Unicorn What It Means in Investing With Examples
Cierra Murry is an experienced banking, credit cards, investing, loans, mortgages, and real estate expert with more than 15 years of financial analysis, underwriting, loan documentation, loan review, banking compliance, and credit risk management experience.
A unicorn is a privately held startup company valued at over $1 billion, commonly used in the venture capital industry. The term was popularized by venture capitalist Aileen Lee. Unicorns require innovation and are rare, often attracting private investors or venture capitalists. Many unicorns eventually go public.
Key Takeaways:
– A unicorn is a startup with a value of over $1 billion in the venture capital industry.
– The term was coined by Aileen Lee in 2013.
– Examples of unicorns include SpaceX, Robinhood, and Instacart.
– There are over 1,000 unicorn companies globally, as of March 2022.
– Unicorns can also refer to ideal candidates in human resources management.
Understanding Unicorns:
A unicorn is a privately owned startup with a valuation exceeding $1 billion. Achieving unicorn status is rare and requires an innovative idea, a clear growth vision, a solid business plan, and a way to attract venture capitalists and private investors.
Unicorns have several exit options:
– Remaining private, which limits growth potential and requires providing returns to funders.
– Going public through an initial public offering (IPO), accessing capital for growth.
– Appealing to a buyer for quicker goal achievement.
Aileen Lee, founder of Cowboy Ventures, coined the term unicorn and highlighted the rarity of startups reaching $1 billion valuations. She noted Google (now Alphabet) as a super-unicorn with a valuation over $100 billion. Many unicorns were born in the 2000s, with popular examples including Airbnb and Robinhood.
Unicorns with valuations over $10 billion are sometimes called decacorns.
Special Considerations:
The term unicorn is not exclusive to startups. In the HR sector, it refers to high expectations of recruiters seeking candidates with overqualified qualifications for specific positions. It creates a mismatch between ideal candidates and available candidates.
Unicorn Valuations:
Unicorn valuations are based on long-term growth forecasts, unrelated to financial performance. Profit generation is uncommon in the early stages of many unicorn companies. Comparing valuations can be complex when no industry competitors or business models exist.
Unicorns and Venture Investing:
The term unicorn is used to describe startups in the technology, mobile technology, and information technology sectors, often with high valuations not supported by fundamental finances. Late-stage investors may neglect traditional risk analysis due to fear of missing out on unicorn companies.
Debates continue on whether the technology sector’s unicorns indicate a reinflation of the dotcom bubble or a wave of technologically-driven productivity. Research shows that about one in three unicorns went public as of 2019.
Examples of Unicorns:
There are over 1,000 unicorns globally valued at over $3,516 billion. U.S.-based examples include Uber, Airbnb, SpaceX, Palantir Technologies, WeWork, and Pinterest, while China has Didi Chuxing, Xiaomi, and Meituan Dianping.
Nuro:
Nuro is an autonomous vehicle delivery startup that became a unicorn after a $940 million investment from SoftBank Group, valuing it at $2.7 billion. Nuro focuses on zero-emissions local delivery vehicles and has prototypes for medical supplies and grocery deliveries.
Instacart:
Instacart is a grocery delivery app valued at over $2.7 billion. It offers a wide range of products from local stores. The company recently adjusted its valuation to $24 billion, motivated by market conditions and appealing to a better labor pool.
Unicorn in Business:
A unicorn in the corporate world refers to a startup company with a valuation exceeding $1 billion.
Unicorn Companies:
As of March 2022, there are over 1,000 unicorns globally valued at $3,516 billion.
Amazon as a Unicorn Company:
Amazon is not considered a unicorn company as it went public in 1997.
Why Startups are Called Unicorns:
Startups with valuations over $1 billion are called unicorns due to their rarity and exceptional success or market traction.
Investing in a Unicorn:
Investing in unicorns is primarily available to private investors or venture capitalists. Tracking their growth and potential for going public through IPOs is recommended for interested investors.
