To better understand unicorn valuations, the law firm Fenwick & West recently analyzed the financing terms of 37 U.S.-based venture backed companies that raised money at valuations of $1 billion or more in the 12-month period ending March 31.

Among the firm’s findings about these financings is that only a quarter were led by “traditional” VCs and the rest were led by mutual funds, hedge funds, sovereign wealth funds and corporate investors. The investors also received significant downside protection in case the companies’ value declines. Not last — and not surprisingly — many of these later-stage investors are looking at far less upside than the companies’ earlier investors, which may create issues for some down the road regarding if and when to sell to an acquirer, as well as when to go public.

We talked earlier this week with Barry Kramer, a partner at Fenwick and the author of the firm’s new report, to learn more about the numbers. What follows is a bit of that chat, edited for length.

Were you at all surprised that a full 75 percent of the money that poured into these so-called unicorns came from nontraditional investors?

That’s what I expected. These are the mutual groups and hedge funds that used to invest in IPOs, but IPOs are getting delayed so much that these companies now have the same [risk profile] at the late-stage [as newly public companies].

Also, VCs don’t typically invest at these really high valuations.

Yet traditional VCs, including many early-stage investors, are keeping their board seats at these privately held companies. Did your research touch on the impact of those seats not necessarily turning over? A public offering usually results in some fresh blood on the board.

That’s an interesting point that we didn’t examine, though I think two things could be happening. Because IPOs are being delayed and VCs are serving on these boards longer, it might be impacting their ability to [spend more time] with more junior companies. The other thing I see is that because these [earlier-stage VCs] have, say, 10 to 15 percent of the company, they’re very engaged and attentive because of that economic interest, whereas with public companies, that’s [not always the case].

In your report, you say that roughly 22 percent of the unicorn companies you studied have dual-class common stock structures — which provide founders and management and, in some cases, other shareholders with super voting rights. Was there any type of pattern? For example, were the companies with dual stock structures more often founded by serial entrepreneurs with track records of success?

We’re definitely seeing this much more than 10 years ago, though it’s really all over the map. If you’re two kids out of school without a track record and you get your first venture round, people might look at you funny if you want a dual track structure. You can still do it later, once you have some leverage [because your company is performing well], but it’s often a negotiation. Other times, yes, people are more understanding of founders who have a track record if they ask to [implement a dual stock structure] at an early stage because the founders have proven they know how to run a company.

Your report talks at length about how much downside protection investors are getting in these deals, though you say they have more protections in an acquisition scenario than with an IPO. Can you explain?

In many of these cases, company valuations could fall 80 percent in value, and investors would still get their money back [because of their liquidation preferences]. The typical company will have, let’s say, a $10 billion valuation. And lets say that early-stage investors put in $200 million and later-stage investors invested $800 million [for a total of $1 billion invested]. If the company’s value falls to $2 billion [the price an acquirer is willing to offer for it], all those investors will [be repaid]. But let’s say the company goes public, and you’re a later-stage investor who has acquired preferred shares at $30 per share. If it goes out at $25 a share, you’ll have lost $5 a share.

Of course, companies that go public are typically doing well, so these later-stage investors are investing with the idea that even if they lose a bit at the IPO, the stock will pop up over time.

That’s their only protection?

There are other types of IPO protections. In one common type, the investor puts in a provision that says: If you go public at less than $30, you give me more stock, so I’m effectively paying the [IPO] price. In another scenario, the investor insists that the company can’t go public at less than the price it paid for its shares unless the company gets the investor’s approval first. So there are mechanisms, but [there are less of them appearing in these deals].

For Kramer’s full report, which is very much worth reading, click here.