What is a Unicorn Company? Startups of a New Era

We all are aware of the mystical creature “Unicorn” but here we’ll talk about what is a Unicorn startup in business. It is not easy to launch a startup with an innovative idea to disrupt the markets, further, it is even tougher to run a successful business out of a startup idea. When we talk about a unicorn company we mean a startup company that has raised above US$1 billion in private valuation is poised to have a monotonous growth.

You must have heard people referring to Uber, Didi, Pinterest, Snapchat and the like as Unicorn Company, but do you know what exactly is a Unicorn company and why the name Unicorn? Who coined the name Unicorn and When? Is there anything above a Unicorn? Well, in this blog you’ll get all your answers and much more information about a startup unicorn.

What is Unicorn Company?

In this fast-growing world, there are three types of startups: those that do not turn out well, those that get successful outcomes and the very rare ones that achieve outstanding success. A unicorn company comes under the category of those very rare ones. A private company with a valuation of over $1 billion is considered a unicorn startup.

You must ask how rare? Well, according to a report, out of every 10,000 startups, only one becomes a unicorn. A unicorn company is a privately held startup that has a valuation of $1bn or more. Unicorn startups are not as rare now but the benchmark has been set and all the entrepreneurs starting up with their new ventures want to jump off the hurdle of $1bn before going public.

This is sometimes contrasted with “cockroach” startups (Yes, there is something like a cockroach startup, too). Its characteristics are steady growth and strict cost control.

After defining a unicorn company, let’s see how this word came into existence.

Who Coined the Word “Unicorn Company” in Business?

On the sixth anniversary of Aileen Lee’s (a venture capitalist) article, “Welcome To The Unicorn Club”, let’s talk about unicorn startups. What is a unicorn startup? A startup company founded after 2003 that has a valuation of more than $1 billion and is privately held can be called a unicorn startup.

Lee, the founder of Cowboy Ventures, listed 39 companies in this category. In those days, unicorn companies were rare whereas now the number is increasing at a rapid pace.

What Is a Tech Unicorn Startup?

Due to the emerging advancements in technology day by day, the tech companies are being valued higher than ever before. The tech unicorn startup gets investors easily if they have a problem-solving idea, for instance, all the hype for Uber for X and other startups that resemble the Uber business model.

Now let’s look at the tech unicorn definition. As a unicorn company is a startup that has a valuation of more than $1bn with the help of investors without going public, in a similar fashion a tech unicorn is the same; a tech startup that has raised a valuation of more than $1bn. Many unicorn companies come under this category, Pinterest for example.

There is an ongoing trend of tech startups not going public. However, to go on this path, it is necessary that the business model of the tech startup be robust and scalable. There are over 150 tech unicorns under progress today. Any unicorn company is not focused on achieving substantial profit in the early years, it rather focuses on market share and scale.

The reason behind the high rise valuations of tech startups to an enormous amount is due to unique technological innovations. It has become easier than before with profitable technologies like mobile advertising, cloud computing, and P2P platforms. The list of inspirations is huge from online galleries like Pinterest to genius creations like WhatsApp.

After knowing ‘what is a tech unicorn’, let’s see how a unicorn company gets its funding.

How Does a Unicorn Company Get Funding?

When the word “Unicorn” was coined in the business world relating to the billion-dollar startups, the unicorn club was formed by Aileen Lee, the founder of Cowboy Ventures. At that time, the word unicorn fitted perfectly to the companies with more than $1bn as they were rare. In recent years, the unicorn startup companies have surged in number and in value. Indeed, a new measure of exclusivity, “decacorns” have become more popular (more on that later). Nevertheless, there is no stopping the race of achieving the title ‘unicorn’.

There rises a question, “how are these startups reaching the required valuation continuing to remain private?”

Behind this growth are the Venture Capitalists. As the VC companies have become larger, they look out for bigger “exits”. The investments can be categorized into 3: Seed, Venture, and Growth.

Seed: Seed investments are envisioned to help build the fundamentals for the initial development of the startup. It can be used to kick start a new project by the “angel investors with low or no expectation of return.

Venture: Venture capital is also characteristically used to take off a business. These investors are highly focused on bigger and larger outcomes hence they invest their money in the startups that have a promising business model. These investments generally come from conventional VC firms. Read more about VC funding here.

Growth: Growth capital (also called expansion capital) is a type of private equity investment, companies that are in quest of expansion or acquisitions without losing any part of control over the business, likely to be mature than other startups backed by VC, go with this type of investment. This type of investment is large scale and highly intensive with an in-the-bag plan.

The two things that are driving the startups to run in the race to become a unicorn company are, firstly, massive investor spending; VCs and investment firms are doubling down their investments on privately held startups. This is seen as a result of the huge outcomes that are expected out of these startups. Secondly, on the other hand, considering past acquisitions like that of $19bn acquisition of WhatsApp, the investors envision bigger buyouts and higher returns. These are leading a large number of startups to remain private until they become a part of the unicorn club.

Other ways are often bank loans and internal corporate capital. Different funding options are available at different stages of a startup, all eventually helping the startup become a unicorn. If you want to know more about a startup funding, read our blog “How Startup Funding Actually Works?”

Decacorn: The Super Unicorns

Decacorn is a startup worth over $10 billion in private valuation. Looking at the number of unicorn companies today, the ‘unicorn’ companies are not that rare now. Today’s world is blessed with such startups. Talking about unicorns, there are companies like Dropbox (now public) and Uber today that have set the bars high for the next startups. In the search of differentiating themselves from most of the startups, these unicorns have raised their valuation to more than $10bn. The startup unicorn with a valuation of more than $10bn is called a ‘Decacorn’.

