What is a Unicorn?
The term "unicorn” has several meanings in the business world. But to investors, it is a startup that has achieved that magic number and is now worth $1B.
Aileen Lee, founder of the successful venture capital firm CowboyVC, popularized the term “unicorn” in the early 2000s. In her work financing new software companies, she found that only 0.07% of startups grew to be worth at least $1B, making them as rare as unicorns. The term has spread since Lee first used it to describe software startups, to include companies like Alphabet (Google), Facebook, Airbnb, SpaceX, and Robinhood.
SpaceX, the aerospace manufacturer and space transport service company, is a great example of a unicorn. Run by renowned startup veteran Elon Musk, Space X initially raised $20m from San Francisco based “Founders Fund”.
Imagine getting to the end of a rainbow and finding a unicorn there...
You’d definitely jump right on and wait for it to take you away to a magical land where all your dreams will come true. Unicorn companies are like that. Investors believe that if they find a unicorn, it will make them rich and fulfill their wildest dreams.
Ideally, a unicorn should offer a value proposition, or a service or product that is meaningful to its customers and solves a problem they didn’t know they had. (A good example here is cell phones. Two decades ago, everybody used landlines and didn’t seem to have a problem with it.)
Once the company has provided a solution that customers didn’t know they needed, it will have to expand on that solution When cell phones first came out, most users were satisfied with just being able to make a phone call. But later, they wanted to take pictures with the phone, so companies had to fit a camera into their devices. Times are changing, and companies that can’t keep up or refuse to evolve with the needs of its consumers get left behind and go out of business. In other words, a unicorn’s value proposition should expand to reflect the changes within its environment and marketplace.
A company looking to achieve unicorn status also needs to identify a potential fan base, the group of customers that will not only buy a company’s products or services but will also tell others about it. Spending time on targeting any random group to make them clients could lead to wasting time, money, and effort.
Some unicorn companies survived the dotcom boom and bust in the early 2000s or were established just afterward, saving them a lot of trouble, while similar startups that were born slightly before or after and were victims of the crash. Some benefit from the local economic conditions, while others suffer in recessions. Building a unicorn company is extremely difficult, and no single formula can guarantee success. Luck can play a big part in determining outcome.
Almost all unicorns have disrupted more traditional industries through innovation, and in doing so they sometimes establish an entirely new sector. When Uber disrupted the taxi industry, they changed the way that people order cabs entirely. What about Instagram? They changed the way people share, and even the way they take, pictures and videos.
Unicorns also tend to be service-focused. They are constantly fretting about making their clients’ lives easier and more affordable, the way Spotify made listening to music wherever you are easy.
There are more than 390 unicorns registered on CB Insights, a database of investment opportunities. Mentioning all of them would take forever, so let’s just highlight the biggest and most well-known examples.
Many unicorns were founded in China. The one with the biggest market valuation (largest) is called Toutiao. It works in artificial intelligence and has a market value of $75B.
The second biggest company, also Chinese, is involved in auto and transportation industry. It’s called Didi Chuxing and has a $56B market value.
A U.S. company, JUUL Labs, is the third biggest unicorn. It’s involved in consumer & retails and has a market value of $50B.
Other popular unicorns featured on the list include WeWork, which up until September 2019 had a $47B market value, Airbnb at $29.3B, and Epic Games at $15B market value.
Fintech (financial technology) companies in the United States that also made it onto the list include Coinbase at $8B, Robinhood at $7.6B and One97 Communications with $10B market value.
Identifying and evaluating a startup for its potential success is not an easy thing to do, since there are so many moving parts. Each company is unique. So how do venture capitalists (VCs) wade through the noise and choose a particular startup?
VCs see a company’s team as the most important factor when deciding on whether to invest or not. What makes an exceptional team? Grit, determination, ability to sell, adaptability, and experience are just some of the characteristics that are important here
A startup is built with one goal in mind: to solve a problem. Investors evaluate a company based on that solution and whether it has a real-world application.
