Since the 5th century BC, Asian storytellers have spun wild tales of a unique creature with magical powers. It could do many wondrous things: heal sickness, reverse forest degradation, and make poisoned wells drinkable. This beast resembled a horse, except for one unusual characteristic—it had a large horn spiraling out of its forehead.
Surprisingly, this mythopoeic idea of something rare, special, and magical has found its way into the jargon of hard-nosed businessmen and women. In its revised context, a unicorn is a startup company whose valuations dwarfs other companies.
As an investor, you have probably read many good books about investing but may never have heard of a unicorn company. So, here is a quick overview of unicorn companies to get you up to speed on the concept.
Who Originated the Concept?
Of course, Aileen Lee, the founder of Cowboy Ventures, didn’t invent unicorn companies, but in 2013 she was the first to notice that they existed and coined the name. In her groundbreaking TechCrunch article, “Welcome To The Unicorn Club: Learning from Billion-Dollar Startups“, she identified the unique characteristics of certain private companies with a valuation of over one billion dollars.
She chose the picturesque name because she considered such startups “rare” and “magical,” and her article described the primary features of a unicorn company.
Where are the Unicorns?
We can find unicorns all over the world, although most cluster in just a few highly industrialized countries.
At present, there are more than 400 unicorns around the world.
Here are some insightful statistics about Unicorn companies from Iberdrola.com:
• The top five most valuable unicorn companies are Boutiao–Bytedance, a Chinese news platform with customized content worth $75 billion; Uber, an American mobile taxi app worth $72 billion; Didi Chuxing, a Chinese vehicle hire company worth $56 billion; WeWork, an American job sharing company worth $47 billion, and Airbnb, an American tourist accommodation platform worth $29.3 billion.
• The top Unicorn markets are Internet software (23%), E-commerce (14%), Financial Tech (11%), Health Care (10%), and On-demand services (7%)
• The United States has 48% of the world’s unicorn companies; China, 26%, the United Kingdom, 5%; India, 4%; Germany, 2%, and South Korea, 2%.
What Makes Unicorn Companies Special?
Besides their billion-dollar valuations, unicorn startups have four other unusual features.
1. Unicorns focus on customer service.
Although not all unicorn businesses are customer-centric, a little more than half leverage their popularity with consumers to build their brand.
WeWork is a good example. Recognizing the need for affordable office space with the feel of a corporate environment, WeWork developed an affordable office workspace business. The founders noticed that many people who quit their corporate job did not enjoy working from home. There were family distractions. It was unprofessional to invite clients over. And it was awkward to accommodate employees with desk space. Renting a small office was also too expensive.
2. Unicorn startups are private companies.
Since unicorn companies are private businesses, their high valuations attract investments from large venture capital and private equity companies. They also benefit by planning an exit strategy that will allow them to sell their business at a handsome profit.
3. Unicorn companies are disruptive and innovative.
What makes unicorn companies so attractive is that they offer something new to the market. They leverage innovation to disrupt existing industry norms and offer new solutions to old problems. For instance, SpaceX, Elon Musk’s rocket-building unicorn company, made prohibitively expensive space exploration far more affordable.
4. Unicorn companies are technology driven.
Unicorn companies rely on technology to reach more people and provide faster, more efficient, services. Therefore, a large proportion includes peer-to-peer networking, eCommerce, and on-demand manufacturing processes in their business model.
Finally, not all unicorn companies are created equal. Some are many times more valuable than others. Think of these as gradients of unicorn companies. A decacorn has a valuation above $10 billion. For instance, Dropbox, valued at $10 billion, Airbnb, valued at $25 billion, and Uber, valued at $62 billion. Some unicorns are even more valuable. Because Facebook, valued at about $100 billion belongs to an elite class of unicorns, it’s classified as a super-unicorn.
Photo credit, Lemon Art, via Flickr.