05/06/2024 | News release | Distributed by Public on 05/06/2024 05:25
Published: May 06, 2024
Unicorns are all around us - unicorn companies, that is. Your favorite graphic design software or AI tool may just be a unicorn startup dazzling in plain sight.
The term unicorn refers to a company that's been given a shiny billion-dollar valuation, and the public can't help but stare at these mystical creatures. Since the term's inception in 2013, they've attracted immense attention and praise; there's even a reality television show calledUnicorn Hunters that capitalizes on this public fascination.
But, how common are unicorns, and are these successful startups as immortal as they seem? Let's disappear together into the enchanted forest and find out.
Learn more unicorn statistics in ourState of Global Unicorn Startups Report.
Table of Contents
A unicorn company is a private company with a 1 billion dollar valuation. Privately owned companies are typically owned by a concentrated number of shareholders, unlike public companies traded on the stock market.
Unicorns are extraordinary creatures. Here are some quick statistics from ourState of Global Unicorn Startups Report:
The term "unicorn company" was coined by Aileen Lee, venture capitalist and founder ofCowboy Ventures, in 2013. It was introduced in her now-famous TechCrunch article "Welcome To The Unicorn Club: Learning From Billion-Dollar Startups."
What ingredients go into a private company valued at a billion dollars? A teaspoon of magic, a cup of rainbows, and a dusting of glitter? While there's no exact recipe for a unicorn company, there are some common themes that we see many unicorns embody.
The term disruption in the business world refers to smaller companies challenging an industry. While it sounds negative, you're happily using disruptive technology right now. Personal computers and smartphones are just two examples ofnew market disruptions.
Some examples of disruptive unicorns include:
Behind almost every unicorn startup is research, innovation, and new technology. This backbone isn't surprising given that 3 of the top 10 unicorn categories are software (#1), pharmaceuticals and biotechnology (#7), and healthcare technology systems (#8).
Learn more unicorn statistics in ourState of Global Unicorn Startups Report.
Some examples of unicorns that are developing innovative technology are:
High valuations reflect excitement about a company's potential growth opportunities. In the startup world, growth often looks like a scalable product that can have global reach.
The importance of growth explains why technology companies are so overrepresented in the unicorn herd. Technology is the easiest product to scale. Without the hurdle of physical product distribution, tech startups that serve a universal need can distribute their product globally through one central headquarters.
Some examples of companies that have scaled massively are:
Public use ideally means that a company can serve a large target audience. While almost no product will serve literally everyone (even Google has boycotters), a large target audience can create more opportunities than a small niche.
Naturally, some success stories contradict this. Palantir Technologies is often listed as a top-ten unicorn company, but with the tagline "A New Age of Technology, Warfare, and Deterrence," it's clear that this technology isn't exactly as accessible to the public as Netflix or Airbnb.
Here are some examples of companies that capitalize on universal public interests:
What do venture capitalists look at in unicorns? The founders.
"Unicorn founders are exceptionally great at learning quickly, making decisions, being persistent, and sharing a compelling vision for the future," shares Erik Lim, founder and GP ofPotluck Ventures. Erik Lim's venture capital firm has invested in 5 unicorn companies to date.
"The combination of these qualities enables them to effectively build, iterate, recruit, fundraise, close customers, and scale," Lim says.
Some examples of unicorn companies with visionary leadership include:
Do you have a startup idea? Come see ifHubSpot Ventures can help you bring it to life.
An exact number of unicorn companies can't be calculated, but it's estimated that there are about 1,500 companies with unicorn status.PitchBook lists 1,369 active unicorns on their unicorn tracker.Crunchbase counts 1,518 active unicorn companies.
In aninterview with Fortune in January 2024, Aileen Lee said it's impossible to know the exact number of unicorn companies because of geography and disclosure issues. "We'd love to use revenue, but nobody's disclosing revenue," Aileen Lee told Fortune.
From 2013 (when Aileen Lee coined the term) to 2023, the unicorn club grew 3,026% in size, from 39 unicorn companies to a reported 1,219 unicorns. However, Aileen Lee told Fortune she expects numbers to decrease by more than 30%.
Companies losing unicorn status isn't new. The other side of the unicorn coin isunicorpse, referring to a company that once held unicorn status but has lost significant value.
This is just the tip of the spin-off jargon iceberg; minicorn, decacorn, and hectocorn are a few other terms inspired by Aileen Lee's "unicorn" coinage.
With a unicorn's horn hinging on the coveted billion valuation, it's important to understand where that number comes from.
"Unicorn valuations come from evaluations and analysis conducted by venture capital firms and investors that review revenue and business models compared to the opportunities and growth of the respective markets/industry," said Doug Applegate, the Associate Director ofPurdue Incubator.
