A unicorn is a 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.[1][2][3][4] A decacorn is a word used for those companies over $10 billion,[5] 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.[6] The largest unicorns included Uber, Xiaomi, Airbnb, Palantir, Dropbox and Pinterest.[7] Snap, Inc. is the most recent decacorn that turned into a public company on March 2, 2017.

Bill Gurley, a partner at Benchmark predicted in March 2015 and earlier that the rapid increase in the number of unicorns may "have moved into a world that is both speculative and unsustainable", that will leave in its wake what he terms "dead unicorns".[8][9][10] Also he said that the main reason of Unicorn's valuation is the "excessive amount of money" available for them.[11] Research by Stanford professors suggests the average unicorn is overvalued by 48%.[12][13]


In 2013 when Aileen Lee originally coined the term "unicorn", there were only thirty-nine companies that were considered unicorns.[14] In a different study done by the Harvard Business Review, it was determined that startups founded between 2012 and 2015 were growing in valuation twice as fast as companies from startups founded between 2000 and 2013.[15]

Reasons behind the rapid growth of unicorns

Fast-growing strategy

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.[16] 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.

Company buyouts

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.[17] 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.[18] 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.[19]

Prevent IPO

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.[19] A couple recent examples of this was 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.[20][21] 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 given too stringent of regulations after some bankruptcy cases in US market, that many of these companies want to avoid.[17]

Technological advancements

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.[17] 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.


The valuations that lead these start-up companies to become unicorns and decacorns are unique compared to more established companies. A valuation for an established company stems from past years' performances, while a start-up company's valuation is derived from its growth opportunities and its expected development in the long-term for its potential market.[22] Valuations for unicorns usually come from funding rounds of large venture capital firms investing in these start-up companies. Another significant final valuation of start-ups is when a much larger company buys out a unicorn and gives them that valuation. A recent examples of this is when Unilever bought Dollar Shave Club[23] and when Facebook bought Instagram[24] for $1 billion, effectively turning Dollar Shave Club and Instagram into a unicorns.

Valuation of high-growth companies

For high-growth companies looking for the highest valuations possible, it comes down to potential and opportunity. When investors of high-growth companies are deciding on whether they should invest in a company or not, they look for signs of a home run to make exponential returns on their investment along with the right personality that fits the company.[25] To give such high valuations in funding rounds, venture capital firms have to believe in the vision of both the entrepreneur and the company as a whole. They have to believe in the company can evolve from its unstable, uncertain present standing into a company that can generate and sustain moderate growth in the future.[22]

Market sizing

To judge the potential future growth of a company, there needs to be an in-depth analysis of the target market.[22] When a company or investor determines its market size, there are a few steps they need to consider to figure out how large the market really is:[26]

After the market is reasonably estimated, a financial forecast can be made based on the size of the market and how much a company thinks it can grow in a certain time period.

Estimation of finances

To properly judge the valuation of a company after the revenue forecast is completed, a forecast of the operating margin, analysis of needed capital investments, and return on invested capital needs to be completed to judge the growth and potential return to investors of a company.[22] Assumptions of where a company can grow to needs to be realistic, especially when trying to get venture capital firms to give the valuation a company wants. Venture capitalists know the payout on their investment will not be realized for another five to ten years, and they want to make sure from the start that financial forecasts are realistic.[25]

Working back to the present

With the financial forecasts set, investors need to know what the company should be valued in the present day. This is where more established valuation methods become more relevant.

This includes the three most common valuation methods:[28]

Investors can derive a final valuation from these methods and the amount of capital they offer for a percentage of equity within a company becomes the final valuation for a startup. Competitor financials and past transactions also play an important part when providing a basis for valuing a startup and finding a correct valuation for these companies.


Sharing economy

The sharing economy, also known as "collaborative consumption" or "on-demand economy", is based on the concept of sharing personal resources. This trend of sharing resources has made three of the top five largest unicorns (Uber, Didi Chuxing and Airbnb) become the most valuable startups in the world. The economic downturns of recent years[when?] have powered consumers to learn to be more conservative spending and the sharing economy supports this trend.[29]


E-commerce and the innovation of the online marketplace have been slowly taking over the needs for physical locations of store brands. A prime example of this includes the decline of malls within the United States. The sales of malls within the United States have declined from $87.46 billion in 2005 to $60.65 billion in 2015.[30] The emergence of e-commerce companies like Amazon and Alibaba (both unicorns before they went public) have decreased the need for physical locations to buy consumer goods. Many large corporations have seen this trend for a while and have tried to adapt to the e-commerce trend. Walmart recently bought Jet.com, an American e-commerce company, for $3.3 billion to try and adapt to consumer preferences.[31]

Innovative business model

In support of the sharing economy, unicorns and successful startups have built an operating model defined as "network orchestrators."[32] In this business model, there is a network of peers creating value through interaction and sharing. Network orchestrators may sell products/services, collaborate, share reviews, and build relations through their businesses. Examples of network orchestrators include all sharing economy companies (i.e. Uber, Airbnb), companies that let consumers share information (i.e. TripAdvisor, Yelp), and peer-to-peer or business-to-person selling platforms (i.e. Amazon, Alibaba).


