LinkedIn’s Hoffman: Only a third of today’s tech “unicorns” will thrive

By Sarah Frier and Emily Chang

(Bloomberg) — Reid Hoffman, the venture capitalist who co-founded LinkedIn Corp., said many private companies with multibillion-dollar valuations are unlikely to see those values recognized in the public markets.

There are currently more than 140 closely held startups with valuations topping $1 billion, a designation that used to be so rare any company reaching it was known as a “unicorn,” according to a database by CB Insights. Hoffman expects that only a third to a half of these companies will actually “survive and thrive.”

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“Valuations are much higher than when companies go public,” Hoffman said in an interview with Bloomberg Television’s Emily Chang. “Public markets have a lot of interdependent feedback,” whereas private markets have big investors willing to do what they can to get in a deal — meaning “it’s very easy” to get a high valuation, he said.

As hedge funds, mutual funds and other investors vie to put money into hot startups, pre-IPO valuations have soared. As a result, companies are waiting longer to go public and collecting on this glut of funding that’s inflating their values beyond what they can reach in an initial public offering. The latest example is Square Inc., the payments startup that is set to go public this week at a valuation of as much as $4.2 billion. That’s well below the $6 billion the company sought in its last funding round in 2014.

Hoffman is on the board of room-rental startup Airbnb Inc., which is still private and was recently valued at $25.5 billion. Yet even at that valuation, he said, “I don’t worry about it.”

“There’s a lot of headroom for what Airbnb can bring to hosts and guests around the world,” he said.

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