Doug Applegate has over 15 years of experience and skills in startup accelerators and incubators, venture capital, and partner/sponsor development. He shared these insights on the differences between unicorn valuations and unicorn stock valuations:
"Unicorn startups, typically privately held, often issue preferred stock to investors and venture capital firms, unlike the common stock traded in public markets post-IPO. The transition from private to public or acquisition status leads to the loss of unicorn classification; for instance, Uber and Dropbox ceased to be unicorns upon their IPOs. However, both privately held and publicly traded companies exceeding $1 billion in valuation are rare entities and are often regarded as highly successful."
Some of the unicorn examples listed above (Airbnb, Uber, and Pinterest, to name a few) fall into this post-unicorn category.
What's the relationship between unicorns and the venture capital industry? Venture capitalists are investors who specialize in startup companies.
"A venture capitalist, or VC for short, can specialize in numerous different industries and specific stages of company development, but what connects them is that venture capitalists are a driving force behind the valuation of companies," saysJordan Meier, venture capital associate and founder of the venture capital firmUni Syndicate.
"If a startup wants to raise money, they'll often go to a VC because they command large amounts of cash, can provide valuable connections, and both understand and anticipate the risks that come with investing in startups," Meier notes.
Meier says that you may already have a stake in one. "Many pension funds, university endowments, and insurance companies invest in Venture Capital funds. By proxy, the economic gain of startup unicorns will carry over to you in a very small way."
For individual investors who are interested in taking a more active role in investing in unicorn startups, Meier warns that even though there's a lot of capital sloshing around, unicorns are a statistical rarity.
"Startup investing is exceptionally risky, and nine out of any 10 venture capital investments are complete losses. Diversification of startup investments is highly encouraged, but even with that, there is no guarantee they will make any money at all, let alone find a unicorn," Meier says.
Still curious about making an investment in one of these businesses? Jordan Meier shared this advice for eager private investors.
A fund manager will be put in charge of finding, conducting due diligence, and placing funds into a large number of diversified startup companies.
A vast majority of unicorn companies will receive some sort of venture capital investment. This will be reserved for accredited, high-net-worth individuals who are willing and able to invest hundreds of thousands to millions of dollars at a time.
You can individually (or as part of a group) find companies to invest in, conduct diligence, and distribute your funds to startup companies. You have the ability to pick and choose which companies you would like to invest in on a deal-by-deal basis.
This is reserved for accredited investors, but the dollar amount per company is usually much lower, as low as $1,000 per company.
Websites like Republic offer startups the opportunity to raise capital directly from individuals. You do not need to be an accredited investor, and you can invest with as little as $100. It will be harder to find a future unicorn at this level, but given the lower capital required to enter, you do not need to invest in a unicorn to see a good return on your investment.
Don't feel bad if you're brand new to the venture capital world. I'm going to show you some of the most well-known unicorn startups, and you'll be pleasantly surprised to see that you're already acquainted with some of these enigmas.
Billion-dollar startups are born all around the world and can exist in any industry, but if technology and Silicon Valley are popping into your head, it's for good reason. That's the exact intersection where OpenAI was born in 2015.
OpenAI is perhaps the most talked about technology company after it released ChatGPT in November 2022. OpenAI was founded by Elon Musk, Sam Altman (current CEO), and several others in San Francisco. Some of its key qualities are:
Canva is one of the happiest parts of the internet, where anyone can make their dreams (or Christmas cards, business cards, or iPad wallpapers) come true. Founded by Melanie Perkins in Australia in 2013,Canva is a graphic design software for normal people, available at a normal cost.
Those too young to remember the pre-Canva days won't believe how much money businesses paid graphic designers to do minuscule design tasks, like creating basic icons. Graphic design was a skill guarded by expensive and difficult-to-learn software. What started as a bootstrapped dream grew into software used in 190 countries when it got its1 billion valuation in 2018. Some of Canva's key qualities are:
We all know that the under-loved clothes in our closets are worth money; one woman put the solution to this shared desire in our pockets. Founded by Milda Mitkute in 2008, Vinted is Lithuania's first unicorn company. You could say that Vinted is like eBay but cooler and easier to use.
When I was getting rid of all of my stuff to go traveling in 2023, I turned to eBay to sell worthwhile items. I trusted the platform, but it was somehow a headache. I Googled a beginner's guide to reselling on eBay and eventually stumbled across an ad for Vinted, where I was hooked.
Vinted felt modern, made by someone closer to my age with intentionality. Here are some of Vinted's key qualities:
"Murder your thirst." It's a slogan that you only need to hear once to remember forever. That's the catchphrase ofLiquid Death, a startup that achieved a billion valuation in March 2024, a company that's done the seemingly impossible: turn water into a billion-dollar product.
Liquid Death was founded by Mike Cessario in 2017 and is currently headquartered in Los Angeles. The product is simple: water sold in a tallboy aluminum can. Yep, someone managed to finally make water cool. Some of Liquid Death's key qualities are:
Who will become the newest member of the unicorn club? Private market investors will continue hunting, and startup founders will keep innovating and dreaming of joining the herd.
Unicorns may seem distant and mystical creatures, but given that 22% of unicorns use HubSpot, you have something in common with these companies just by being here.
Learn more unicorn statistics in ourState of Global Unicorn Startups Report.