What Does it Take to Raise a Financing Round at a Billion Dollar Valuation?

Source: CB Insights

On average, unicorns-in-training, take five rounds of financing and over $200M in aggregate financing before hitting the billion dollar valuation threshhold. Among VCs, Sequoia Capital leads the way having invested in 10 companies in the billion-dollar startup club globally.

Raising financing at a billion-dollar plus valuation has gotten a lot more common. With corporations, hedge funds and mutual funds increasingly investing in private tech companies along with VCs, the hunt for unicorns is on in a big way. As a friendly reminder, most VCs are not very good at identifying unicorns, but that’s a story for another day.

In this analysis, we wanted to look at billion dollar financing valuations and what it takes to get there.

Many of the companies as you might imagine are part of our Tech IPO Pipeline. But not all of them, as some companies that got the billion dollar distinction have fallen from grace. Fab.com and LivingSocial being two primary examples. These companies highlight that these gains are mostly on paper as David Hornik of August Capital points out:

“We have all seen high flying companies go out of business before they reach liquidity. As a VC, I have no intention of taking a victory lap until I actually deliver results to my LPs. To my mind, these interim financings have gotten far too much fanfare.”

Using CB Insights venture capital data, we identified 47 venture capital-backed private companies that have raised a funding round at a $1B+ valuation. (Note: the list of companies is below). We then analyzed these unicorns-in-training to understand:

  • How quickly these companies were able to reach a $1B valuation?
  • How much money do you need to raise before you hit the $1B valuation mark?
  • Which VCs have the most wannabe unicorns in their portfolio?
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Geographic Breakdown

From enterprise firms like MongoDB and Nutanix to hot consumer apps including Uber and Snapchat, the 47 venture-backed companies that make up the billion dollar club span a diverse lot. But geographically, the US still dominates which should not be surprising. 30 of the companies are headquartered in the U.S. 9 are based in China while Sweden counts two billion-dollar startups.

Within the U.S., 77% of the billion-dollar startups are based in California and primarily in Silicon Valley. As a testament to the rise of NY’s tech VC ecosystem, 14% of the companies are headquartered in NY including MongoDB, AppNexus and Gilt Groupe.

Financing Requirements

The chart below breaks down the history of rounds it took for the 30 U.S. billion-dollar private companies to achieve a $1B+ valuation. While a handful of the U.S.-based firms took just a couple of rounds and others more than seven, notching a billion-dollar valuation, on average, took five rounds of financing. Firms that raised three or fewer rounds prior to a $1B+ valuation include Wayfair, which recently raised a $150M Series C at a $2B valuation and Automattic, which raised two rounds before a secondary deal from Tiger Global at a $1B valuation. Of course, Wayfair bootstrapped itself to $380 million in 2010 revenue before it took outside financing so they’re a unique beast.

In terms of total funding, getting to the billion dollar mark requires a decent chunk of change. Just two of the current companies took fewer than $100M leading to their $1B+ valuation, which include NEA and Venrock-backed CloudFlare and WordPress parent Automattic, which raised funding from investors including Polaris Partners and True Ventures. On average, the companies took $237M prior to getting their $1B+ valuation.

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The Investors

Two indicators of venture capital investor performance we are actively tracking in our Investor Mosaic models are selection aptitude and illiquid portfolio strength. Specifically, selection aptitude highlights each investor’s ability to source and ultimately select high quality investments and then shepherd them to favorable outcomes. Illiquid portfolio strength measures the quality of current, non-exited companies in an investor’s portfolio and also looks at the investor’s entry point into the company.

So who has backed or taken stakes in the most billion dollar valuation companies is an important measure in the Mosaic models. And based on this analysis, that distinction goes to Sequoia Capital which has backed 10 of the companies globally including four at the Series A stage or earlier. Two VCs count seven of the companies in their portfolio including New Enterprise Associates and Andreessen Horowitz. Digital Sky Technologies and Goldman Sachs have also taken stakes in seven of the firms, respectively.

The chart below highlights the 12 firms who are in five or more of the companies that have raised prior funding at a $1B+ valuation. 7 are VCs, while the rest are made up of hedge funds, mutual funds, investment banks and holdings companies.

The full list of companies who we looked at that raised a round at a billion dollar valuation are below. As mentioned earlier, not all companies on the list have maintained the billion dollar valuation.

  1. AirBnB
  2. AppNexus
  3. Automattic
  4. Bloom Energy
  5. Box
  6. CloudFlare
  7. com
  8. Deem
  9. Dianping
  10. Dropbox
  11. Evernote
  12. com*
  13. Fanatics
  14. Flipkart
  15. Gil Groupe
  16. Good Technology
  17. Woodman Labs
  18. Jawbone
  19. com
  20. Kakao Corp.
  21. Klarna
  22. Lashou Group
  23. Legendary Entertainment
  24. Lending Club
  25. LivingSocial*
  26. Mobileye
  27. MongoDB
  28. Nutanix
  29. Palantir Technologies
  30. Pinterest
  31. Pure Storage
  32. Shopify
  33. Snapchat
  34. Sogou
  35. Space Exploration Technologies
  36. Spotify
  37. Square
  38. Stripe
  39. Trendy Group Intl.
  40. Uber
  41. UCWeb
  42. VANCL
  43. Vente Privee
  44. Wayfair
  45. Xiaomi
  46. Zalando
  47. Zhaogang
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All of the underlying exit and investor data used in this research brief is on the CB Insights Venture Capital Database.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 40 professionals serving more than 100 companies throughout the region.