Unicorn « Back to Glossary Index

A “unicorn” is a privately owned startup valued at over $1 billion, a term coined by venture capitalist Aileen Lee to signify the rarity and success of such startups. Unicorns, often backed by venture capitalists, aspire for high growth, leveraging innovative and forward-thinking business strategies. They might evolve to be valued at over $10 billion, termed “decacorns,” or even over $100 billion, falling into the categories of “centicorns” or “hectocorns.”

What is Unicorn

  • A private startup company that holds a value of $1 billion is known as a unicorn. This is majorly used for the venture capital establishments. The said terms were first coined by Aileen Lee, one of the venture capitalists.
  • To represent the success of such ventures, he picked the mythical animal symbol just because of their perfect size; usually, unicorn investors refer to private investors or venture capitalists, far away from the influence of retail investors. However, several unicorns can’t operate their work only like they wish to move in public.
  • The global website CB Insights reported that 1,170 unicorns presently exist globally till June 2022. Unicorns holding a value of $10 billion are known as “decacorns” and, with a value over $100 billion, come under the known categories ‘centicorn’ and ‘hectocorn’ in the business world.

Key Points on Unicorns

  • This term is widely used for venture capitalists’ establishments to define startup companies holding a value of $ 1 billion.
  •  Said term was first used and published by Aileen Lee, one of the venture capitalists.
  • Well-known unicorns such as SpaceX, Robinhood, Instacart, etc.
  • 1,170 unicorns presently exist globally till June 2022. Unicorns holding a value of $10 billion are known as “decacorns” and, with a value over $100 billion, come under the known categories ‘centicorn’ and ‘hectocorn’ in the business world.
  • The mythical animal symbol “Unicorn” is basically used to denote such ideal candidates who are over-skilled, trained or experts in their own field.

Understanding Unicorn Concept

  • A Unicorn is used to denote those startups owned privately in the corporate world and having a self-valuation of more than $1 billion. They are experts, well qualified and trained in their own field. Getting the Unicorn position requires a lot of developed skills and training, which is rare in the business world.
  • To get the position of Unicorn globally, organizations or establishments must possess indigenous inventive ideas with a far-seeing vision for their growth. They must have a perfect corporate feasible business model so that they can communicate their plans easily with venture capitalists and private investors.
  • Unicorns have various courses of action when it comes to exit points, such as remaining private, initial public offerings, making an appeal to a buyer, etc.
  • Owners of unicorns who wish to keep their unicorns privately. Somehow, it is likely to restrict their own growth of business. They should find better ways for investors who are investing in them to get returns on their investments.
  • Usually, unicorn startup takes investment capital for their growth using an initial public offering (IPO). However, unicorn avoidance is slow in such practices as public offering (going directly in public) can easily dilute their ownership of unicorns.
  •  While making direct appeals to buyers, unicorn owners or executives can easily accomplish their own targets faster than they opt to remain private or go public. 
  • Initially, Aileen Lee was one of the venture capitalist founders of Palo Alto-based Cowboy Ventures, a seed funding venture. Lee mentions in an article like “Welcome to the Unicorn Club: Learning from Billion-Dollar Startups,” where Lee studied and worked on software startups usually founded in the 2000s and concluded with the fact that only 0.07% of software startups touch a valuation of $1 billion. It is rare for startups to hold the position of a unicorn, just like searching out mythical unicorns is very rare.
  • Lee further stated that a new early unicorn, Google (a super unicorn), with a valuation of more than $100 billion, was established in the year of 1990s. Well-known USA-based unicorns such as Airbnb and Epic Games and fintech companies like Robin Hood and SoFi.

Facts on Unicorn

Mainly, startup value of $1 billion are initial unicorns, While unicorns holding a value of $10 billion, known as “decacorn” and with a value over $100 billion, come under the known category ‘centicorn’ and ‘hectocorn’ in the business world.

Unicorn Valuations

  • Valuation mostly depends on the basis of investors and venture capitalists in terms of their growth and development. Usually, valuation is done after a long-term assessment. The valuation of any unicorn is separate from its financial performance. Indeed, various unicorns exist that rarely generate profits during their first running business.
  • It became a barrier and difficulty for those investors and capitalists in case there were no other unicorns in the market who were supposed to make such startups of their kind. Thus, this process of valuation became complicated in nature.    

How Unicorn Finance Works

Venture capitalists mostly support the Unicorn’s financing. Such Establishments or companies are investing in high-risk, including the high reward startups. The outcome of their investments generally includes huge equity amounts from those companies or startups.

Pros under Unicorn Financing

  • A few benefits of unicorn financing are that it supports startups to raise large capital amounts quickly. It is important for such startups who are supposed to grow fast in their own field.
  • Unicorn financing promotes new startups to get associated with intellectuals easily. Although every employee prefers and is ready to work with those startups, most have a secured investment as high growth prospects among employees.
  • Unicorn financing is very important because it helps in making interest among customers and other investors.

Cons under Unicorn Financing

  • There are a few disadvantages of unicorn financing as it creates unnecessary pressure for early growth and achieves unrealistic achievements on startups, which may further opt for wrong decisions quickly and result in their failure. 
  • This easily results in various dilution consequences for both early investors and employees just because their ownership shares could be allotted to those new investors, and the company’s valuation will gradually decrease.
  • It’s difficult for startups to find unicorn financing, and just a few startups yearly hold the position to achieve such funding because of tough competition in the market and very hard to obtain such funding in their need.   

Points to Keep in Mind While Applying for Unicorn Financing

Such funding for startups means achieving secured funding that can easily hold the potential to be $1 billion in valuation. We must keep in mind about unicorn financing that-

  • It is usually led and performed by venture capitalists.
  • It often involves a huge amount of money.
  • Companies that achieved unicorn financing are mainly recently founded companies in a few years.
  • Startups hold the quality to be high-growth startups like technology, healthcare, etc.
  •   Having a good professional team and experts like founders and executives with a high-class business plan and a good history of growth records.

In case you thought to apply for unicorn financing, then the above-mentioned points must be in your mind- You need a strong trained expert team because investors usually focus on whether the experienced or intellectual groups are running the same business or not,  with a solid business plan and a good record of business development. Investors will look at every aspect perfectly and conclude whether your establishment is on the right track or not to be a $1 billion company.

Examples of Unicorns

In 2022, more than 1,000 unicorns were reported worldwide with a gross valuation of over $3,516 billion together. Most recognized and famous unicorns, including Uber, Airbnb, SpaceX, Palantir Technologies, WeWork, and Pinterest from the USA, and a few Chinese are Didi Chuxing, Xiaomi, China Internet Plus Holding (Meituan Dianping), and Lu.com. Indian Unicorns like BYJU’s, Swiggy, OYO Rooms, Dream11, Razorpay, and Ola Cabs etc.

 Whether a layman makes Investments in a Unicorn?

Usually, unicorns are startup industries. You must be a private investor or venture capitalist because they are required to accept decent investments. However, interested investors need to keep an eye on the track records of such unicorns where they wish to invest and need to wait till they decide and opt to be like a public company for initial public offerings, etc.

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