Risking Your Neck to Run With the Unicorns

November 04, 2015

Fenwick's much-cited white paper analyzing unicorns–private companies valued at $1 billion or more –appeared in a New York Times article discussing the risks some startups take to reach this coveted valuation.

Companies strike agreements with late-stage investors that while making the companies unicorns may have consequences for early investors and employees, The New York Times reported.

Fenwick’s May study of 37 unicorns found that approximately 30 percent of unicorn investors had protections against down round IPOs where the offering is of lower value than the latest private funding. With such protections, investors will not suffer a loss unless the unicorns have their valuations cut by 90 percent, reported The New York Times, citing the Fenwick research.

While the investors are protected, employees’ shares may decrease in value under such agreements, The New York Times noted, a situation that threatens startups’ ability to retain employees. Team members may also grow weary of waiting while the company postpones its IPO as it attempts to increase its worth.

The full article is available through The New York Times website​.​​