The Unicorn Companies

What is a Unicorn Company or Startup?

A new business that is valued at more than $1 billion and is privately owned (they aren't listed on stock exchanges) is termed as Unicorn Company or Startup. Variants include a decacorn, valued at over $10 billion, and a hectocorn,valued at over $100 billion.

So such companies are actually generating billions of dollar worth of revenue?

No. But due to the size of investment, the company valuation grows to the lauded 10-figure sum. Even a loss making company is also included in Unicorn Companies list!

According to AIThority when the term unicorn emerged back in 2013, there were only 40 private companies with a valuation of one billion dollars in the world. Since then, the number of these financial giants jumped 12.5 times, reaching around 500 in September.

Some famous Unicorn Companies globally:

Airbnb is a U.S. startup in the travel industry. It has a value of $38 billion and its investors include General Catalyst Partners, Andreessen Horowitz and ENIAC Ventures.

Kuaishou is a Chinese mobile and telecommunications company with a valuation of $18 billion. Its investors include Morningside Venture Capital, Sequoia Capital and Baidu.

SpaceX is a U.S. startup from Tesla (NASDAQ:TSLA) co-founder and CEO Elon Musk. It has a valuation of $33.3 billion and investors include Founders Fund, Draper Fisher Jurvetson and Rothenberg Ventures.

Famous Global Unicorns

Unicorn CompaniesValuationsValuation Date
Airbnb~$100 BillionListed
Stripe$36 BillionApril, 2020
SpaceX$46 BillionAugust, 2020
Palantir Technologies$20 Billion-
Epic Games$15 BillionOctober, 2018
Robinhood$8.3 BillionMay, 2020
Instacart$13.8 Billion
July, 2020
Doordash~$72 Billion (On debut)
Listed
Rivian$5.0 Billion
September, 2019
Magic Leap$4.5 Billion
February, 2016

Source- Wikipedia


Famous Indian Unicorn companies (Baahubali's)

Unicorn Companies
SectorValuations
Byjus classesEdtech$10.8 Billion
SnapdealE-Commerce$6.5 Billion
FlipkartE-Commerce$21 Billion
InMobiMobile Ads$1 Billion
OlaRide Hailing$6.4 Billion
PaytmPayments$16 Billion
ZomatoFoodtech$3.9 Billion
SwiggyFoodtech$3.6 Billion
PolicyBazaarInsurance  Tech$1 Billion
Dream11Gaming$2.5 Billion
NykaaE-Commerce$1.2 Billion
DailyhuntContent - News$1 Billion
Oyo RoomsBudget Hotels$10 Billion
RazorPayPayments (B2B)$1 Billion
ZerodhaStock Broking$3 Billion

Source - Google. *Valuations data may vary

Can a Retail investor invest in such companies?

As we deal in unlisted shares, we usually get lot of inquiries regarding Indian Unicorn Startups such as Ola, Zomato, Dream11, etc. By their nature, unicorns are privately owned and therefore have no stock available on any global exchange. Traditionally, the only investors with access to them are venture capitalists, meaning individual investors have no way of getting involved. Meanwhile, Unicorn stock to retail investors "Yeh log jinse mai Anjaan hu, Mai inka Bhagwaan Kaise?" :D 

So, Retail investor has no access to Unicorn companies as also the lot size and valuations are totally out of their reach!

How unicorn companies are valued?

Funding! The value of a unicorn company is usually calculated based on its most recent round of funding. If a venture capitalist puts $100 million into a business in exchange for 5% equity, for example, they've valued it at $2 billion. Unlike established companies where EPS, PE Ratio, CAGR, Debt-Equity Ratio are given more importance, in unicorn companies a long-term view and focus solely on future potential is considered. Unicorn investment is rarely tied to the profit a venture is making now -- it's all about what they can do years down the line.

How Unicorn Companies burst of their engines?

High valuations are primarily gained through hiring the best talent, gathering lots of users, and shooting for the moon with huge 15% week-by-week growth rates. From a practical standpoint, it's a demonstration of what the company could achieve on a larger scale.

If it's a success, venture capitalists seek to scale it up through plunging huge amounts of money into the company, and thus increasing the valuation. Social Media too plays an important role here.

Risks

> Continuous Losses: Many Unicorn Companies, as the name suggests "Startup" initially incur big losses in the growth phase, failure in converting to profits after a certain period can destroy such companies.

> Funding Failure: As we saw that funding acts as a fuel to valuation of such startups, such startups as they incur significant losses in establishing stage now if such startup fails in raising funding the    valuations may come down at rapid rate.

> Margin Imbalance: Unicorn Companies usually rely on disrupting traditional business by playing on very thin margin. A small change in margin may bring a big trouble!

> Poor IPO: There is a continuing problem with unicorn companies of becoming overvalued. When this happens, it doesn't take long for the market to discover the truth, which is why so many IPOs don't  go as well as people hoped.

> Declining social media mention: Unicorn companies rely on a social media buzz to continue going from strength to strength.

> IPO: IPOs are rarely surprises. Most people are aware of when a company is about to go public. If this anticipation never builds, or if it builds and then IPO doesn't happen, it's pretty clear that the company is experiencing problems.

Conclusion: Most of retail investors are crazy behind the unicorn startups shares. As mentioned such investment opportunities are just for Venture Capitalists. Investment in such companies may be subject to high risk owing to higher valuations, huge lot size & high risk of failure!


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