A unicorn is a privately held startup company valued at over $1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures. A decacorn is a word used for those companies over $10 billion, while hectocorn is the appropriate term for such a company valued over $100 billion. According to TechCrunch, there were 279 unicorns as of March 2018. The largest unicorns included Ant Financial, DiDi, Airbnb, Stripe and Palantir Technologies. Lyft is the most recent decacorn that turned into a public company on March 29, 2019.
Amazing Facts About Unicorns
According to academics in 2007, investors and venture capital firms are adopting the get big fast (GBF) strategy for startups. GBF is a strategy where a startup tries to expand at a high rate through large funding rounds and price cutting to gain an advantage on market share and push away rival competitors as fast as possible. The rapid exponential returns through this strategy seems to be attractive to all parties involved. However, there is always the cautionary note of the dot-com bubble of 2000 and the lack of long-term sustainability in value creation of the companies born from the Internet age.
Many unicorns were created through buyouts from large public companies. In a low interest rate and slow-growth environment, many companies like Apple, Facebook, and Google focus on acquisitions instead of focusing on capital expenditures and development of internal investment projects. Some large companies would rather bolster their businesses through buying out established technology and business models rather than creating it themselves.
Increase of private capital available
The average age of a technology company before it goes public is 11 years, as opposed to an average life of four years back in 1999. This new dynamic stems from the increased amount of private capital available to unicorns and the passing of The US Jumpstart our Business Startups (JOBS) Act in 2012, which increased the amount of shareholders a company can have by a multiple of four before the company had to disclose its financials publicly. The amount of private capital invested in software companies has increased three-fold from 2013 to 2015.
Through many funding rounds, companies do not need to go through an initial public offering IPO to obtain a capital or a higher valuation; they can just go back to their investors for more capital. IPOs also run the risk of devaluation of a company if the public market thinks a company is worth less than its investors. A few recent examples of this situation were Square, best known for its mobile payments and financial services business, and Trivago, a popular German hotel search engine, both of which were priced below their initial offer prices by the market. This was because of the severe over-valuation of both companies in the private market by investors and venture capital firms. The market did not agree with both companies’ valuations, and therefore, dropped the price of each stock from their initial IPO range.
Investors and startups also do not want to deal with the hassle of going public because of increased regulations. Regulations like the Sarbanes-Oxley Act have implemented more stringent regulations following several bankruptcy cases in the US market that many of these companies want to avoid.
Startups are taking advantage of the flood of new technology of the last decade to obtain Unicorn status. With the explosion of social media and access to millions utilizing this technology to gain massive economies of scale, startups have the ability to expand their business faster than ever. New innovations in technology including mobile smartphones, P2P platforms, and cloud computing with the combination of social media applications has aided in the growth of unicorns.
Some Unicorns Present In India
1. One97 Communications
3. Ola Cabs
4. Oyo Rooms
7. ReNew Power
18. Ola Electric Mobility