comparable study, conducted by CB Insights in September of 2018. CB Insights evaluated 1.1k U.S. companies that raised seed rounds between 2008 and 2010 and followed them through to the end of August 2018. Of those, only a dozen—slightly more than 1%—went on to become unicorns.
Of course, this isn’t an apples-to-apples comparison. The large gap in results could be attributed to a difference in the time period measured (2008-10 vs. 2013-19) or a change in the dataset (CB Insights data vs. AngelList data). As a sanity check, we duplicated our internal unicorn analysis for the earliest investments on AngelList.
This group included several dozen seed investments that investors made on the platform in 2013. Based on the implied markup and multiple rates from our 2013 data, we estimate that startups seeded in 2013 had a 0.94% probability of becoming a unicorn—which is in line with CB Insights’ independent estimate.
Based on our data, we concluded that the probability of any seed-stage startup achieving unicorn status has more than doubled since 2018.
There are a several reasons this might be happening.
For one, valuations continue to climb. In 1Q21, seed round valuations on AngelList were up 9%, compared to 2020. Series A valuations were up 80%, and Series B valuations were up 48%.
“Seed rounds may have got done on a $4M valuation back in the day, but now they’re at a $10M+ valuation range,” said Ali Tamaseb, a partner at DCVC and author of the book “Super Founders,” in which he performed an in-depth analysis on the characteristics of dozens of unicorn startups. “Hence, it might be an easier leap going from a $20M valuation to a $1B valuation rather than $4M to $1B.”
Another factor could be the increase in startup success rates. The first quarter of 2021 was the “best quarter ever” for early-stage startups in terms of rates of markups and positive exits. Just over 85% of the events reported by startups on AngelList during that period were positive ones—an increase of 5% from just one quarter before.
Tamaseb sees startup and venture knowledge becoming more institutionalized, which in turn is helping support the growth and success of larger and larger companies.
“While startups used to build ‘tech for tech,’ now ‘tech’ encompasses everything from real estate and government to fashion and pharmaceuticals,” Tamaseb said. “The market caps and potentials for this new generation of startups is much larger than the previous generation, as they are going after the whole economy, not just a slice of it.”
This document and its contents, including any charts and graphs provided within, is for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. AngelList returns contained in this presentation are as of 6/25/21. They may include valuation events that occurred (or were learned about) after that date, which is standard practice. All other figures in this presentation are based on data available as of 6/25/21. We undertake no obligation to provide updates or revisions to reflect any changes in actual or expected returns. For more information on our valuation methodology, see here. Although AngelList has no reason to doubt the veracity of CBInsights or Pitchbook’s data, it has not made any effort to independently verify its accuracy
