Unicorns – startups valued over $1 billion – were once as rare as the namesake mythical creature, but now they count almost 150.  A herd of unicorns is called a blessing; quite ironic when the bursting smell of unicorn bubbles is wafting over the valley.

Who created the unicorns?

I believe the biggest culprit is the investors who descended from outside Silicon Valley moonlighting as venture capitals . To see that in data, let’s look at the investors that participated in the US unicorns’ past rounds over $100 million in funding*. The top ten most frequent names are listed below with the number of investments in parenthesis:

• Andreessen Horowitz (19)
• Fidelity Investments (19)
• Sequoia Capital (17)
• Wellington Management (16)
• T. Rowe Price (14)
• Kliner Perkins Caufield & Byers (13)
• Goldman Sachs (12)
• Tiger Global Management (12)
• New Enterprise Associates (9)
• Alibaba (9)
• Founders Fund (8)
• General Atlantic (8)
• Salesforce Ventures (8)

Name in red is a Silicon Valley VC.  Bold with underline is either mutual fund or hedge fund.  (The super lame pie chart at the top of this post is derived by dividing these investors into VCs and other.)

Now, if you list the top ten investors in unicorns’ past rounds less than $100 million, the roster changes.

• Sequoia Capital (49)
• Khosla Ventures (27)
• Andreessen Horowitz (26)
• Greylock Partners (24)
• Lightspeed Venture Partners (22)
• SV Angel (19)
• Accel  (18)
• Kleiner Perkins Caufield & Byers (17)
• General Catalyst Partners (16)
• Founders Fund  (15)

As one would expect, these investors are almost all Silicon Valley native VCs.  The only outsider is General Catalyst Partners from the east coast, but they have been quite active in Silicon Valley for a while, and are now housed in a quaint office on Palo Alto’s coveted University avenue.  It’s the yellow house in the street view below.

(Useless knowledge: the house had been in grave need of million-dollar renovation and nobody took it for decades. I’m happy to see the hot market finally brought enough money to fix it.)

Anyway, you can see from the two lists that Silicon Valley VCs were the ones who found would-be unicorns’ early potential but it was the non-VC money from outside the area that pushed up valuations in the later rounds. (Early-round investors tend to keep investing in follow-on rounds, so the names that overlap in both lists are not necessarily “unicorn creators.”)

This trend also shows up on the infograpics, the path to IPO, compiled by EquityZen. Square‘s first four rounds were led by Khosla, Sequoia, or KPCB, but the last two were by hedge fund Rizvi Traverse and Singaporean sovereign fund GIC, which, at IPO time, lost 18 % and 42% respectively. Lending Club‘s last round was lead by mutual fund T. Rowe Price, joined by other mutual funds BlackRock, Wellington, and Sands Capital, as well as Russian billionaire’s DST Capital. Box‘s last round was lead by TPG, a private equity firm, and second last by Japanese ITV.

+++

My first takeaway from this is that there is no free lunch.  Just because many young startups are making tons of money for their age, it doesn’t mean anyone can make money. It takes experience gained from years of perseverance through the extreme good and bad in Silicon Valley.

Second is that the money from outside the region will hurt more when the unicorn bubble really pops.  Of course the local investors and companies are going to take the heat, but the pain will likely be greatly diluted.  As a result, I think the local downturn will not be too bad – at least a lot milder than that after the dot-com bubble.

But we’ll see.

+++

* To get this data, I used CB Insights’ unicorn list, applied the names to Datafox and filtered by locaion, which resulted in 97 US companies. I then downloaded the info and fed it to exploratory, a data cleanup / analytics tool, which I’m beta testing at the moment.  Thanks, exploratory team!