Data as of March 13, 2018:[6][33]

  • Number of Unicorns: 279
  • Total Combined Valuation of Unicorns: $1 Trillion
  • Total Amount of Capital Raised: $205.8 Billion
  • Number of New Tech Unicorns in 2016: 25 (down 68% YoY)
  • Total Number of New Unicorns in 2016: 51

Top 5 largest unicorns[6]

Three out of the top 5 most valuable unicorns are located in China. The other two unicorns are headquartered in San Francisco, California.


  • Current Valuation: $69 Billion (December 2017)
  • Total Equity Funding: $10.7 Billion
  • Uber, formerly known as UberCab, is a car-sharing, transportation network company that lets the consumers use its mobile app to order a car to transport them to another location (like a taxi service). Uber services are active in a total of 81 countries and 581 cities around the world.[34]
  • Founding Date: 2009
  • Founders: Garrett Camp, Oscar Salazar, Travis Kalanick
  • Market: Transportation
  • Headquarters: San Francisco, California

ANT Financial

  • Current Valuation: $60 Billion (February 2018)
  • Total Equity Funding: $4.5 Billion
  • ANT Financial, formerly known as Alipay, is a payment to payment company that runs the payment platform of Alibaba.
  • Founding Date: 2014
  • Founders: Jack Ma
  • Market: Financial Services
  • Headquarters: Xihu District, Hangzhou, China

Didi Chuxing

  • Current Valuation: $56 Billion (December 2017)
  • Total Equity Funding: $17 Billion
  • Didi Chuxing, formerly known as Didi Kuaidi, is a car-sharing, transportation network company that lets the consumers use its mobile app to order a car to transport them to another location (just like Uber). Didi Chuxing services span 400 cities with almost 400 million users in China
  • Founding Date: 2012
  • Founders: Cheng Wei, Wu Rui, Zhang Bo
  • Market: Transportation
  • Headquarters: Haidian District, Beijing, China


  • Current Valuation: $45 Billion (July 2017)
  • Total Equity Funding: $1.1 Billion
  • Xiaomi is a Chinese electronics company that has become the 5th largest smartphone maker in the world.
  • Founding Date: 2010
  • Founders: Chuan Wang, Hong Feng, Huang Jiangji, Jiangji Wong, Lei Jun, Li Wanqiang, Lin Bin, Liu De, Wang Chuan, Zhou Guangping
  • Market: Hardware
  • Headquarters: Haidian District, Beijing, China


  • Current Valuation: $31 Billion (December 2017)
  • Total Equity Funding: $3.4 Billion
  • Airbnb, is a property-sharing, online marketplace company that lets the consumers have short-term lodging in a variety of vacation rentals, apartment rentals, hostel beds, or hotel rooms. Airbnb has over 3 million lodging listings in 65,000 cities and 191 countries.
  • Founding Date: 2008
  • Founders: Brian Chesky, Joe Gebbia, Nathan Blecharczyk
  • Market: Travel accommodation
  • Headquarters: San Francisco, California

