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The silver unicorn lining of Fab’s dark cloud

November 21, 2014, 7:41 PM UTC

As of this moment, e-commerce company is still worth $1 billion. But that’s only because it hasn’t yet completed a fire sale of its flagship assets, nor raised new cash for a furniture-focused subsidiary called Hem that is expected to soon become an independent entity. When the smoke clears, expect the Company Formerly Known as Fab to have the same shareholders but a much lower valuation.

For many, the immediate reaction was to use Fab as an example of venture capitalist folly. More than $330 million invested into a company that originally began as a social network for gay men, before pivoting into a flash sales site whose primary point of differentiation was supposed to be its ability to spot style trends better than all of the other flash sales sites (eventually, Fab abandoned flash sales for a more traditional inventory retail model). That popping sound you hear is proof that the bubble was real, propped up by overzealous Fab investors like Andreessen Horowitz.

But, to me, Fab’s possible failure is important for almost the exact opposite reason: It reminds us that venture capitalists have generally been right in making their $1 billion bets. Fab is the exception to the rule, rather than the rule itself.

One year ago, Aileen Lee published a post on TechCrunch about the preponderance of “unicorns” — companies Lee defined as “U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors.” Here was her chart:

You can see Fab there on the far left, followed by 38 other companies. Of them, 14 (including Fab) were still privately-held at the time of Lee’s post.

And, from what I can tell, the vast majority of those 14 are still considered to be unicorns. The only exceptions would be Fab, Climate Corp. (later sold for a very respectable $930 million to Monsanto) and possibly Gilt Groupe or Box. Many of the others, including AirBNB and Uber, have seen massive valuation increases in the intervening year.

Moreover, RetailMeNot (SALE) is the only one of the publicly-traded companies Lee listed that has since fallen below the $1 billion valuation mark. Not even tech industry punching-bags like Groupon (GRPN) or Zynga (ZNGA). This is important, because VCs often retain shares long after IPO.

To be sure, we cannot use venture’s traditional 1/10 success model when coming to unicorns, since these are more mature companies that require much larger equity outlays than would typical startups. And it’s possible that we would see something different if we updated the chart, and then checked back in November 2015.

But, for now, Fab should remind us that for all the talk about overpaying on large deals, VCs have generally been getting their money’s worth.

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