A new report may have mutual fund investors beaming right now — and traditional venture investors sniggering.
According to new research from the data company Pitchbook, Fidelity Investments has assembled stakes in 24 “unicorn” startups. That’s more than any venture firm. Fidelity’s peer and rival, T. Rowe Price, isn’t doing too shabbily on the same front. Pitchbook places it fifth in terms of its unicorn holdings, with investments in 17 privately held startups that are valued at a billion dollars or more.
Pitchbook asks whether mutual funds might be beating VCs at their own game, but a wealth of unicorn holdings isn’t necessarily a positive signal about Fidelity so much as a reminder that it has stuffed an awful lot of money into venture-backed companies that haven’t yet gone public or been acquired.
For one thing, the investment giant has in some cases bought stakes in companies after they were assigned billion-dollar plus valuations. Take Oscar Health, the three-year-old health insurance startup that has so convinced investors of its uniqueness that by last September, it was already valued at $1.75 billion. Fidelity then led a $400 million investment in the company this February, pushing Oscar’s valuation to a reported $2.7 billion.
And that’s hardly the only time a mutual fund company has taken an already rich valuation and driven it substantially higher. While the venture firm Andreessen Horowitz in particular seemed to get the ball rolling – remember that $100 million in first-round funding it provided to Github, or the $90 million it plugged into Tanium in one shot? – it was non-traditional venture investors like Fidelity, T. Rowe, and Tiger Global Management that picked up the torch and carried it to new lengths over and over and over again.
In fact, in 2013, Andreessen Horowitz cofounder Marc Andreessen told this editor that his firm had grown reluctant to chase big deals owing to an influx of “hot money.”
The firm is “way behind on growth [as an allocation of our third fund],” Andreessen said at the time, “and that’s after being way ahead on growth in 2010 and 2011, because so many investors have come in crossed over into late stage and a lot of hedge funds have crossed over, which is traditionally a sign of hot times, hot money.”
Andreessen (speaking in 2013), continued: “What we’re trying to do is be patient. We have plenty of firepower. We’re just going to let the hot money do the high valuation thing while it’s in the market. We’ll effectively sell into that.”
Pitchbook’s data suggests that’s what happened, too. According to its research, the five firms whose Series A investments have evolved into the most unicorns are SV Angel, with 10 companies; Accel Partners, with seven; Sequoia Capital, with six; Benchmark Capital, with five; and Lightspeed Venture Partners, with five companies.
The list of investors whose Series B investments have turned into unicorns is similarly stacked with venture firms. Sequoia Capital, Institutional Venture Partners, Andreessen Horowitz, and General Catalyst Partner all wrote Series B checks to five companies that are now valued at more than a billion dollars. (SV Angel trails just behind them with four.)
The firms investing in these eventual unicorns during their Series E and F rounds looks quite different. Top firms in terms of include Tiger Global, Wellington Management, Fidelity, General Atlantic, and T.Rowe.
With so few unicorns having exited so far, it’s hard to judge the strategy of the hedge funds and mutual funds, whose investments have seem outsize yet represent a small fraction of the money they invest overall. (At T. Rowe, for example, such investments typically represent 1 percent of a portfolio for a single security.)
It’s also hard to fault them for trying to goose their returns by investing in startups that promise big growth. As we’re already seeing, sometimes those bets pay off, as with Fidelity’s bet on the e-commerce company Jet late last year. (Jet was acquired by Walmart for $3.3 billion in cash and stock last month.)
Sometimes, they won’t, as seems likely with the beleaguered wearable technology company Jawbone.
In the coming years, maybe more of those bets will pan out than not, particularly given that later-stage investors have in many cases demanded terms that provide them with extensive protections in downside scenarios. Either way, having assembled the most unicorn stakes — whether you’re a venture firm, mutual fund or otherwise — seems like a dubious distinction in the meantime.