What Is a Unicorn Company?
Tech news often mentions the term “unicorn,” which is applied to startups that have achieved rapid growth and hold strong positions in their markets. So what exactly is it?
A unicorn company (or Unicorn) is a term used in the startup and venture capital world to describe a privately held startup with a market valuation of more than US$1 billion. The term has become popular in recent decades, particularly given the rapid growth and high valuations of a number of successful tech companies.
A $1 billion valuation shows that investors are confident in the startup's potential for growth and success. The name “unicorn” points to how rare and exceptional such companies are. Examples of unicorn companies include Uber, Airbnb, SpaceX, and Palantir Technologies. They usually draw a great deal of attention from investors, the media, and the public because of their rapid growth and their potential to transform entire industries.
For example, Uber changed the way people travel by taxi around the world and even gave rise to the term “uberization of the economy,” while Airbnb opened up new opportunities for affordable travel.
What criteria make a company a “unicorn”?
Two main criteria are usually applied: a market valuation of $1 billion and a startup age of no more than 10 years. The latter matters because it reflects the dynamics of the business – it has managed to achieve significant growth in a short period of time.
There are additional criteria as well. One of them, for example, is market potential – this is precisely what the company's valuation is based on. It is an assessment of how large a market the company can capture and how it will be able to hold its share of that market. After all, no one is immune to new competitors, even in the most innovative industry, and once competition emerges, a startup's position may weaken.
Another criterion is technological innovation. This usually means assessing how new the startup's technological solutions, products, and services are to the market. More often than not, it is a fresh look at familiar things that helps a startup “take off” and earn high valuations from investors and experts.
The third criterion is user base and growth. To maintain a strong market position, a company needs to keep growing its customer base and expanding into new markets. Without this, growth may stall.
How can a startup become a unicorn?
The three key success factors are innovative technology, rapid growth, and raising investment. The first makes it possible to open up a new market, the second to reach profitability quickly, and the third to secure funds to support development. In fact, it is through raising investment and selling stakes to investors that a market valuation of $1 billion or more is formed.
However, becoming a unicorn is a rather challenging path that requires not only a unique idea but also high-quality execution, effective management, and successful fundraising. Let's take a closer look at each of these points.
A unique idea and product. It is important to develop a unique business idea or product that solves a specific problem or meets a market need that no one has been able to address before.
Thorough market research. This requires an in-depth analysis of the market to understand customer needs, the competitive landscape, and opportunities for growth.
An effective business plan. You need a detailed business plan that covers marketing, financial projections, competitor analysis, and a scaling plan. Without a detailed plan, you cannot grow quickly and avoid a host of mistakes.
Building a strong team of professionals. You need to assemble a team with diverse skills and experience that is capable of effectively bringing the startup's idea to life.
Raising funding. Investment should be raised in a timely manner to cover the financial needs that come with growth and scaling.
Rapid growth and scaling. It is important to demonstrate the ability to grow and scale quickly by attracting new customers and expanding the business.
Continuous improvement. The product should be constantly improved and adapted to market changes in order to retain customers and attract new ones.
Customer focus. Customer needs should be the top priority: listen to their feedback and strive to continuously improve the user experience.
Keep in mind, though, that if fewer than 10% of all startups are still afloat after five years in business, an even smaller number of those survivors go on to become unicorns. Even so, such success stories inspire people to launch their own businesses.
Which unicorn companies have emerged in recent years? Examples
There are currently more than 1,500 unicorn companies worldwide. That is quite a lot, and they operate in a wide range of industries. Here are a few examples.
Founded in 2010 in Ireland, Stripe became the largest fintech unicorn by market valuation. It provides APIs for money transfers, credit card acceptance, and subscription management. As of the end of 2022, it was publicly valued at $95 billion. Today, the startup serves more than a hundred companies that process over $1 billion in payments.
UK neobank Revolut is a fintech company focused on mobile banking, currency exchange, and money transfers. In total, the company has gone through 18 funding rounds, and in the summer of 2021 it raised its largest-ever investment of $800 million. Founded in 2015, the company turned its first profit only in 2021.
Crypto company Ripple specializes in payment settlement systems and money transfer networks. Since its founding, the startup has raised $293 million in investment. Today, it remains one of the largest platforms for cryptocurrency trading.
With its eponymous platform, OpenSea became one of the first players in the NFT market. It enables users to create and sell NFTs, and the company earns a 2.5% commission on every transaction. By early 2023, the startup was processing around $3 billion in NFT transactions per month.
Devoted Health is a US health insurance platform that offers health plans and access to healthcare providers for participants in the American Medicare system. At the end of 2023, the company managed to raise $1.15 billion in investment.
Even these few examples show that unicorn startups can emerge even in traditional industries where the entire market seems to be taken and nothing new can be invented. But unique ideas combined with new technologies can change the rules of the game anywhere, making it possible to build a billion-dollar company “from scratch.”
