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What is a 'Unicorn'

A unicorn is a startup company with a value of over $1 billion.

BREAKING DOWN 'Unicorn'

The term "unicorn" was first popularized by the venture capitalist Aileen Lee, founder of CowboyVC, a seed stage venture capital fund based in Palo Alto, Calif. 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 0.07% 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 mythical unicorn.

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

Unicorns and Venture Investing

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 unprecedented 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 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.

Current 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. As of late 2017, CB Insights has tallied 220 unicorns with a cumulative value of $763 billion. Some familiar U.S. based unicorns include Uber, Airbnb, SpaceX, Palantir Technologies, WeWork and Pinterest. China claims a number of unicorns as well, including Didi Chuxing, Xiaomi, China Internet Plus Holding (Meituan Dianping) and Lu.com.

 

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