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In the world of business, a startup unicorn is basically a privately held startup company which is valued at over $1 billion. The term was coined by venture capitalist Aileen Lee in the year 2013, whereby he choose the mythical animal to showcase the statistical rarity of such a successful venture. Then we have Decacorn which is a company valued over $10 billion, while hectocorn is yet another term for company valued over $100 billion.
As per CB Insights, there are well over 450 unicorns as of October 2020. Some of the largest startup unicorn are ByteDance, DiDi, SpaceX, Stripe, Palantir Technologies and Airbnb. Airbnb is the has also the distinction of being a recent hectocorn that has now turned into a public company.
The reasons behind the accelerated growth of startup unicorn are as follows:
Fast-growing strategy: As per the academics in 2007, the investors and venture capital firms are adopting the get big fast (GBF) strategy for startups, which is also known as Blitzscaling. GBF is a business growth 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 quickly as possible. The unique selling proposition is the rapid returns gained through this strategy which is very attractive to all parties involved. However, there is cautionary note of the dot-com bubble and also the lack of long-term sustainability in value creation of the companies.
Company buyouts: Many startup unicorn are born due to 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. It has become more common whereby a company 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 of now quite different from what it was in 1999 which was four years. This new trend is due to the fact that an increased amount of private capital is available to startup unicorn and also some recent legislative bills that greatly favour this new trend.
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, instead they can just go back to their investors asking for more capital. IPOs also run the hazard of devaluation of a company if the public market thinks a company is worth less than its investors. Investors and startups also do not want to deal with the hassle of going public because of increased regulations that would be imposed.
Technological advancements: Startups are taking full advantage of the whole range of new technology of the last decade to obtain Startup 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 its predecessors.
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 starup unicorn.
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