A Unicorn company is a private-owned startup that achieves a valuation of 1 billion USD without listing itself on the stock market. The term unicorn, a mythical creature, applies to such companies because this is a rare phenomenon. Few startups grow into unicorn companies.
The term was first used by Aileen Lee, founder of the company Cowboy Ventures, in 2013, in the article “Welcome To The Unicorn Club: Learning from Billion Dollar Startups”. There were only 39 companies with a value of a billion US dollars at the time. Hence, the term unicorn refers to this rare monumental growth
Valuation of Unicorn Companies
The valuation of unicorn companies takes place over several rounds during their financing stages. This valuation is based on the growth potential of the company. If the market researchers project a good development and growth model for a company, its valuation is higher. You should keep in mind that a projected growth valuation can differ from the actual financial statements of the company.
Basis of High Valuations of Unicorn Companies
Accelerated Growth Strategy–Most startups follow the GBF, or Get Big Fast strategy. Some features of this strategy include low pricing policy to capture the market, and intense marketing campaigns. The downside to this is a lack of sustained growth of the company. It can cause the market value to collapse, as had happened during the Dotcom Bubble in the U.S.
Policy of Buyouts–Many companies buy smaller, competitive companies/startups to keep their hold on the market. This is beneficial to both the companies. One gains control over an already developed technology, while the other benefits from the improvement in market valuation or the price at which the company is bought.
Availability of Private Capital investments–It is easier to get private funding for startups today than it was a decade ago. The easier availability of private investment has enabled startups to delay IPOs (Initial Public Offerings). They go through more rounds of private funding which boosts their market value.
Technological Innovations–The availability of newer technologies has aided the higher growth rate of startups. The popularisation of social media allows access to millions of people at once. This has enabled startups to expand at unprecedented rates. Crowdfunding, smartphones, and e-commerce technologies are a few examples of how innovations have helped startups reach exponential growth rates rapidly.
The Unicorn Trend
According to CB Insights, there are “over 1100 unicorns around the world” as of June 2022. Some big unicorns listed by CB Insights are Bytedance at $140 billion valuation, SpaceX at $125 billion valuation, and SHEIN at $100 billion valuation.
Most of the unicorn companies are in the e-commerce and Fintech sectors. The rapid growth of the e-commerce industry is due to the widespread use of smartphones. Easy access to the internet has also facilitated shopping anytime and from any place.
Some examples of e-commerce unicorn companies are Fanatics ($27 billion), SHEIN ($100 billion), Xiaohongshu ($20 billion), and the company that started it all, Amazon.
The Fintech sector has also seen continuous progress because of innovations in artificial intelligence. The subsequent popularisation of smart technologies which have enabled payments from the comfort of our homes.
A few examples of Fintech unicorns are Stripe ($95 billion), Klarna ($45.6 billion), and Checkout.com ($40 billion).
Three Ways to Become a Unicorn Company
Disruptive Technology–The first step towards building a sustainable startup is to have a novel idea or a new spin on an existing idea. This can completely transform the market landscape! A fresh idea will help seal your position in the market. It convinces investors of the potential growth opportunities and earns you a higher valuation.
Business Model–Once you have an original idea, chalk out a business model for it. Develop a strategy that makes your product stand out from its competitors. Identify the target audience and ensure that the product delivers on its promises. This will secure the position of your product in the market.
Perception among investors–Create a lasting impression on potential investors! Have a strategy in place to explain to investors your expansion plans. A good plan will instil faith in the minds of investors. Concrete data and previous success of the firm will ensure that the company continues to grow with a higher valuation.
The startup culture has grown manifold in the past decade, as have the modes of investment, especially private investments. Hence, the growth of unicorn companies has also seen an upsurge because of groundbreaking ideas coupled with new technologies and increased private investments. The desire to be counted among the top companies in the world has also spurred innovations.
Although the trend of unicorns has been on the rise, not all startups rise to the status of unicorns. Unicorns also don’t stay at the top without constant effort. Keep in mind that attaining unicorn status, while not as difficult as it was some years ago, is still an uphill task. Therefore, one should work hard to maintain the unicorn status and keep innovating and growing.