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The 2007-2009 Financial Crisis Was Surprisingly Kind To Tech Startups

tl;dr: When the current tough times are bad the future good times are great. 

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Startups Uber and Airbnb, and venture capital firm Andreessen Horowitz have something in common: They were founded in the midst or immediate aftermath of the Global Financial Crisis of 2007-2009.

The previously mentioned startup companies have another thing in common: They are mainstays of the unicorn club, possessing valuations of $1 billion or more.

This past Wednesday, we identified a list of 339 unicorn and unicorn-ish companies using the following definition: Private or public US-based software companies founded in or after 2003 with $100 million or more in total funding. In short, we found that 75% of the capital invested into these companies is still waiting on an exit (such as an IPO or acquisition).

Those exit opportunities are increasingly few and far between, especially for those companies with very high valuations.

In response to the piece, current Google engineer and former Mattermark intern Karan Goel requested that we visualize this herd of unicorns and almost-unicorns by age and total funding. That’s what we’re doing today.

A Chart Is Worth 1,000 Pictures

Out of the 13 years’ worth of company founding activity, which years were the most prolific in terms of producing software companies that would go on to raise $100 million or more in total funding?

Source: Mattermark Data
Source: Mattermark Data

As we alluded to earlier, the financial crisis was a surprisingly fertile period for unicorn and unicorn-ish companies. It was a boom time for software infrastructure and development tools.

Nutanix, MongoDB, Github, and Cloudera were all founded during this period. And, many of the tools and services that would go on to revolutionize how work is done—like Square, Slack, Dropbox and Glassdoor—were also founded during this period of economic uncertainty and slow growth. These eight companies alone account for nearly $30 billion in market value, and all but Square are currently privately held.

What about funding by year?

Source: Mattermark Data
Source: Mattermark Data

The above chart shows the total funding raised by unicorn and unicorn-ish startups founded in that year, sub-divided by current stage.

2009 is a banner year mostly because that is when Uber was founded. On Wednesday we showed that Uber has taken the lion’s share—almost 20%—of the funding into privately-held unicorns and unicorn-ish companies in our dataset.

2007 and 2008 are standouts due to the amount of VC and other private capital invested in companies like Yammer, Twilio, Tumblr (RIP), and Beats that ultimately found an exit through acquisitions and initial public offerings.

Crisis As Catalyst

Chicago’s mayor, Rham Emanuel, said to “[never] let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”

Well, some of the biggest startups in the space didn’t waste the 2007-2009 window. Labor and housing market forces came together to create the sharing economy, and the advent of smartphones in 2007 gave many companies a new platform for their applications and services. Somewhat paradoxically, we can look back at the Great Financial Crisis as a golden era of tech entrepreneurship, one that might not be revisited soon.

At least, not until the next crisis comes.

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© Mattermark 2024. Sources: Mattermark Research, Crunchbase, AngelList.