In fairytales and ancient mythology, unicorns are prized for their rarity. The appearance of the beautiful white horse with the single spiral-grooved horn was seen as a good omen, and according to legend, they were hunted down for their magical properties.
Today, the word unicorn is applied to a positive phenomenon that is so rare that it is almost mythical, and if it does occur, should be treasured as a great blessing. In the business world, it can have multiple meanings, but it is most commonly used to refer to privately-owned startups that achieve a value of $1bn or more before being floated on the stock exchange. A unicorn may stay in private ownership and continue accruing value, backed by private investors and venture capital firms. Becoming a stakeholder in a unicorn company, or a potential unicorn, is a dream for most investors.
Table of Contents
Innovative ideas
One recent example of a unicorn company is Reef Kitchen, the virtual restaurant division of Reef Technology. The parent company was founded in Miami in 2018 as a digitally enabled provider of parking facilities, but it was branching out into the then-new arena of ghost kitchens that would secure its unicorn status. Today, the company is worth over $1bn, thanks to its innovative shipping container-based kitchen units that supply restaurant-quality food to national chains and independent businesses alike.
Breaking the mold
There is no one definition of what a unicorn company looks like. Wildly successful startups can emerge in any sector, but what they seem to have in common is a disruptive idea or approach that breaks the mold of how things are meant to be done. Unicorns leverage technology to solve problems in a different way, one that either hadn’t been thought of before, or wasn’t possible.
Examples of mold-breaking unicorns that are now household names include Uber, Airbnb, Dropbox and Instacart, not to mention Facebook and Google. All either seriously disrupted the sector they operated in, or carved out a whole new arena, one that swiftly filled up with their imitators. Looked at this way, it’s easy to see why unicorns are so rare.
Origins of the term
The first person to use the phrase ‘unicorn’ in this context was venture capitalist Aileen Lee. In a 2013 article, the Cowboy Ventures founder wrote that only 0.07% of software startups from the 90s would ever be worth $1bn, hence their unicorn designation.
Lee estimated that there were just 39 genuine unicorns in existence at the time of her article. Since then, however, the number of unicorns has grown dramatically, bringing their rarity status into question. In 2018, another 151 companies achieved unicorn status, and by 2020 there were over 450 worldwide. In 2021, the number was estimated at over 800, and by February 2022, over 900 unicorns were listed worldwide.
Decacorns and hectocorns
Unicorns may be less rare than they used to be, but there are still very few decacorns or hectocorns to be found. The former are privately-owned startups worth over $10bn, while the latter are worth over $100bn. Both Facebook and Google reached this level before their initial public offerings (IPOs). At the time of her article, Lee referred to them simply as “super unicorns”.
Too many unicorns
Some say that the proliferation of unicorns over the last decade is caused by over-estimating the value of certain startups. It’s been claimed that investors are pouring capital into new businesses without thoroughly analyzing their growth potential. Although many unicorns may be worth over $1bn on paper, this isn’t always reflected in their profit or revenue.
Critics of the unicorn phenomenon say that it’s a self-perpetuating bubble that’s bound to burst. They suggest that incautious investors are buying into over-valued startups because they don’t want to miss out on being stakeholders in a future unicorn.
There may be other reasons why unicorns are now much more common than they used to be. New technology has made new solutions possible, and startups are able to use this tech in a way that slower-moving, hidebound legacy businesses can’t. Canny investors are looking for lucrative online businesses to get on board with. If a unicorn company seems to be carving new inroads into its target market, then it probably is the genuine animal and not a mirage.
Still a rarity
Although there are certainly more unicorns around than there were when the term was first coined, we definitely shouldn’t start taking them for granted. The chances of a new startup ever becoming a unicorn remains a miniscule 0.00006%. The likes of Bytedance, Epic Games, Reddit, Patreon, BrewDog and SpaceX are still the exceptions in a marketplace where most new companies fold within 12 months of being founded. So, if you do come across a genuine unicorn in the wild, don’t let it go. You might never get the chance to be that close to such a fabulous beast ever again.
About Carson Derrow