Problem and Solution
Investors are excited by the presence of early adopters. Early users are an indication that organic (or non-advertising related) growth is possible, and consumers or businesses are genuinely interested in a start up’s work.
Before investing, a VC will want to know whether a startup’s market is competitive and how many potential customers are out there waiting to be converted. Competition can also give a good forecast for potential profits.
With the current biggest unicorns in mind, you may be wondering which new $1B startups have surfaced in 2019. Some of these include:
Although a company might have unicorn status prior to the IPO, that doesn’t mean that it’s going to be successful once shares are available to the public.
If you think that a unicorn company is impressive, then you’ll be really impressed with what comes after that. Companies that have a market value of $10B or more are known as decacorns. Airbnb and Didi Chuxing are two examples of decacorns. There’s also a term used for even bigger companies: hectorns, which yes, have a value of $100B or more. The only hectocorns in the tech-industry are e publically owned, such as Facebook and Google.
Over time, the unicorn employee has become almost as mysterious as the mythical creature itself. Recruitment agents are always looking for them, companies want them, and workers aspire to be them. But what are the characteristics of a unicorn employee, and why are they so special?
A few years ago, Ryan Holmes, the CEO of Hootsuite, wrote a LinkedIn post about unicorn employees, and how they were “rare and valuable.” Let’s drill down a bit further and find out what makes a unicorn employee tick.
Passion seems to come up in the unicorn conversation quite a bit, and a unicorn employee takes passion to the next level. This employee is extremely focused, puts all his or her energy into the job, and lives and breathes the brand. He or she is excited about being excited.
A true character trait of the unicorn employee is the ability to manage several different roles or projects at once. They can be either the quarterback or the linebacker,. Companies cherish this ability, as it means they can move their employees around different departments if need be, depending on workloads and schedules.
Unicorn employees understand the importance of strategy when it comes to the direction of a company. They can take a broader objective and slice it up, so it fits within the goals of the business. Think of it like an orange - the whole fruit by itself with the skin on, can’t be eaten and is of no real use, however when it is pealed and separated into individual pieces it is tasty and serves its purpose. Unicorn employees have a knack of pulling apart the orange and getting the most out of the fruit.
Jack Dorsey of Twitter is a great example of a unicorn employee with a strategic mind. In 2016, to combat falling tweet numbers, he decided to change the length of tweets to 280 characters. Although it was initially met with criticism, the strategy worked well, leading to a reverse in the negative trend and a rise in the global number of tweets.
The unicorn employee is open to ideas, respectful of different viewpoints, and willing to collaborate with anyone on any project. Having worked with many different kinds of people, they are also culturally sensitive.
Just like the stock market, a startup has its ups and downs. Unicorn employees understand this; they are committed and hardworking. Although they may work through the night to finish a project or roll out a new product, they also manage to avoid becoming workaholics. Their weekends are left for recharging.
Thirst for Knowledge
A key characteristic of a unicorn employee is their willingness to learn and adapt to different situations. Failure and mistakes are important in their growth, and they are open to suggestions when it comes to their work. The thirst for knowledge doesn’t just end there, as a unicorn employee is also fascinated by current affairs and a wide range of other subjects.
What is Capex?
Capex, short for capital expenditure, is an expense incurred by businesses to acquire, maintain, or improve a long-term asset, like buildings or equipment.
What is the Time Value of Money (TVM)?
The time value of money refers to the fact that money received in the present is worth more than the same amount received in the future, due to the earning power of the money.
What is a Fixed Asset?
Fixed assets are company resources that are expected to take longer than 12 months to be converted into cash or have a useful life longer than 12 months.
What is Scarcity?
Scarcity is the limited availability of a resource in relation to the want and need for that resource.
What is a Substitute?
A substitute is a good or service that a customer views as being very similar to another good or service — so much so that one can replace the other.