A look at the rarified air of the $10B club, and the investors who back these outliers
Ah valuations, the most nebulous, polarizing of startup data points. Our favorite data fiends over at CB Insights took a look at the rarified air of venture-backed companies worth $10 billion or more – super-unicorns (or ‘decacorns’, according to CB) if you will.
As rare as a ten-figure ($1 billion) valuation once was for a private company, that list is growing so quickly as to make new additions largely unremarkable. If the Aaron Sorkin’s Social Network was remade today, Justin Timberlake’s Sean Parker would say to Zuckerberg, ”A billion dollars isn't cool, you know what's cool?... Ten billion dollars.”
This week, Snapchat has been rumored to be the latest member of this elite club, thanks to a possible growth stage investment from Alibaba. The deal would make it the fastest to $10 billion in history, with that milestone coming just three years after the company was founded in a Stanford fraternity house.
Other current members include Uber, Dropbox, AirBnB, and Xiaomi. Of note, all five of these companies are primarily consumer-facing brands, rather than enterprise, although Dropbox is looking to bridge the two. And only Xiaomi is operating in the hardware sector, while Dropbox and Snapchat are pure software, and Uber and AirBnB sit at the intersection of bits and atoms, blending software with real world services.
The CB Insights analysis focuses on the investors that stand to gain the most from these potential high-value exits. Unsurprisingly, with Xiaomi based in China, its backers – IDG Capital Partners, QiMing Partners, and Morningside Group – have the least overlap with those of the four US companies on this list.
Assuming that the rumored Snapchat round closes and Alibaba is the only new investor added, there would be 12 investors that have backed two of the four super-unicorns. That list includes, among others, venture capital firms Benchmark Sequoia Capital, Greylock Partners, Institutional Venture Partners, and General Catalyst, as well as mutual funds and hedge funds like BlackRock, T. Rowe Price, and Goldman Sachs.
But a few firms stand out above all the rest for their ability to pick these mega-winners.
Sequoia is the only firm to have invested in the Seed round of two super-unicorns, Dropbox and AirBnB. Given the obvious price advantages of getting in early, combined with value of the pro-rata rights in these rounds, the firm stands to see an enormous return on these early bets. Y Combinator, too, was in both of these companies very early on, but the nature of accelerator deal structures means that it now owns just a sliver of each after many rounds of dilution. (A highly valuable sliver.)
Benchmark, however, is the only firm to have backed three of these four eleven-figure giants. The firm is in the Series A rounds of Uber and Snapchat, as well as the Series B round of Dropbox. On Snapchat, in particular, the idea that the ephemeral messaging company would one day be worth 10 Instagrams seems like an enormous leap of faith. Benchmark evidently saw that potential and found a way to secure a piece of the action where others didn't or couldn't.
Combined, the four US super-unicorns have thus far raised a total of $3.5 billion plus whatever Snapchat takes in during the rumored Alibaba round. The biggest fundraiser has been Uber at $1.5 billion, followed by Dropbox at $1.1 billion, AirBnB at $776 million, and SnapChat at “just” $163 million through its December Series C round, although that appears poised to change.
It takes remarkable skill, and a modicum of luck to look at an early stage company and accurately predict massive success. But even with such foresight, investors then have to not only win the deal – you can argue that there are no price too high or length too far to go to make sure you do – but then also shepherd these companies through their early years to make sure they fulfill their lofty potential.
There’s a reason that both Sequoia and Benchmark have been fixtures at the top of the Sand Hill Road hierarchy for decades. They say it’s better to be lucky than good. But, as these firms demonstrate, it’s better still to be both.