By: Natalie Zweig
Unicorns are rare and appealing to large investors. Large investment funds typically gain revenue from just a handful of companies, and use the funds to invest in up and coming businesses, making Unicorn startups very appealing. Investment funds are growing and demanding more revenues, investors want to see revenues in the billions, and unicorns are a great way to achieve high revenues.
Why 1 billion?
Aileen Lee coined the word in 2013 to describe this scenario. At the time only 39 companies were labeled as unicorns. The reasoning behind the term was to represent the statistical rarity of successful startups. Lee found that only 0.07% of venture-backed businesses were evaluated at more than $1 billion, this small percentage led to the creation of the term unicorn. His reasoning was, “One billion is better than $800 million because it’s the psychological threshold for potential customers, employees, and the press.”
Changes in the IT industry have made unicorns more widespread over the last decade.
First, startups are valued based on potential not actual figures making it easier to have higher estimates.
Second, venture-funded companies have leaned towards staying private for longer. The National Venture Capital Association reported that the number of years before a company turned public has doubled in the last 15 years. The reasoning for this is that businesses want to reek the benefits of being private such as generous estimates that may decrease once the company goes public.
Third, many unicorns were created through buyouts from large public companies.
Fourth, investors and venture capital firms have increasingly been using a fast-growing strategy for startups. The get big fast model involves large funding rounds and price cutting to gain an advantage and beat competitors fast.
Fifth, the amount of private capital invested into startups has increased over the last decade.
Sixth, new technology such as social media has allowed startups to expand faster.
According to CB Insights, as of December 2020, there are more than 500 unicorns around the world. The United States has 194 unicorns, while China, the United Kingdom and India have 99, 20, and 18 unicorns.
List of known unicorns
Bytedance is the highest valued unicorn. The company is based in China, which has the second highest number of unicorns in the world, following the USA. Other unicorns include: Didi Chuxing in China, Space X in the USA, Stripe in the USA, Kuaishou in China, Instacart in the USA, Epic Games in the USA, One97 Communications in India, Yuanfudao in China, and DJI Innovations in China.
You can find the full list on CB Insights. The complete list includes 513 unicorn companies and a total cumulative valuation of about 1,590 billion dollars. Source: CB Insights
Everyone wants their company to be the next unicorn. However, few companies are able to achieve such high success. In the US, there are 32.5 million businesses. Only 194 have received the unicorn label. Well known unicorns in the United States include Pinterest, Airbnb, and Uber. These companies are all valued at over 1 billion dollars. To describe even more successful companies the term decacorn was created to describe startups valued at over $10 billion, and a hectocorn, valued at over $100 billion.
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