People traditionally use the term “unicorn” in reference to something that’s mythical in a way or one of a kind. In the VC industry, that term describes a privately-owned startup company less than ten years old with a value of $1bn or more.
The term first made itself known in 2013. VC Aileen Lee has told us back then that such successful startups were very rare – only 0.7%. At the time, there were indeed only 34 unicorns. Now, seven years later, we have 221 unicorns in the US alone. China isn’t far behind, with 166. And overall, there are over 400 unicorns in the world now. So, the term extends far beyond Silicon Valley, where it was coined.
What does it mean to be a unicorn in 2019-2020?
Unicorns don’t exist – but companies that correspond with that term do. And they’re not as rare as they used to be – although that’s arguable, given the sheer number of startups active today. Most founders of unicorns started with big dreams and a vision. And from 2013 until recently, that seemed to be what startup valuations were made of.
On the one hand, the figure of $1bn is undoubtedly impressive and can be considered a marker of success. Some of the well-known startups like that include Airbnb, Duolingo, and Buzzfeed. ClassPass has joined the ranks as recently as early this year. All of those are very well-known amongst consumers, at least in the US. And consumer awareness is very important for brand valuation.
On the other hand, however, not every unicorn of the last few years has surpassed their investors’ expectations. 2019 has seen many startups like Uber, Lyft, and WeWork that seemed to be integral to the life of an average middle-class millennial suffer huge losses. None of these companies are profitable. That, combined with the headline-grabbing failures they had experienced, is a sign that big ambition and “unicorn” aspirations aren’t enough. And they are certainly not enough for Wall Street.
Consequences for the investment landscape
WeWork’s and Uber’s losses could easily be evidence that the era of consumer-tech that focus on aggressive global expansion rather than profit might not be over, but it’s certainly on hold. Investors from Wall Street aren’t the sort of people to make the same mistakes twice and put their trust into high-risk ventures with little foresight.
This seems to correlate with Aileen Lee’s observation. According to her research, unicorns founded by inexperienced college dropouts like Mark Zuckerberg are the exception rather than the norm. Indeed, should the investors follow my predictions and choose less risky startups to support in the 2020s, these findings will most likely hold.
Also interesting: What Does a Venture Capitalist Do?
The Zebra Manifesto published in 2017 by Jennifer Brandel and her team exposes the problems I mentioned above and provides for an alternative model called “Zebra.” Rather than aggressive expansion, it makes a case for focusing on sustainable profits built at a reasonable speed. This growth potential is certainly more risk-free and has taken off since. And with sustainability continuing to be one of the biggest trends, it wouldn’t be too far-fetched to say that investors would follow it also when it comes to startups.
Photo credit: The feature image has been done by James Lee. The photo “flying unicorn” has been taken by Wilmer Martinez.
Source: Investopedia / Aileen Lee (TechCrunch) / CBInsights / Minda Zetlin (Inc) / Derek Thompson (The Atlantic) / Jessica Powell (Time) / TechStartups / Iberdrola / Sarah Frier, Eric Newcomer (Bloomberg) / Susan Adams (Forbes) / Jennifer Brandel (Medium) Jennifer, Mara, Astrid & Aniyia (Medium) / David Trainer (Forbes) Kate Raynes-Goldie (Particle)