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What is a 'Unicorn'

A unicorn, in the world of business, is a company, usually a start-up that does not have an established performance record, with a stock market valuation or estimated valuation of more than $1 billion.

BREAKING DOWN 'Unicorn'

The term was first popularized by the venture capitalist Aileen Lee, founder of CowboyVC, a seed stage venture capital fund based in Palo Alto, California. In her article, "Welcome To The Unicorn Club: Learning From Billion-Dollar Startups," she looked at software startups founded in the 2000s and estimated that only .07% of them ever reach $1 billion valuation. Those that do reach the $1 billion mark are so rare that finding one is as difficult as finding a unicorn.

Lee also argued that the first unicorns were founded in the 1990s, Google Inc. (GOOG) being the clear "super-unicorn" (valuation of more than 100 billion dollars) of the group. Many unicorns were born in the 2000s, though Facebook Inc. (FB) is the decades only super-unicorn.

Since the publication of Lee's article, the term has become widely used to refer to startups in the technology, mobile technology and information technology sectors (usually at the intersection of all three) with very high valuations questionably supported by their fundamental finances. Investment guru Bill Gurley, a partner at Benchmark Capital, said in a blog post on the difference between "late-stage" private capital fundraising and an IPO that "an unprecidented 80 private companies have raised financings at valuations over $1B" since the 2010s, and that "late-stage investors, desperately afraid of missing out on acquiring shareholding positions in possible 'unicorn' companies, have essentially abandoned their traditional risk analysis."

The question of whether the many unicorns in the technology space constitutes a reinflating of the dotcom bubble of the late 1990s continues to stir debate. Some argue that the increase in the number of new companies valued above $1 billion is a clear sign that of froth in markets. Others argue that the large number of companies with high valuations is a reflection of a new wave of technologically driven productivity, similar to the invention of the printing press nearly 600 years ago. Still others argue that globalization and the monetary policy of central banks since the Great Recession have created great waves of capital that slosh around the globe, on a hunt for unicorns.

Unicorns, far from being merely mythological creatures, have become a regular feature in popular business and finance discussions. Fortune magazine, for example, has created a list with more than 100 entries of current unicorns.

 

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