What are unicorn companies and why watch out for them

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

A list of fast growing startups is attached.

What are unicorn companies

These are privately owned firms that have grown Welcome to the Unicorn Club: Learning from Billion-Dollar Startups / Techcrunch to a value of a billion dollars or more in less than 10 years. Unicorn companies stand out because they perform well right from the start. For example, they quickly attract new customers, earn a lot, or make some kind of unique product.

Initially, the term "unicorn" was coined because there were few such companies. Just eight years ago, experts counted Welcome to the Unicorn Club: Learning from Billion-Dollar Startups / Techcrunch just 39 of these startups. This was less than 0.07% of all US companies. In 2021, there are between 765 and 1,774 unicorns working in the world. Experts explain 1. J. Sterman, R. M. Henderson, E. D. Beinhocker, L. I. Newman. Getting Big Too Fast: Strategic Dynamics with Increasing Returns and Bounded Rationality / MIT Sloan Research

2. Grow fast or die slow: Why unicorns are staying private / McKinsey & Co.

3. What’s Feeding the Growth of the Billion ‑ Dollar ‘Unicorn’ Startups? / Forbes is heightened investor interest and technological advances. Capitalists are actively investing in startups and demanding development from the latter. Large corporations, in turn, generally buy promising companies and thus create "unicorns." And innovations help young businesses to develop rapidly.

Why it makes sense to follow unicorn companies

There are still few fast-growing startups in Russia, usually they are not on the list. Only sometimes a few exceptions pop up like Avito, Ozon and Yandex. Most of the "unicorns" are from the United States or China and have not yet entered the stock exchange at all, and even more so on the Russian stock market. Therefore, private investors need at least several hundred thousand dollars and access to foreign venture funds to invest in such companies. But even just keeping track of "unicorns" is useful for three reasons:

1. See trends. Different companies grow dramatically in their time. In the mid-2010s, these were social networks and IT services. Now - financial technologies and delivery services, especially food. If an investor has an idea of which businesses are developing well, then he can orient himself in the prospects of individual sectors of the economy and even entire countries.
2. Make a list of investments for the future. Many successful startups will one day go public and their shares will become available to private investors. Those who know about these companies and buy the shares right from the start are likely to make the most.
3. Understand where the money is. You don't have to wait for a startup to go public. There are probably other companies operating in the fast-growing sector, in which you can invest now and earn money in the future.

And if you can not only track, but also invest in, unicorn companies, congratulations: Firms are growing fast and can generate good profits. But don't forget that this is a high-risk investment. Information about startup assets and finances is often scarce, and experts can be misled.

How to search for unicorn companies

There is no single criteria or list. Eileen Lee, a venture capitalist and author of the term, listed Welcome to the Unicorn Club: Learning from Billion-Dollar Startups / Techcrunch as three characteristics besides cost and rarity:

1. Unicorn companies come with innovation. For example, with the invention of semiconductors, the Internet or social media.
2. Startups are primarily in e-commerce (like AliExpress or Ozon), software (like Microsoft), or software as a service. This is when you do not need to keep a staff of your developers, but you can simply buy a subscription to a ready-made business application.
3. 90% of unicorn founders have a technical background and experience in creating and managing other projects.

The business publication Business Insider highlights Here are some of the traits of $ 1 billion unicorn startups / Business Insider two more characteristics: focus on private consumers (and not other companies) and earnings, which is based on commissions. For example, the streaming service Spotify collects Spotify 2020 Annual Report for the latter, in general, all of its profits.

But the easiest thing for an investor is not to analyze hundreds of companies himself, but to study the “unicorn cards”. These are analytical portals that track firms across industries and countries. They also publish a short description, cost, key investors and top news about startups. The three largest sites with this information are CB Insights, Dealroom and Crunchbase.

Which unicorn companies to look out for

The ten largest "unicorns" in the world are startups from different countries and sectors of the economy. All firms are rapidly growing customer base and revenue, and each has its own competitive edge.

