Unicorn valuations and the internet bubble

An interesting analysis of unicorn valuations and the term sheets behind them from Fenwick & West. Their conclusions:

• Investors received terms that provided a fair amount of downside protection for their investment, especially in the event of an acquisition, but relatively few upside benefits.
• These terms could result in a divergence in interest between early and late stage investors at the time of a liquidity event.
• A significant percentage of the highest valuation unicorns had dual class common stock which provided founders/management and in some cases other shareholders with super voting rights.
• Attaining a unicorn valuation appears to be a goal of promising companies raising money, as 35% of the companies we analyzed had valuations in the $1-1.1 billion dollar range, indicating that the companies may have negotiated specifically to attain the unicorn level.

The emphasis on downside protection over upside opportunity suggests that investors, most of whom are not traditional VC btw., are concerned about overvaluation. One wonders why they did the deal at all -- maybe just to add window dressing in their marketing materials?

Also interesting that the bulk of the downside protection is in the event of a white-knight/acquire. If Google buys Unicorn X, they are going to need to pay KKR.