CHAPTER 6Avoid the Seduction of Unicorns: Get in Early

The world has been captivated by the growing number of unicorns—private companies theoretically valued at more than $1 billion based on their latest round of funding. According to CB Insights, as of October 2016, there were 176 unicorns globally, with a cumulative valuation of $628 billion. Ninety‐nine of them were in the United States, led by Uber, with a valuation of $66 billion. Number‐two among U.S.‐based unicorns is Airbnb, valued at $30 billion. If you were an early investor in any of these jewels, you're likely to win big! Get ready to pop the champagne. But what about investors who got in later, especially in the very latest fundraising rounds? How worthwhile are those investments going to be?

It's All High Risk, So Get in Early When the Biggest Returns Are Possible

We've said it before, but it's so fundamental that please pardon us for repeating it several times throughout this book—venture capital investing is a high‐risk/high‐potential‐reward endeavor. Most deals wind up losing, often the entire amount invested. The industry norm is for about 15–20% of deals to generate some gain.

Our firms have exercised extreme selectivity and due diligence rigor, investing in only about 40 companies over the past 33 years. We've invested only in ventures we love. Our success rate shows the fruits of that concentration; it's double the industry norm, at 37%. Four of the ventures we supported have even become billion‐dollar+ ...

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