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The 4 Key Features Of A Unicorn Company

The 4 Key Features Of A Unicorn Company

You may have heard the term ‘unicorn company’, but what does it mean? And how does a Company become one? Read on to find out.

5th November 2018
Reading Time: 3 minutes

Now and then, you might hear a company be described as a ‘unicorn company’, but what does it mean? Here, we’ll trace the history of the term and what characteristics a company needs to be classified as one.

The term ‘unicorn company’ was coined by Aileen Lee, a venture capitalist, in 2013 in her article ‘Welcome To The Unicorn Club: Learning From Billion-Dollar Startups’. With the unexpected adaptation of the terminology, ‘unicorn company’ has become a recognised term which captures startup companies that are valued at over $1 billion US (or $ 1.39 billion AUD).

Below are some common features that will provide you with an insight into unicorn companies.

1. They are still rare, but can be seen all over the world now.

Lee explained at the end of her article the reason she had chosen to use ‘unicorn’ to describe these companies because ‘it means something extremely rare, and magical’.  Indeed, the research conducted in 2013 indicated that there were only 39 companies that could be labelled as one of the ‘Unicorn Club’ (about 0.07% of venture-backed consumer and enterprise software startups). As of 2015, Lee found that there were 84 members in the ‘Unicorn Club’, which indicated an 115% growth within two years. As of 5 November 2018 (today), CB Insights real-time unicorn tracker suggests that there are over 280 unicorn companies around the world.

While Lee initially targeted only US-based start-ups, recent research has suggested that the US is no longer the only birthplace of unicorn companies. Unicorn companies can be found anywhere in the world, including Australia. The latest Australian unicorn is a Sydney-based graphic design startup called Canva.

2. They are magical

Apart from rarity, the word ‘unicorn’ is also used to the describe the magical aspects of these start-ups. The unicorns are often labelled as a game changer of the industry. Although the official definition of a unicorn company concerns only its market value, it’s undeniable that many of them changed our lives.

One must be very familiar with the products of at least one of the top ten unicorn companies named by Forbes in 2018, such as Alibaba, Uber, Snapchat, Xiaomi, Whatsapp and Airbnb. It seems almost impossible for some people to live without these products nowadays. Not to mention, Facebook, the former ‘super unicorn’ who exited in 2012, has created a new social habitat and influenced a whole generation of people.

To most people who are not the investors of those companies, the meaning of the companies is more about the magic that changes their lives rather than their net worth.

3. Perceptions of founders

There has been an unexplained myth that associates the terms ‘young’, ‘twenty years old’ and ‘college dropout’ with unicorn founders, perhaps because of Bill Gates and Mark Zuckerberg. However, the truth is, in most unicorn start-up cases, the founders of the unicorns are often well-educated and older. Lee’s research also points out the fact that most of these successful cases were not built on the sparkle of a talent founder, but the team effort of a group of co-founders with a long-term business goal and prior work history.

Building a unicorn company seems to be no different from starting any kind of business, all it needs are visions and ideas, teamwork and execution – and very hard work.

4. Unicorn companies are unicorns ‘for sale’

It may be true that unicorn companies are rare and magical, but the ultimate factor that determines the status of a unicorn company is the ‘billion dollar exit’ they can provide to their investors. Lee’s article was all about studying the discernible pattern of successful cases.

With the increasing number of unicorn companies in the world, there is a trend that the term is becoming a buzzword for marketing purposes. It’s arguable that ‘Unicorn Club’ is now comprised by a lot of overvalued members, and even Lee referred some of the newly found unicorn companies as ‘paper unicorns’. Studies also suggested that almost half of the unicorns might have been overvalued.

While unicorn is a legendary creature that may live forever, unicorn companies are not immortal and their horns can be removed. The Honest Company, a US-based consumer goods company, was once labelled a unicorn company in 2015. However, the Honest Company has recently been valued under $1 billion US dollar and is no longer entitled to the status.

The true unicorns are those who can provide a ‘billion dollar exit’ to their investors, and until then the unicorn title is arguably a marketing strategy.

There is no strict rule on establishing a unicorn company, anyone may build a successful business and obtain unicorn status. However, it’s important to remember it’s just a term and that there are many great companies who don’t meet this distinction and are special nonetheless.

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Author
Charlie Chan

Charlie is a Legal Intern at Lawpath working with the content team. With an interest in corporate finance and commercial law, he is currently completing a Graduate Diploma in Australian Law at the University of Technology in Sydney.