The Takeaway
Venture capital has helped power dramatic growth in private markets in recent decades, expanding the opportunity set for investors of all types.
Unicorns, or late-stage venture capital-backed companies valued at $1 billion USD or more, have come to symbolize the venture ecosystem’s potential, innovation, and returns.
The first of their kind, the Morningstar PitchBook Global Unicorn Indexes are designed to bring structure and transparency to private markets and paint a more complete picture of today’s investment landscape.
The explosive growth of private markets has been one of the most significant developments in capital markets in the last two decades. More money is being raised in private markets than in public markets each year with no sign of a change in the trend. Due to this increase in available capital, many young companies are choosing to remain private longer.
One mark of this rapid growth is captured in the burgeoning number of unicorns, or venture capital-backed companies valued at $1 billion or more. As companies have stayed private longer, a growing number have hit key milestones like finding product-market fit and generating meaningful revenues, which is reflected in their often lofty valuations. The ranks of unicorns now exceed 1,300 globally and their collective value is roughly $4.5 trillion.
Unicorns offer a window into the innovation economy. Today’s unicorns are tomorrow’s industry stalwarts—just look at Amazon, Tesla, or Uber. To understand where markets are going, it helps to understand what is on the horizon. Unicorns are already important players, but their growth, evolution, and impact are largely undocumented. As the lines between public and private markets blur, as venture capital and private equity investments make further inroads into pension plans, public mutual funds, and even private retirement accounts, it’s vital that investors see a more complete picture of the market. Startups remaining in the private arena for longer periods may be convenient for entrepreneurs and profitable for venture capitalists, but it comes at a cost to investors and undermines the principle of equal access to information upon which robust securities markets are based.
Underpinned by data from PitchBook, a leading provider of private-market data and research and an independent subsidiary of Morningstar, the Morningstar PitchBook Global Unicorn Indexes provide insight into what's happening just over the horizon of the public markets in the late-stage VC market. The indexes employ a statistical model to estimate more frequent valuations for private companies. The first of its kind, the model leverages valuations from the company's last funding round along with private-market and public-market comparable data to determine constituent pricing.
We seek to shine a light on what’s coming next, to paint a more complete picture of today’s investment landscape, and to provide a better sense of where markets may be heading. We think these indexes will be a valuable tool for documenting, monitoring and evaluating the late-stage VC market—and empower better investment decisions.
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