Unicorn (finance)

A unicorn is a term in business world to indicate a privately held startup company valued at over $1 billion.[1] The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures.[2][3][4][5] Decacorn is a word used for those companies over $10 billion,[6] while hectocorn is used for such a company valued over $100 billion.

According to CB Insights, there are over 450 unicorns as of October 2020.[7] The largest unicorns included ByteDance, DiDi, Stripe, SpaceX, Palantir Technologies and Airbnb.[8] Lyft is the most recent decacorn that turned into a public company on March 29, 2019.[9]


When Aileen Lee originally coined the term "unicorn" in 2013, there were only thirty-nine companies that were considered unicorns.[10] In a different study done by the Harvard Business Review, it was determined that startups founded between 2012 and 2015 were growing in valuation twice as fast as companies from startups founded between 2000 and 2013.[11]

In 2018, 16 U.S. companies became unicorns, resulting in 119 private companies worldwide valued at $1 billion or more.[12]

Reasons behind the rapid growth of unicornsעריכה

Fast-growing strategyעריכה

According to academics in 2007, investors and venture capital firms are adopting the get big fast (GBF) strategy for startups, also known as Blitzscaling. GBF is a strategy where a startup tries to expand at a high rate through large funding rounds and price cutting to gain an advantage on market share and push away rival competitors as fast as possible.[13] The rapid exponential returns through this strategy seems to be attractive to all parties involved. However, there is always the cautionary note of the dot-com bubble of 2000 and the lack of long-term sustainability in value creation of the companies born from the Internet age.

Company buyoutsעריכה

Many unicorns were created through buyouts from large public companies. In a low-interest-rate and slow-growth environment, many companies like Apple, Facebook, and Google focus on acquisitions instead of focusing on capital expenditures and development of internal investment projects.[14] Some large companies would rather bolster their businesses through buying out established technology and business models rather than creating it themselves.

Increase of private capital availableעריכה

The average age of a technology company before it goes public is 11 years, as opposed to an average life of four years back in 1999.[15] This new dynamic stems from the increased amount of private capital available to unicorns and the passing of the U.S.'s Jumpstart Our Business Startups (JOBS) Act in 2012, which increased the amount of shareholders a company can have by a multiple of four before the company had to disclose its financials publicly. The amount of private capital invested in software companies has increased three-fold from 2013 to 2015.[16]

Prevent IPOעריכה

Through many funding rounds, companies do not need to go through an initial public offering (IPO) to obtain a capital or a higher valuation; they can just go back to their investors for more capital. IPOs also run the risk of devaluation of a company if the public market thinks a company is worth less than its investors.[16] A few recent examples of this situation were Square, best known for its mobile payments and financial services business, and Trivago, a popular German hotel search engine, both of which were priced below their initial offer prices by the market.[17][18] This was because of the severe over-valuation of both companies in the private market by investors and venture capital firms. The market did not agree with both companies' valuations, and therefore, dropped the price of each stock from their initial IPO range.

Investors and startups also do not want to deal with the hassle of going public because of increased regulations. Regulations like the Sarbanes–Oxley Act have implemented more stringent regulations following several bankruptcy cases in the U.S. market that many of these companies want to avoid.[14]

Technological advancementsעריכה

Startups are taking advantage of the flood of new technology of the last decade to obtain Unicorn status. With the explosion of social media and access to millions utilizing this technology to gain massive economies of scale, startups have the ability to expand their business faster than ever.[14] New innovations in technology including mobile smartphones, P2P platforms, and cloud computing with the combination of social media applications has aided in the growth of unicorns.


The valuations that lead these start-up companies to become unicorns and decacorns are unique compared to more established companies. A valuation for an established company stems from past years' performances, while a start-up company's valuation is derived from its growth opportunities and its expected development in the long term for its potential market.[19] Valuations for unicorns usually come from funding rounds of large venture capital firms investing in these start-up companies. Another significant final valuation of start-ups is when a much larger company buys out a unicorn and gives them that valuation. Recent examples are when Unilever bought Dollar Shave Club[20] and when Facebook bought Instagram[21] for $1 billion, effectively turning Dollar Shave Club and Instagram into unicorns.

