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Reaching unicorn status used to be a big deal. Not any more

Staying private allows many companies to avoid the additional scrutiny and potential loss of control that comes with an initial public offering. Plenty of investors are eager to get in early on rapidly evolving industries such as crypto, pushing up valuations. “You can’t discount the power of FOMO,” Lee says. “People are willing to go in with more capital.”

The term “unicorn” dates to a 2013 article that Aileen Lee, a venture capitalist who’d just started a firm called Cowboy Ventures, wrote for the news site TechCrunch. Her article by her was about lessons investors could take from examining the few US-based tech companies that had reached a $US1 billion valuation. Looking at private and public US software companies founded since 2003, she identified 39 of them, representing the top 0.07 per cent of venture-backed start-ups. They included Airbnb, Dropbox, Facebook, Groupon, LinkedIn, Tumblr, Twitter, Uber, YouTube and Zynga.

About four unicorns had been created each year during that decade, mostly in consumer software services. Despite the fascination with young founders hitting it rich from their dorm rooms, Lee found the people who started unicorns tended to be in their 30s. Of all the list’s founding CEOs, not one was a woman.

When she was writing the article, Lee toyed around with using terms such as “monster hit” and “home run” to describe the mega-start-ups. But “unicorn” seemed like an appropriate word for a distinction that, as she wrote, was “extremely rare and pretty awesome.”

When you have 1000 unicorns, that’s almost an oxymoron.

Brian Lee, head of research at CB Insights

The name stuck. In 2015, fortune ran a cover story, “The Age of Unicorns,” in which it analyzed privately held start-ups with billion-dollar-plus valuations. Illustrated with a full-page image of a white unicorn in a Zuckerbergian hoodie, the piece fretted that there were already too many unicorns for the label to matter any more. “Is this boom for real?” fortune asked on the cover. The count at the time: 80.

In the years since, the answer has become a resounding yes. In 2022 unicorns are being minted at a rate of more than one a day.

Investors’ hungry eyes

There’s a shocking amount of investment money looking for a home – $US621 billion into start-ups of all kinds in 2021. That’s more than double the 2020 amount and exceeds the capital raised through IPOs over the same period, which itself was a record. Low interest rates and record-breaking paydays when private companies finally go public or get acquired have caught the hungry eyes of investors who have traditionally focused on public markets.

COVID-19’s reshaping of the economy accelerated the boom. The number of unicorns had been growing steadily until the end of 2020, when the global count was 569. Then, in the next year, it almost doubled.

“COVID created so much personal loss and pain, but it has put tremendous mojo in the sales of software of all kinds,” Aileen Lee says. “The ease and efficiency of software—it’s becoming the glue that runs how we communicate and how we do business.”

She’s quick to point out that more unicorns exist now in part because there are just so many more start-ups; the milestone is still a sign of rare success. “It’s so freaking hard” to get to $US1 billion, Lee says – “it still takes timing, luck, superb execution and longevity.”

Reaching that valuation is a strong predictor of further success, she says, adding that she hopes more companies run by women or people of color will reach that level because it’s a “life-changing” event.

Some of today’s unicorns are making their mark primarily by serving other tech companies. Productboard builds tools for product managers – the people who coordinate designers, software engineers and marketers who are building, say, a new feature in an app or a specific fix for a major enterprise client. Its customers have included several unicorns, such as Zoom Video Communications and UiPath, though those companies outgrew their horns when they went public in 2019 and 2021 respectively.

The Fortune Magazine cover that cemented “the age of unicorns.”

In Productboard’s early days, Palan and Daniel Hejl, his co-founder, tried not to worry too much about the unicorn label, but potential investors were always asking whether they thought they’d eventually be worth a billion dollars. It was hard not to daydream. Palan says he would think things like: “When we become a unicorn, it’s going to be awesome. The best people are going to come work with us.”

Actually, hiring is still as cutthroat as ever, and Palan suspects that being a unicorn isn’t unusual enough to tip the scales in recruiting. “The goalposts got pushed,” he says. “You’re playing this constant catch-up.”

Nonetheless, when the Productboard team gathered after its Zoom meeting on February 2, the mood was enthusiastic. Local employees gathered at Productboard’s office in San Francisco’s South of Market neighborhood, eating lunch from unicorn plates under a rainbow of unicorn balloons. Executives received bottles of bubbly with celebratory labels, while rank-and-file employees got unicorn T-shirts, candles, and robes with little unicorn icons. “It’s super cheesy, but it’s great,” Palan says of the fanfare.

Afterward, employees clinked glasses at a happy hour, grilled Korean barbecue at YakiniQ in San Francisco’s Japantown, and wandered over to private-room karaoke down the block. The next morning, Palan was still beaming. Sure, there are 999 other unicorns, but it still feels special.

“It’s not like there’s 1000 unicorns in the product management space,” he says. “That would suck.”

unicorns through the years

There have always been hot start-ups, but the numbers keep getting bigger.

The first batch

There’s no clear-cut way to identify the first unicorn. Aileen Lee’s list comprised 39 companies, but it only considered those founded since 2003. It also included public companies, while the term today usually refers to pre-IPO startups. By that standard, some of the biggest technology companies in the world skipped the unicorn stage, including Amazon ($US438 million at IPO) and Microsoft ($US777 million).

The biggest one

The most valuable private company on Lee’s original unicorn list was Twitter, clocking in at about $US10 billion. Today’s biggest unicorn is another social media darling: TikTok parent ByteDance, worth $US140 billion. ByteDance’s initial focus was a news aggregator, Toutiao, which remains popular in China. Its most famous product, though, came from its 2017 acquisition of Musical.ly, whose tech it adapted into the app that became TikTok.

The worst flop

Companies leave the unicorn list in one of two ways: they graduate by going public or being acquired, or they fail. One of the most spectacular implosions was WeWork, whose largest investor valued it at $US47 billion shortly before a planned IPO collapsed suddenly – the company eventually recovered enough to go public with a new CEO at a far-reduced valuation.

But it’s hard to think of a bigger fall than Theranos, the blood-testing start-up founded by Stanford dropout Elizabeth Holmes. Theranos, eleven worth $US9 billion, crashed after a Wall Street Journal investigation revealed how overheated Holmes’ claims about its technology had been. In January, she was convicted of fraud and faces up to 20 years in prison.

Bloomberg Business Week

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