1. ByteDance. China, $ 140-180 billion, social media and artificial intelligence. The most expensive unicorn in the world owns TikTok. Businesses rate ByteDance Valued at $ 250 Billion in Private Trades / Bloomberg so highly because of the app's algorithms that help users watch relevant content. The company's value shows the potential for investment in referral services.
2. Stripe. USA, $ 95 billion, financial technology. The startup helps businesses set up Under the Hood: A Closer Look at Stripe, the Most Highly Valued Venture-backed Private Company in the US / Crunchbase online payments: conduct money transactions, write checks and bills, establish payment infrastructure. And it all works in 42 countries with different laws. But until now, only 18% of purchases take place on the Internet, E-commerce share of total global retail sales from 2015 to 2024 / Statista, so there is a huge potential for such businesses.
3. SpaceX. USA, $ 74 billion, space exploration. Elon Musk's company designs, builds and launches satellites with rockets that can accurately return to Earth. The US Aerospace and Defense Market-Growth, Trends, COVID-19 Impact, and Forecasts (2021-2030) / Mordor Intelligence predicts the market for near-Earth flights to grow at least 2-3% annually this decade. And without taking into account space tourism.
4. Klarna. Sweden, $ 45.6 billion, financial technology. Unicorn develops payment systems for online stores. First of all, installment and fraud insurance mechanisms. This sector is predicted to grow by 21% per year by Buy Now Pay Later Platforms Market Analysis / Coherent Market Insights.
5. Instacart. USA, $ 39 billion, logistics and shipping. The startup combines products from thousands of small stores in an app, and then delivers orders to customers within an hour. Express delivery is likely to grow Express Delivery Market Forecast to 2027 - COVID-19 Impact and Global Analysis By Destination; Business Type; and End-User and Geography / The Insight Partners at 6% per year, and food delivery is even faster at 15%.
6. Revolut. UK, $ 33 billion, financial technology. The company, in fact, works like a bank, only on the Internet. Even in rich countries, banks do not open an account for every person and do not develop well on the Internet. So 95% of American customers want more online services for The disruptive trends & companies transforming digital banking services in 2021 / Business Insider.
7. Nubank. Brazil, $ 30 billion, financial technology. The startup offers almost the same services as Revolut, only the market is even bigger. 38%, or about 200 million, of South and Central America residents do not yet have access to banking services for World's Most Unbanked Countries 2021 / Global Finance Magazine.
8. Epic Games. USA, $ 28.7 billion, video games. The company develops and operates one of the most popular online games, Fortnite, and also owns the Unreal Engine, which is used by many developers. The market for computer, console and phone games is growing Gaming Market-Growth, Trends, COVID-19 Impact, and Forecasts (2021–2026) / Mordor Intelligence at 9.5% per year, and the process only accelerated after the lockdowns.
9. Databricks. USA, $ 28 billion, data management. The startup sells solutions for sorting, processing and analyzing information using artificial intelligence. Business accumulates more and more information, on the basis of which new products are developed and existing ones are improved. This market could quadruple the size of the Master Data Management Market / Transparency Market Research in just six years.
10. Rivian. USA, $ 27.6 billion, automaker. Unicorn develops technology, prototypes and infrastructure for an electric pickup truck. At the same time, Trends and developments in electric vehicle markets / International Energy Agency are expected to significantly increase demand for all electric vehicles.

What is worth remembering

1. The unicorn company is a privately held firm that has grown to a valuation of a billion dollars or more in less than 10 years.
2. There are from 765 to 1,774 such startups in the world, depending on how you count. There are only a few of them in Russia: Avito, Ozon and Yandex.
3. It is difficult for a private investor to invest in a “unicorn”: they need access to foreign venture capital markets and at least several hundred thousand dollars.
4. Studying unicorn lists is useful to understand which sectors of the economy are growing rapidly, which companies to look at, and whether there are competitors whose shares you can buy right now.