Bill Gurley, a partner at venture capital firm Benchmark predicted in March 2015 and earlier that the rapid increase in the number of unicorns may "have moved into a world that is both speculative and unsustainable", that will leave in its wake what he terms "dead unicorns".[22][23][24] Also he said that the main reason of Unicorns' valuation is the "excessive amount of money" available for them.[25] Similarly, in 2015 William Danoff who manages the Fidelity Contrafund said unicorns might be "going to lose a bit of luster" due to their more frequent occurrence and several cases of their stock price being devalued.[26] Research by Stanford professors published in 2018 suggests that unicorns are overvalued by an average of 48%.[27][28]

Valuation of high-growth companiesעריכה

For high-growth companies looking for the highest valuations possible, it comes down to potential and opportunity. When investors of high-growth companies are deciding on whether they should invest in a company or not, they look for signs of a home run to make exponential returns on their investment along with the right personality that fits the company.[29] To give such high valuations in funding rounds, venture capital firms have to believe in the vision of both the entrepreneur and the company as a whole. They have to believe in the company can evolve from its unstable, uncertain present standing into a company that can generate and sustain moderate growth in the future.[19]

Market sizingעריכה

To judge the potential future growth of a company, there needs to be an in-depth analysis of the target market.[19] When a company or investor determines its market size, there are a few steps they need to consider to figure out how large the market really is:[30]

After the market is reasonably estimated, a financial forecast can be made based on the size of the market and how much a company thinks it can grow in a certain time period.

Estimation of financesעריכה

To properly judge the valuation of a company after the revenue forecast is completed, a forecast of the operating margin, analysis of needed capital investments, and return on invested capital needs to be completed to judge the growth and potential return to investors of a company.[19] Assumptions of where a company can grow to needs to be realistic, especially when trying to get venture capital firms to give the valuation a company wants. Venture capitalists know the payout on their investment will not be realized for another five to ten years, and they want to make sure from the start that financial forecasts are realistic.[29]

Working back to the presentעריכה

With the financial forecasts set, investors need to know what the company should be valued in the present day. This is where more established valuation methods become more relevant.

This includes the three most common valuation methods:[32]

Investors can derive a final valuation from these methods and the amount of capital they offer for a percentage of equity within a company becomes the final valuation for a startup. Competitor financials and past transactions also play an important part when providing a basis for valuing a startup and finding a correct valuation for these companies.


Sharing economyעריכה

The sharing economy, also known as "collaborative consumption" or "on-demand economy", is based on the concept of sharing personal resources. This trend of sharing resources has made three of the top five largest unicorns (Uber, DiDi, and Airbnb) become the most valuable startups in the world. The economic trends of the 2010s powered consumers to learn to be more conservative with spending and the sharing economy reflected this.[33]


E-commerce and the innovation of the online marketplace have been slowly taking over the needs for physical locations of store brands. A prime example of this includes the decline of malls within the United States. The sales of malls within the United States have declined from $87.46 billion in 2005 to $60.65 billion in 2015.[34] The emergence of e-commerce companies like Amazon and Alibaba (both unicorns before they went public) have decreased the need for physical locations to buy consumer goods. Many large corporations have seen this trend for a while and have tried to adapt to the e-commerce trend. Walmart recently bought Jet.com, an American e-commerce company, for $3.3 billion to try and adapt to consumer preferences.[35]

Innovative business modelעריכה

In support of the sharing economy, unicorns and successful startups have built an operating model defined as "network orchestrators".[36] In this business model, there is a network of peers creating value through interaction and sharing. Network orchestrators may sell products/services, collaborate, share reviews, and build relations through their businesses. Examples of network orchestrators include all sharing economy companies (i.e. Uber, Airbnb), companies that let consumers share information (i.e. TripAdvisor, Yelp), and peer-to-peer or business-to-person selling platforms (i.e. Amazon, Alibaba).


Data as of March 13, 2018עריכה

  • Number of unicorns: 279
  • Total combined valuation of unicorns: $1 trillion
  • Total amount of capital raised: $205.8 billion
  • Number of new tech unicorns in 2016: 25 (down 68% YoY)
  • Total number of new unicorns in 2016: 51[7][37]

Largest unicornsעריכה

Six out of the top ten most valuable unicorns are based in China.[7] Below are the top ten largest unicorns overall.