See also


  1. ^ Rodriguez, Salvador (September 3, 2015). "The Real Reason Everyone Calls Billion-Dollar Startups 'Unicorns'". International Business Times. IBT Media Inc. Retrieved January 3, 2017. 
  2. ^ Lee, Aileen (2013). "Welcome To The Unicorn Club: Learning From Billion-Dollar Startups". TechCrunch. Retrieved 26 December 2015. 39 companies belong to what we call the 'Unicorn Club' (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors)... about .07 percent of venture-backed consumer and enterprise software startups 
  3. ^ Griffith, Erin & Primack, Dan (2015). "The Age of Unicorns". Fortune.com. Retrieved 26 December 2015. Subtitle: The billion-dollar tech startup was supposed to be the stuff of myth. Now they seem to be... everywhere. 
  4. ^ Chohan, Usman (2016). "It's Hard to Hate a Unicorn, Until it Gores You". The Conversation. Retrieved 26 October 2016. 
  5. ^ Roberts, Daniel & Nusca, Andrew (2015). "The Unicorn List". Fortune. Retrieved 26 December 2015. 
  6. ^ a b c CrunchBase. "The CrunchBase Unicorn Leaderboard TechCrunch". TechCrunch. Retrieved 2018-03-06. 
  7. ^ Frier, Sarah & Newcomer, Eric (2015). "The Fuzzy, Insane Math That's Creating So Many Billion-Dollar Tech Companies". Bloomberg L.P. Retrieved 26 December 2015. Subtitle: Startups achieve astronomical valuations in exchange for protecting new investors... Snapchat, the photo-messaging app raising cash at a $15 billion valuation, probably isn't actually worth more than Clorox or Campbell Soup. So where did investors come up with that enormous headline number? 
  8. ^ Winkler, Rolfe (2015). "Bill Gurley Sees Silicon Valley on a Dangerous Path". The Wall Street Journal. Retrieved 26 December 2015. Subtitle: Subtitle: Venture capitalist says companies hurt themselves by trying to delay going public (subscription required)
  9. ^ Blodget, Henry (2008). "Tech: How To Survive Great Depression 2.0 Without Firing Everyone". Business Insider. Retrieved 26 December 2015. It seems every serious venture capital firm has now had a chat with its portfolio companies about how it[']s time to fire people... VC-extraordinaire Bill Gurley's Benchmark has had the same chat with its companies, but Bill tells peHUB that there's actually an alternative to canning half your company: Move to San Jose 
  10. ^ Griffith, Erin (2015). "Bill Gurley Predicts 'Dead Unicorns' in Startup-Land this Year". Fortune. Retrieved 26 December 2015. Subtitle: A crash would affect more than just startups. ... Bill Gurley, the prominent investor behind Uber and Snapchat, has been sounding the tech bubble alarm for months now. He's preached about the dangerous appetite for risk in the market, the alarmingly high burn rates and the excess of capital sloshing around in Silicon Valley. “There is no fear in Silicon Valley right now,” he said. “A complete absence of fear.” He added that more people are employed by money-losing companies in Silicon Valley than ever before. Will there be a crash? “I do think you’ll see some dead unicorns this year,” he said, using the term used to describe startups with valuations higher than $1 billion. 
  11. ^ Rob Price (2018). "Legendary investor Bill Gurley says that there's a 'systematic problem in Silicon Valley' because it's too easy to get cash". Business Insider. Retrieved 12 March 2018. There's so much easy money in the tech industry, entrepreneurs can afford not to be accountable to their investors. That "excessive amount of money," he says, can inflate a startup's valuation — even if they don't deserve it. 
  12. ^ Gornall and Strebulaev (2018). "Squaring Venture Capital Valuations with Reality". Stanford University Working Paper. Retrieved 11 March 2018. We develop a valuation model for venture capital-backed companies and apply it to 135 U.S. unicorns -- private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find reported unicorn post-money valuations average 48% above fair value, with 13 being more than 100% above. 
  13. ^ Sorkin, Andrew (2017). "How Valuable Is a Unicorn? Maybe Not as Much as It Claims to Be". New York Times. Retrieved 11 March 2018. The average unicorn is worth half the headline price tag that is put out after each new valuation. 
  14. ^ Fan, Jennifer S. "Regulating Unicorns: Disclosure and the New Private Economy." BCL Rev. 57 (2016): 583.
  15. ^ "How Unicorns Grow". Harvard Business Review. Retrieved 2017-03-30. 
  16. ^ Sterman, J. D., Henderson, R., Beinhocker, E. D., & Newman, L. I. (2007). Getting big too fast: Strategic dynamics with increasing returns and bounded rationality. Management Science, 53(4), 683-696.
  17. ^ a b c Howe, Neil. "What's Feeding The Growth Of The Billion-Dollar 'Unicorn' Startups?". Forbes. Retrieved 2017-03-30. 
  18. ^ "To fly, to fall, to fly again". The Economist. 2015-07-25. ISSN 0013-0613. Retrieved 2017-03-30. 
  19. ^ a b "Grow fast or die slow: Why unicorns are staying private". McKinsey & Company. Retrieved 2017-03-30. 
  20. ^ Demos, Telis; Driebusch, Corrie (2015-11-19). "Square's $9-a-Share Price Deals Blow to IPO Market". Wall Street Journal. ISSN 0099-9660. Retrieved 2017-03-31. 
  21. ^ Balakrishnan, Anita (2016-12-16). "Trivago IPO opens at $11.20 after pricing at $11, below its expected range". CNBC. Retrieved 2017-03-31. 
  22. ^ a b c d "Valuing high-tech companies". McKinsey & Company. Retrieved 2017-03-30. 
  23. ^ "Unilever Buys Dollar Shave Club for $1 Billion". Fortune. Retrieved 2017-03-30. 
  24. ^ Raice, Shayndi; Ante, Spencer E. (2012-04-10). "Insta-Rich: $1 Billion for Instagram". Wall Street Journal. ISSN 0099-9660. Retrieved 2017-03-30. 
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  29. ^ Newlands, Murray (July 17, 2015). "The Sharing Economy: Why it Works and How to Join". Forbes. Retrieved March 31, 2017. 
  30. ^ Ho, Ky Trang. "How To Profit From The Death Of Malls In America". Forbes. Retrieved 2017-03-31. 
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