A study conducted at the University of Chile revealed that the stock market tends to pay around 7% more for companies that do not have the label.
The study 'The Real Return of Unicorns: What Do We Know?' showed that unicorn companies, so named because of their private valuation of more than $1 billion and their association with rapid growth, tend to lose value after an Initial Public Offering (IPO), supporting the notion that the market favors unicorns. companies that do not hold said title.
Led by Christian Cancino, academic from the Department of Management Control and Information Systems of the Faculty of Economics and Business of the University of Chile, and supported by Bruce Lezana and Belén Guede, researchers from the same unit, a model was developed based on data from companies classified as unicorn and non-unicorn before and after their Initial Public Offering (IPO).
The data of the companies that entered the stock market in 2021 was analyzed, totaling 203 companies that were listed between that year and the beginning of 2022.
In this they point out that the market tends to value companies not classified as unicorns more, giving them a value approximately 7% higher than unicorn companies, which suffer a depreciation after their debut on the stock market. But also, and complementing the above, they raised a second hypothesis indicating that private agents can divergently evaluate the future growth of unicorns.
In detail, it is suggested that companies lose some of the distinctive qualities after going public, such as their ability to be disruptive, which allows them to transform the market with new ideas or technologies. Consequently, they end up being perceived as less risky for investors.
The research highlights that it may “be of interest to entrepreneurs and venture capitalists because it provides quantitative evidence on the overvaluation of unicorn companies before going public, thus helping to make decisions, to create better ways to value this type of dynamic companies and high growth. and taking into account relevant considerations when evaluating an exit strategy, especially an IPO.”
Furthermore, these results are important for two reasons. “From the point of view of public policies, there is a need to request more information about the real results and financial evolution of emerging companies with high growth potential, every time they provide information about their characteristics to the market,” indicates the document.
“From the point of view of entrepreneurs and investors, it is important to understand how entrepreneurs really behave, the incentives they have to grow their business and the elements that determine how investors choose to participate in certain ventures and then exit them” , they add.