  1. Ant Financial – China
  2. ByteDance – China
  3. DiDi – China
  4. SpaceX – USA
  5. Stripe – USA
  6. Lufax – China
  7. JUUL Labs – USA
  8. Cainiao – China
  9. Palantir Technologies – USA
  10. Kuaishou – China

See alsoעריכה


  1. ^ Cristea, Ioana A.; Cahan, Eli M.; Ioannidis, John P. A. (April 2019). "Stealth research: Lack of peer‐reviewed evidence from healthcare unicorns". European Journal of Clinical Investigation. 49 (4): e13072. doi:10.1111/eci.13072. ISSN 0014-2972. PMID 30690709.
  2. ^ Rodriguez, Salvador (September 3, 2015). "The Real Reason Everyone Calls Billion-Dollar Startups 'Unicorns'". International Business Times. IBT Media Inc. Retrieved January 3, 2017.
  3. ^ Lee, Aileen (2013). "Welcome To The Unicorn Club: Learning From Billion-Dollar Startups". TechCrunch. Retrieved 26 December 2015. 39 companies belong to what we call the 'Unicorn Club' (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors)... about .07 percent of venture-backed consumer and enterprise software startups
  4. ^ Griffith, Erin & Primack, Dan (2015). "The Age of Unicorns". Fortune. Retrieved 26 December 2015. Subtitle: The billion-dollar tech startup was supposed to be the stuff of myth. Now they seem to be... everywhere.
  5. ^ Chohan, Usman (2016). "It's Hard to Hate a Unicorn, Until it Gores You". The Conversation. Retrieved 26 October 2016.
  6. ^ Roberts, Daniel & Nusca, Andrew (2015). "The Unicorn List". Fortune. Retrieved 26 December 2015.
  7. ^ a b c "The Global Unicorn Club". CB Insights. Retrieved 2020-08-01.
  8. ^ Frier, Sarah & Newcomer, Eric (2015). "The Fuzzy, Insane Math That's Creating So Many Billion-Dollar Tech Companies". Bloomberg L.P. Retrieved 26 December 2015. Subtitle: Startups achieve astronomical valuations in exchange for protecting new investors... Snapchat, the photo-messaging app raising cash at a $15 billion valuation, probably isn't actually worth more than Clorox or Campbell Soup. So where did investors come up with that enormous headline number?
  9. ^ "Here are the 'decacorns' of the decade that emerged from Bay Area in the 2010s". Retrieved February 12, 2020.
  10. ^ Fan, Jennifer S. "Regulating Unicorns: Disclosure and the New Private Economy." BCL Rev. 57 (2016): 583.
  11. ^ "How Unicorns Grow". Harvard Business Review. Retrieved 2017-03-30.
  12. ^ Levi Sumagaysay (October 9, 2018). "Venture capital: Bay Area's Lucid Motors, Zoox, Uber scored the most in third quarter". Mercury News. Retrieved October 15, 2018.
  13. ^ Sterman, J. D., Henderson, R., Beinhocker, E. D., & Newman, L. I. (2007). Getting big too fast: Strategic dynamics with increasing returns and bounded rationality. Management Science, 53(4), 683-696.
  14. ^ a b c Howe, Neil. "What's Feeding The Growth Of The Billion-Dollar 'Unicorn' Startups?". Forbes. Retrieved 2017-03-30.
  15. ^ "To fly, to fall, to fly again". The Economist. 2015-07-25. ISSN 0013-0613. Retrieved 2017-03-30.
  16. ^ a b "Grow fast or die slow: Why unicorns are staying private". McKinsey & Company. Retrieved 2017-03-30.
  17. ^ Demos, Telis; Driebusch, Corrie (2015-11-19). "Square's $9-a-Share Price Deals Blow to IPO Market". Wall Street Journal. ISSN 0099-9660. Retrieved 2017-03-31.
  18. ^ Balakrishnan, Anita (2016-12-16). "Trivago IPO opens at $11.20 after pricing at $11, below its expected range". CNBC. Retrieved 2017-03-31.
  19. ^ a b c d "Valuing high-tech companies". McKinsey & Company. Retrieved 2017-03-30.
  20. ^ "Unilever Buys Dollar Shave Club for $1 Billion". Fortune. Retrieved 2017-03-30.
  21. ^ Raice, Shayndi; Ante, Spencer E. (2012-04-10). "Insta-Rich: $1 Billion for Instagram". Wall Street Journal. ISSN 0099-9660. Retrieved 2017-03-30.
  22. ^ Winkler, Rolfe (2015). "Bill Gurley Sees Silicon Valley on a Dangerous Path". The Wall Street Journal. Retrieved 26 December 2015. Subtitle: Subtitle: Venture capitalist says companies hurt themselves by trying to delay going public
