Unicorn Exits and Subsequent Venture Capital Investments

Using a difference-in-differences design and a global database of startups, investors and deals, we study the effect of exits (IPOs and acquisitions) of unicorn companies - privately held startups valued over USD 1 billion - on the subsequent investment activity of their investors. We find that an exit by a unicorn startup increases the number of investments by its investors over the following 3 years by about 7.5% and the value of their investments by about 23%, relative to investors in a matched control group. The effects are driven by IPOs and early investors of the exiting unicorns: a unicorn IPO leads, on average, to 2 additional investments and additional USD 13 million invested by each of the unicorn's early investors. Post-exit investments increase both within and outside of the location and the industry of the exited unicorn, but the growth in investments outside the original geography and industry is more pronounced. The results provide evidence of an important mechanism in which a successful investment exit boosts subsequent venture capital activity, but they also indicate that this activity need not be concentrated in the same locations and industries.