Once a rarity, more than 800 so-called unicorns are now prancing around in venture capital arenas looking for financing.

That’s a lot of sparkle.

Aileen Lee of Cowboy Ventures popularized the term unicorn in 2013 to describe a venture-backed company with a $1 billion valuation while still privately held. She had combed through filings for 60,000 startup software and internet firms that had received funding between 2003 and 2013 and discovered just 39 with that hefty valuation.

Today, $1 billion startups are more like mules—not all that rare. But their valuations still glitter. As of 2021’s second quarter, the median valuation for all companies receiving late-stage venture financing was a cool $1 billion.

It’s a dramatic market shift that can only partially be explained by greater liquidity and asset-price inflation. Here’s what going on:

  • Large venture funds are raising extraordinary amounts of money. In 2020, the amount of capital committed to venture-capital funds with over $500 million had increased nearly 10 times over 2013. These mega-funds represented over $50 billion in capital in 2020—more than 63% of total capital raised on the year. Given their size, these funds are generally late-stage investors.
  • Non-traditional investors are participating in 45% or more of the total market deal value. These investors include mutual funds, hedge funds and private equity, and they are taking significant ownership in the late stage.
  • The average age of a company going public in 2020 was over 12 years, meaning they were more developed and dependable. From 1980 to 2020, the median age was eight years. In 1999 alone, the median age of a company’s initial public offering or IPO was just four years.

All this newly available capital means startups have greater access to financing, particularly in the late stage, and that allows them to postpone public listings. More mature and developed companies can justify higher valuations. And the opportunity to further develop these businesses without the constraints of a public listing allows more value to accrue to the private investors.

AMG has long favored early-stage investments, and the growing appetite of late-stage and non-traditional investors is creating an additional path to exit as these new investors look to consolidate ownership. Often, early-stage investors can sell a portion of their holdings in a secondary sale to the late-stage and non-traditional investors.

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