  23. ^ Blodget, Henry (2008). "Tech: How To Survive Great Depression 2.0 Without Firing Everyone". Business Insider. Retrieved 26 December 2015. It seems every serious venture capital firm has now had a chat with its portfolio companies about how it[']s time to fire people... VC-extraordinaire Bill Gurley's Benchmark has had the same chat with its companies, but Bill tells peHUB that there's actually an alternative to canning half your company: Move to San Jose
  24. ^ Griffith, Erin (2015). "Bill Gurley Predicts 'Dead Unicorns' in Startup-Land this Year". Fortune. Retrieved 26 December 2015. Subtitle: A crash would affect more than just startups. ... Bill Gurley, the prominent investor behind Uber and Snapchat, has been sounding the tech bubble alarm for months now. He's preached about the dangerous appetite for risk in the market, the alarmingly high burn rates and the excess of capital sloshing around in Silicon Valley. “There is no fear in Silicon Valley right now,” he said. “A complete absence of fear.” He added that more people are employed by money-losing companies in Silicon Valley than ever before. Will there be a crash? “I do think you’ll see some dead unicorns this year,” he said, using the term used to describe startups with valuations higher than $1 billion.
  25. ^ Rob Price (2018). "Legendary investor Bill Gurley says that there's a 'systematic problem in Silicon Valley' because it's too easy to get cash". Business Insider. Retrieved 12 March 2018. There's so much easy money in the tech industry, entrepreneurs can afford not to be accountable to their investors. That "excessive amount of money," he says, can inflate a startup's valuation — even if they don't deserve it.
  26. ^ Reuters (01 December 2015). Fidelity star Danoff grows cautious about unicorn phenomenon, CNBC.com, accessed 31 Jan 2020
  27. ^ Gornall and Strebulaev (2018). "Squaring Venture Capital Valuations with Reality". Stanford University Working Paper. SSRN 2955455. We develop a valuation model for venture capital-backed companies and apply it to 135 U.S. unicorns -- private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find reported unicorn post-money valuations average 48% above fair value, with 13 being more than 100% above.
  28. ^ Sorkin, Andrew (2017). "How Valuable Is a Unicorn? Maybe Not as Much as It Claims to Be". New York Times. Retrieved 11 March 2018. The average unicorn is worth half the headline price tag that is put out after each new valuation.
  29. ^ a b MacMillan, I. C., Siegel, R., & Narasimha, P. S. (1985). Criteria used by venture capitalists to evaluate new venture proposals. Journal of Business venturing, 1(1), 119-128.
  30. ^ Zhuo, Tx (2016-03-07). "5 Strategies to Effectively Determine Your Market Size". Entrepreneur. Retrieved 2017-03-30.
  31. ^ a b "Market Sizing: Is There A Market Size Formula? | B2B International". B2B International. Retrieved 2017-03-30.
  32. ^ "Valuation methods | Venture Valuation". www.venturevaluation.com. Retrieved 2017-03-30.
  33. ^ Newlands, Murray (July 17, 2015). "The Sharing Economy: Why it Works and How to Join". Forbes. Retrieved March 31, 2017.
  34. ^ Ho, Ky Trang. "How To Profit From The Death Of Malls In America". Forbes. Retrieved 2017-03-31.
  35. ^ Nassauer, Sarah (2016-08-08). "Wal-Mart to Acquire Jet.com for $3.3 Billion in Cash, Stock". Wall Street Journal. ISSN 0099-9660. Retrieved 2017-03-31.
  36. ^ "Rise of the Unicorns". Zinnov Thoughts. 2015-08-27. Retrieved 2017-04-01.
  37. ^ Lunden, Ingrid. "CB Insights: 3,358 tech exits in 2016, 'unicorn births' down 68%". TechCrunch. Retrieved 2018-03-06.


  1. ^ "The Complete List of Unicorn Companies". The Complete List of Unicorn Companies. Retrieved 2020-09-28.