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Unicorn startups are making a comeback

After a slump, the third quarter booms with companies with $1 billion valuations.

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Q3 saw plenty of new unicorns. 

Lucy von Held / Getty

For a while there, it looked like unicorns were endangered.

The creation of new unicorns, the cheeky name for companies valued at $1 billion or more, has been on the downswing for the past few years. But they showed signs of making a comeback in the third quarter, according to a report out Tuesday from PwC and industry watcher CB Insights.

In the third quarter of 2018, 16 companies achieved unicorn status, more than three times the five companies that reached the level in the same quarter a year earlier, according to the report. Still, the growth is shy of the heady days of 2015, when the third quarter saw a whopping 25 new unicorns.

Some of these newly-minted companies include legal services company LegalZoom, bicycle-sharing service Lime, and Git repository manager GitLab.

One reason for the growth might be larger late-stage rounds that push companies over the top in valuation. Investments rose to $27.5 billion in the third quarter from $20.6 billion a year ago, pushed higher in part by mega-rounds of $100 million or more. There were 55 such rounds this quarter compared to 31 a year ago.  

The frothy investing comes at a time when there's fear the US might be due for another recession. A New York Times article from August pointed out the US economy has been in expansion mode for 9 years, making it nearly the longest expansion in history. A variety of factors like a trade war or the bursting of a corporate debt bubble could bookend that era. 

The number of deals that occurred in the third quarter declined to 1,229 from 1,480 last year. Still, Tom Ciccolella, US Venture Capital Leader at PwC, says it remains a healthy number for the startup ecosystem.

For seed-stage startups, though, investment dollars have been hard to come by. Most of the money that was doled out this quarter went to more mature companies, signaling some remaining skittishness about riskier investments over the last three years.

"The migration out of seed won't be felt now," said Anand Sanwal, CEO and co-founder of CB Insights, "but it will have impacts on the venture ecosystem in the coming years."