Chasing unicorns in 2016

Unicorns – startups valued above $1 billion – are meant to be rare. Asia now has a herd of them and a cull may be in the offing.

Unicorns – startups valued above $1 billion – are meant to be rare. Asia now has a herd of them.

Across the region new industries such as fintech, social media and big data are flourishing by supplying services to a burgeoning middle class in super-wired cities. These relative newcomers include Xiaomi (consumer electronics), Lufax (peer-to-peer lender), Flipkart and Coupang (e-commerce).

What used to be the stuff of legend is now relatively commonplace. According to CB Insights, there are 29 Asian unicorns with an aggregate value of $149 billion, which equates to 30% of the price of all unicorns globally.

There are many more narwhals, companies valued at around $500 million to $800 million. Asia even has a few decacorns, the latest buzzword in the tech world meaning a company valued above $10 billion.

As they grow, these hugely disruptive companies will consume more and more capital. Investment bankers are chasing mandates to raise funding for expansion on their behalf. Investors have scrambled this year for infrequent and unpredictable entry points into pre-IPO companies.  

Lufax is back in the market for another private funding round ahead of a potential IPO next year according to sources. 

2016 will be the year many of these companies prepare for listing and a few may even have their stock-market ticker code by this time next year.

However, the stampede could also come to a halt. Many of these companies are still unprofitable and rolling out business plans; regulation is catching up. Failures among China's peer-to-peer lenders is up 523% year-on-year. 

And valuations are always subject to the vagaries of sentiment. Too many expensive IPOs could burst the pricing bubble. Already, prices in private fund rounds are starting to wobble and investors marking down pre-IPO companies in their portfolios.

Some stock analysts say multiple unicorn sightings is a sign the cycle is turning. 

Many tech entrepreneurs would be advised to take advantage of the ample liquidity available now in the region, especially in China.

After the US interest rate rise this week and more in the offing across 2016, institutional investors could take flight to higher-yielding assets elsewhere with less risk attached. For investors, the shoe is on the other hoof: the desire to access these exciting stories must justify high premiums.

Unicorns are rare for a reason; best ride the trend while you can. 

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media