There are over 18 Decacorn companies in the world today, for instance, Uber ($72bn), Didi ($56bn), WeWork ($47bn), and Airbnb ($38bn). Every unicorn startup company has an aim to reach this success level.

There is one more term relating to this category in the business dictionary that is ‘Hectocorn’. It is a term used for any unicorn startup that has an epic claim of raising a valuation of more than $100bn. There is currently one such company in the world today i.e. Ant Financial with a valuation of over $150bn.

Nevertheless, technology has made entrepreneurship much easier than earlier times and as a result, we can see the list of unicorn startups increasing day by day.

How Many Unicorns Are There In The World?

When the unicorn club was found there were roughly ten companies with the title of ‘unicorn’ whereas, there has been a massive increase in this number. By January 2019, the number raised to 315 companies with a total of approximately 1058bn.

CB Insights maintains a comprehensive list of unicorn startups across the globe. Some of them are as follows (Uber, Airbnb, Stripe and Paytm have gone public since publishing this post):

5 Lessons to Learn From The Failed Unicorn Companies

Nobody wants to see their blood and sweat raised idea to fail, but unfortunately, the fact is 90% of startups fail. And nobody ever thinks they’re one of them while starting out a venture.

Once in your life, your grandma would’ve said: “Make every experience a learning experience”. Failure isn’t uncommon in the startup world. Many startups fail due to various reasons and rather than not considering them, you should use the lessons taught by these failed attempts.

Some entrepreneurs, with a proper amount of planning and resources, have got the title ‘unicorn company’. But many other potential companies have failed. In the business world, one must never stop learning. Rewards have never been greater. This is a good time that you stop sitting on your ideas and bring them to life and maybe you could be the next unicorn company. Let’s take a look at the lessons to inculcate from the failed unicorn companies.

1. Managing Money Matters

Many startups struggle with money issues. They could not decide whether they should seek capital from outside or sustain the business on their own by creating enough revenue. There is no let’s do both in business. You must decide one thing every time.

Another thing to keep in mind is scaling too fast. According to a study, 74% premature scaling startups fail.

Talking about money, we can take the example of Beepi, an online used car marketplace. The founders raised too much money too soon and also started spending it unnecessarily on high salaries and vanity. Beepi struggled a lot after their investor pulled out its support.

Taking lessons from Beepi, you should set clear deadlines and restrict your expenditures. Plan how to use your money wisely in acquisitions and better hiring.

2. Trust Your to-be Customers

Before launching your business, you must validate your idea by getting feedback from potential customers and work accordingly. If you want to know exactly what to do to get started, read our blog on what to consider before starting up.

The above-mentioned step is necessary but you should not solely focus on their feedback alone because it is positive. You should also make changes according to the negative feedback.

Taking an example of Juicero, founded in 2013 had very optimistic goals for their product which later turned out to be overpriced. Even after reducing the price, the company eventually shut down after 16 months of launch. Therefore, you should focus on testing your pricing and product and user behavior before investing all in.

3. Be Realistic. Don’t Overpromise

There is a hype to innovate in the tech field going on. Majority of startups want to be one of the upcoming tech unicorns. This story falls true taking the example of Theranos, a Silicon Valley startup that promised too many things that weren’t delivered. It claimed to be one of the problem solving med-tech startup which it could not suffice.

This drive to become the next big leap in the startup world is a powerful fuel of many companies. It could bring wonderful outcomes until your goals are realistic and you’re not stretching your limits to an unreachable level.

4. Don’t Pay Attention Only To the Customers, Your Workforce Is Equally a Part of Your Success.

To grow a startup to become a unicorn, you will need a workforce consisting of different people having unique strengths. For a successful business, you will need a team that could substantially strengthen your company.

Another notable thing to keep in mind while working in a team is to understand the importance of the team. To gain the public’s trust is important but you also need to gain the trust of people working with you. The unicorn company WeWork was a subject to some serious labor issues and in response, the company neglected to value the workers and fired everyone. This caused irreparable damage to the image of the unicorn company.

5. Denying Your Business is Failing Will Worsen the Situation.

We all love our work and after spending a leg and an arm on a startup, no entrepreneur wants to think that their idea is failing. But the truth is the faster you learn about your mistakes the better outcomes you’ll get.

You should track the downfalls of your company and start working on them to get your company back on track. Start eliminating things that aren’t working. You may have expanded too quickly and got stuck at a point, but it’s always okay to go back and check what went wrong. Get rid of all the extras.

You may like to read – Illuminating Insights: What Is a Startup?

Parting Thoughts

The world of business has a dictionary of its own. After having a clear idea about what is a unicorn in business and its further categories like decacorns, you must be having a clear idea of what is a unicorn company and what it takes to reach there. There are many companies that failed to become a part of the unicorn club but that doesn’t stop them from making a considerable name in the business world. You could always learn from your mistakes and other’s mistakes as well.

The bar has raised high for startup companies. Are you highly inspired by a unicorn company? Do you want to be the next unicorn company? You can always take help to reach distant levels. We at NCrypted provide such technological solutions to the startup companies that could bring your ideas to life. We could help you kick start your new venture with a superior range of website clones. We also provide custom solutions for your startup.

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Himani Ramvani

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