Fidelity Corrals the Largest “Unicorn Herd” – Other Mutual Funds Join the Party

the Curmudgeon


Surprise!  The largest portfolio (i.e. number) of start-up companies valued at over $1B (aka “unicorns”) is not a venture capital or private equity firm.  It’s the huge, privately held Fidelity brokerage/mutual fund company.  Fidelity Investments owns a piece of 24 such companies and is # 1 in a ranking posted Tuesday, September 20th by investment research firm PitchBook Data. 


Other mutual funds among PitchBook's top 21 investors in U.S. unicorns include T. Rowe Price at # 5 with 17 and Wellington Management in a tie with Google Ventures at # 7 with # 14.  These and other mutual fund companies (which previously only bought publicly traded stocks) have made significant investments in richly valued private companies in an effort to reap the kinds of gains they used to be able to get buy buying at or shortly after an IPO.  More details below.

Image result for pic of unicorn

A Unicorn dancing by the light of a crescent moon and stars


PitchBook said in its report that the pace of creation of new unicorn companies has slowed significantly as the IPO window has tightened over the past year. Chances of the unicorn herd being thinned by M&A also seem to be growing.


Mutual Funds Join the Unicorn Party:

Mutual funds invested in unicorns publicly adjusted their valuation estimates downward on some of these investments, especially during the stock market correction late last summer and again early this year.  Often, they came up with different valuation numbers than one another for the same security.  For example, Fidelity and Wellington are both investors in Uber, but arrived at different valuations for that company which today has a paper worth of about $68 billion.

Fidelity, T. Rowe Price and Wellington are all investors in Airbnb, which is valued at approximately $30 billion

Here is PitchBook's full ranking of the investors with the biggest portfolios of unicorns:

·       Fidelity Investments: 24.

·       SV Angel: 23

·       (tie) Sequoia Capital: 20 and Andreessen Horowitz: 20

·       T. Rowe Price: 17

·       Kleiner Perkins Caufield & Byers: 16

·       (tie) Wellington Management, and GV (formerly Google Ventures): 14

·       (tie) Goldman Sachs, and New Enterprise Associates: 13

·       (tie) Tiger Global Management, Khosla Ventures:  Institutional Venture Partners, Founders Fund, and Accel Partners: 12

·       (tie) Salesforce Ventures and General Catalyst Partners: 11

·       (tie) Insight Ventures, Greylock Partners, Comcast Ventures, and Benchmark: 10

"The list of companies that can buy unicorns is short, but the incentives can be compelling for many, ranging from revitalizing core businesses with new product lines to economies of scale," PitchBook wrote in its free report.  


There are now 175 unicorns with a total cumulative Valuation of $626B. You can find an up to date list of unicorns, their current valuation and list of select investors here.


Curmudgeon Comments and Opinions:

We’ve many times written that unicorns were the biggest financial bubble of recent times – perhaps ever!  Please review these posts:

In Search of Unicorns and One-Trick Ponies: Bubble In Private Tech Start-Ups

Unicorn Valuations Quadruple – Now Worth Almost $500B!

Bubble Bubble on the Wall, Which is the Biggest Bubble of Them All?  

Unicorn Year in Review: Party May Be Over For Tech Start-ups!

Obviously, the party is still going on but at a more subdued pace as the pace of unicorn formation has slowed dramatically.  That’s depicted in this chart from the aforementioned PitchBook report

Source: PitchBook, *As of 8/31/2016



Almost all of these unicorns refer to themselves as “tech” companies, but in reality they don’t make any real, tangible products.  They are mostly software and services firms, with a few developing algorithms that run on cloud computing software platforms.   How can Uber or Airbnb be called “tech” companies when they only design and code mobile apps?


The reason these richly valued “start-up” companies have stayed private is that the IPO window has been mostly closed.  Just one venture-backed tech company, Twilio, gone public in 2016, compared to an average of 37 per year between 2001 and 2015.


In a fascinating blog post, Ravi Mhatre of Lightspeed Venture Partners wrote:


Consider that the global economy has essentially been flat over the past several years; global GDP actually shrank during 5 consecutive quarters between 2015 and 2016. And despite seemingly low unemployment rates in the U.S. today vs. what they were during the recession of 2008–10, many remain out of work while others are stuck in jobs with stagnant salaries. You don’t have to look far past the election rhetoric to understand why so much social unrest and turmoil persists here and abroad.


Contrast that sentiment to this herd of fantastically valuable, fast-growing tech startups, and it’s no wonder the world outside Silicon Valley isn’t buying into the pitch. People are suspicious that any company could be on a path of radical growth when they’re treading water at a job for 15 years and haven’t seen a raise in the last five. Unicorns, lest we forget, are mythical beasts. Why should people believe?


Mr. Mhatre believes that tech IPOs aren’t coming back anytime soon. “While Silicon Valley watched the paper fortunes of these magic (unicorn) companies go higher and higher (until recently), the rest of the world was more or less treading water — or drowning.”




When will unicorn valuations start to really ratchet down?  We thought for sure this year had kicked off a long overdue global bear market that would shatter unicorn valuations.  When that happens, the mutual fund companies that own unicorns and other private equity/start-ups will take huge write-downs and impairment charges, which we believe will be substantially greater than 50% of their current valuations.


While we were wrong on the timing for the unicorn bust (thanks to even further easing by global central banks), that day is not too far in the future.  It will take a mistake, accident - some unknown or unanticipated event to pop the many prevailing financial asset bubbles, which will in turn shatter the unicorn mega bubble.  When that happens, many mutual fund investors will be deeply shocked their funds (which own private companies) have gone down more than the popular market averages.


Here's a hint of what might become of many unicorns, as reported by the San Francisco Chronicle in a front page article this past Sunday:  

Brisbane’s Mode Media has abruptly shut down, leaving bloggers unpaid, investors frustrated and rumors swirling in its wake.


Good luck and till next time...

The Curmudgeon


Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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