(Bloomberg) -- A sharp reset in private market valuations has stripped numerous so-called unicorns of their status, making it harder for some startups to pursue their long-delayed initial public offerings.

Out of 128 closely held companies that achieved valuations at or above $1 billion as of 2021, nearly 90% were estimated to be valued lower in private trades, according to Forge Global, an alternative trading venue operator. About a third of the startups’ valuations in the group tracked by Forge dropped below $1 billion — the threshold to be considered a unicorn.

The slide shows the challenges for companies that raised capital at lofty valuations at the peak in 2020 and 2021, and that have been waiting for IPOs while the market has largely been closed to new entrants. These firms have lately avoided soliciting fresh funding for fear of attracting a lower valuation than in their previous rounds, which can carry a stigma. Only 2% of a broader group of 513 unicorns monitored by Forge from the end of 2021 through Sept. 30 have lost their status through a down round.

These former unicorns “are hiding in plain sight,” said Howe Ng, Forge’s head of analytics and investment solutions.

“A lot of companies have no change in valuation and in their unicorn status, because they probably haven’t raised money since 2021. Some companies would only raise when they could afford to get an up round,” he said.

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Private market trades let employees and some institutional investors trade their stakes to accredited investors before the companies are publicly listed, providing a glimpse of the real-time valuation of companies. Companies and investors often argue that such trades are based on limited information, and that the most recent funding round is a better gauge of a startup’s value.

Originally coined to emphasize their scarcity, the term unicorn and its billion-dollar threshold have become an arbitrary benchmark for investors to gauge the investability of late-stage companies.

Some larger public equities portfolio managers may find companies valued below $1 billion too small to invest in, given the amount of analysis involved.

“From an investor standpoint, they believe once you’ve hit that billion dollar mark, i.e. a unicorn, you have a greater chance of being able to go public and/or a chance of finding a M&A exit,” John Collmer, Citigroup Inc.’s global head of private capital markets, told Bloomberg News.

“In this market, investors are really focused on returns and how they will realize them,” Collmer added.

Unicorn Mania

The rising tide of optimism that minted a wave of unicorns in 2021 now looks more like a mania, one that spread far beyond private assets.

More than 1,400 companies raised a combined $376 billion in the busiest year ever for US listings, according to data compiled by Bloomberg. Yet despite a market rally this year which saw the S&P 500 index climbing 19%, companies that went public in 2021 are still on average 18% below their offer prices.

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Many 2021 debutants have suffered major setbacks in valuations. Beverage company Oatly Group AB lost 94% of its market capitalization, sinking to $613 million, and health-care services provider Bright Health Group Inc.’s shares shed 99.6% to give it a market cap of $52 million.

With global IPOs this year on track for the lowest volume in more than a decade, many private companies are waiting for the market to open. To investors who may have backed companies in 2021 that listed at sky-high valuations – whether they were ready for the public market or not — startups that have hung onto their unicorn valuations have demonstrated their worth.

“At a billion-dollar equity value, you can underwrite an IPO or M&A because they’ve got real product market bid and there’s a scarcity value to that right now,” Citigroup’s Collmer said.

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