Unicorn financings rebounded over the past 18 months, but so has the use of deal structure to guard public-market returns, according to a study.
The report from Fenwick & West found that dollars and deals supporting these private companies, valued at a $1 billion or more, jumped at the start of 2017 and largely maintained their accelerated pace through the first half of this year.
Eighty-three fundings took place over the period attracting $20.2 billion, a increase from a slowdown in activity during the second half of 2016. The second quarter of 2018 saw $3.6 billion go into 15 transactions, the study found.
Because of several large deals in 2016, the size of the average financing fell to $254 million in 2017 and was down again to $220 million in the first six months of 2018.
However, the average per-share price increase in the deals rose to 129 percent last year before slipping to 94 percent this year.
At the same time, the use of IPO downside protections rose significantly since mid-2017. In 2017, 30 percent of deals included blocking rights, giving investors the right to insist that an IPO price be at least as high as their round price, and sometimes include a premium. That rose to 36 percent in the first half of 2018. In 2016, only 16 percent of deals offered the same downside protection.
Meanwhile, 16 percent of 2017 deals included a ratchet, giving investors additional shares if an IPO price is less than their round price or in some cases the round price plus a premium. That fell to 12 percent in first half of 2018 and compares with 10 percent in 2016.
The study examined 83 unicorn financings completed in 2017 and the first half of 2018 with U.S.-based venture-funded privately-held companies.