De-Mythologizing the “StartUp Unicorn”
The best businesses are those that either create trends or adapt to the current needs and demands of the market. In a highly changeable environment of the business world, it is the so-called “startup unicorns” that are taking center stage and leading the way, especially in Silicon Valley. Startup unicorns, quite simply, have changed the way we build and perceive businesses. For many, these businesses are simply enjoying a meteoric rise thanks to their perceived potential and their luck at being in the right place at the right time. However, unicorns do not exactly qualify as overnight successes. Many people just speculate that these businesses had a better transition towards their 10-and-up-digit status when in fact, it took these companies several years and a lot of hard work to get to where they are.
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What Exactly Are Startup Unicorns?
A unicorn is a startup company less than 10 years old whose value is estimated to be more than $1 billion dollars. The term was coined in 2013 by Aileen Lee, the founder of Cowboy Ventures. Startup unicorns are categorized based on their estimated value. A decacorn, for example, is a company that is less than 10 years in operation and is estimated to be worth at least $10 billion, while a super unicorn (also called a hectacorn) is valued at over $100 billion. One of the most famous super unicorns to emerge in the last few years is Facebook. Some of the biggest startups considered as unicorns include Uber, Dropbox, Pinterest, Snapchat and Xiaomi.
The media exposure that unicorn startups receive may have made some people believe that more businesses are high-value assets, but the truth is far off the mark. Only 1.28% of new businesses develop into unicorns. The rest simply take more time to gain value or just simply take a dive.
Unicorn Trends in the U.S.
The year 2015 saw more startup companies become unicorns than in any previous years. During the same year, about 1.5 startup businesses achieved unicorn status per week. In the years 2005 up to 2015, an average of 21.2 startups reached unicorn level per year.
The Value of the Unicorn in Today’s Market
By June 2016, there are 169 business startups that are considered unicorns. These have a combined value of about $609 billion. The 10 highest-valued unicorns in the U.S. include:
- Uber – Valued at $62.5 billion – Industry: On-demand
- Airbnb – Valued at $25.5 billion – Industry: E-Commerce/Marketplace
- Palantir Technologies – Valued at $20 billion – Industry: Big Data
- Snapchat – Valued at $16 billion – Industry: Social
- WeWork – Valued at $16 billion – Industry: Facilities
- SpaceX – Valued at $12 billion – Industry: Transportation
- Pinterest – Valued at $11 billion – Industry: Social
- Dropbox – Valued at $10 billion – Industry: Internet Software and Services
- Lyft – Valued at $5.5 billion – Industry: On-Demand
- Intarcia Therapeutics – Valued at $5.5 billion – Industry: Health care
Trends to Watch Out For
According to experts, the number of unicorns increased in recent years because more companies stay private for longer periods than before. In 2000, for example, companies remained private for an average of 6 years before going public. By 2015, companies wait an average of 9 years before IPO.
The time it took for a startup to transition into unicorn status is also slightly longer compared to 10 years ago. In 2005, it took a business about 5.3 years from founding to become a unicorn, whereas in 2015, the wait time took about 6 years from the day a company was founded.
Sectors to Watch
Certain sectors enjoy more robust growth than others. To date, the top 10 sectors where the most unicorns emerge include:
E-Commerce/Marketplace (56 unicorns)
Internet Software and Services (41 unicorns)
Financial Technology (25 unicorns)
Hardware (16 unicorns)
Big Data (16 unicorns)
Healthcare (13 unicorns)
Social (12 unicorns)
On-Demand (10 unicorns)
Cybersecurity (9 unicorns)
Adtech (6 unicorns)
A Peek at the Highest-Valued Unicorns
Travis Kalanick and Garret Camp founded Uber Technologies in 2009. Its main product is the Uber mobile app. Its main office is in San Francisco, California although it operates in 66 countries and 449 cities. Uber has raised $14.11 billion in 16 funding rounds and achieved unicorn status in just 4 years and 6 months.
Airbnb was the brainchild of roommates Brian Chesky and Joe Gebbia. Nathan Blecharczyk later joined them as a co-founder of the company in 2008. The company achieved unicorn status in just 3 years. Its headquarters are in San Francisco, California and has raised $2.39 billion in 8 funding rounds.
Snapchat was founded in 2011 by Evan Spiegel, Bobby Murphy and Reggie Brown who were students at Stanford University. It has raised $2.63 billion in 7 rounds and reached unicorn status in just 2 years and 3 months.
Space Exploration Technologies Corporation was founded by Elon Musk in 2002. It specializes in space transport and aerospace manufacturing. Headquartered in San Francisco, it has raised $1.25 billion in 7 rounds and became a unicorn startup 10 years after founding.
What the Future Holds
Industry experts predict the rise of several startup unicorns based on their current showing – that is, their estimated value. Some of these companies include DigitalOcean (valued at $313.4 million), Flatiron Health ($313 million), Betterment ($205 million), Dollar Shave Club ($163.5 million), Postmates ($137.6 million), Wealthfront ($129.5 million), Munchery ($117 million) and Intercom ($115.3 million).
Unfortunately, as with anything that promises growth, there are also challenges. The forecast for startup unicorns is not all bright skies and smooth highways. During the 1st quarter of 2016, for example, only five unicorns enjoyed venture capital backing. In a survey of startups, only 64% believe that the business environment will improve in 2016 – down from a comfortable 77% the year before. In addition, about 82% of startup companies report that raising funds has become challenging. Not only that, much needed venture capital funding has decreased by 11.3% during the 1st quarter of 2016 from the 1st quarter of 2015. To illustrate, funding in the 1st quarter of 2015 was at $13.6 billion, which was distributed to 1,085 deals. The amount increased during the 2nd quarter of the same year to $17.3 billion, then decreased continuously from there. As of the first quarter of 2016, venture capital funding is at $12.1 billion, invested in 969 deals.
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