Are unicorns real?
Tatyana Tsukanova, PhD
Bridging academia and business l Driving impact, fostering connections
Welcome to my LinkedIn Newsletter to get your dose of entrepreneurial inspiration! I will share some intriguing facts, captivating stories, research insights, and ideas on entrepreneurship that I personally find fascinating and inspiring. Who knows, it may also spark your curiosity!
Depending on what you are reading and what you prefer to watch, you may have already heard about unicorns. Not those mythical creatures known for their grace and immense power with a pointy horn, often depicted with a rainbow mane and glitter – I bet you haven’t seen them in the forest – but rather, I am talking about modern-era unicorns.
Who are these modern-era unicorns?
In general, the term “unicorn” refers to something rarely found and extraordinary. Like in an article from the New Scientist when they wrote about a super bright object (a quasar) brighter than the Sun and called it “unicorn” due to its rare and exceptional nature.
In the business world, unicorns are companies belonging to the exclusive “Unicorn club”. These startups have achieved a billion-dollar valuation. Back in 2013, there were only 39 companies in this elite club, precisely because they were both rare and magical.
Fast forward to February 2024, and the numbers have skyrocketed. According to Crunchbase, there are 1,516 globally with the top-three countries leading the charge: 737 are in the US, 278 are in China, 87 – in India.
Switzerland have nine unicorns as of February 28, 2024:
Should we chase a unicorn?
Over the past 11 years since the inception of “Unicorn club”, the spirit of chasing or hunting for groundbreaking ventures has become more competitive within the venture capital (VC) world. Building a successful business is far from simple and many stumbled along the way. Look at past experiences when investors hoped for success - the happy story of Airbnb and the sad story of WeWork. WeWork, once valued at a staggering $47 billion, offered office sharing spaces and ultimately failed. Airbnb’s home-sharing concept thrived.
Some unicorns perish due to the increasing market pressure. Take inVision: Once a unicorn with $1.9 billion valuation, it recently announced that its closure by the end of 2024. One of the reasons is intense competition – including from Adobe, Canva (valued at $25.4 billion) and Figma ($10 billion), among others.
Other unicorns struggle to secure new capital and face endangerment: Qualia, a digital real estate closing platform; Intercorn, a customer service software; Strava, an online network for runners and cyclists; Quizlet, a learning platform. And if businesses are no longer in grand fashion, then can slowly fade away from investors' radar, moving from "unicorns to zombies".
Social animals, not magical
Investors’ hopes, fears, and money – the secret ingredients that can turn a startup into a unicorn. Often, this is fueled by FOMO (fear of missing out). Imagine something hyped up, and you don’t want to be left behind. So, you leap onto the hype train, believing it will take you to the life of your dreams. FOMO is nurtured by our herd mentality – we follow what others do. After all, everyone is jumping in, it must be cool, right? Wrong. Sometimes, that leap leads to an abyss, and we realize it too late.
We discussed FOMO with a colleague from a cognitive perspective. It seems it’s woven into our nature and has a strong social aspect. We take cues from others. If “Investors A, B, and C invest in company XYZ, it can’t be too risky, can it? Perhaps they know something what I don’t know and I should follow suit, or I might regret not doing it later”. But sometimes happens that even investors A, B, and C didn’t know what they were doing, and it turned out to be a bad investment choice. Often, these choices are triggered by yet another market buzz we witness.
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Major huddles
Almost every newsletter I receive in my inbox related to entrepreneurship includes news about unicorns. Cybersecurity and artificial intelligence (AI) stand out as the best-performing industries for these mythical creatures. The value of these unicorns surged by more than 22% in 2023.
CBInsights makes now an annual ranking of the most promising AI startups in the world. In 2023, we witness the emergence of 15 AI unicorns, including AI cloud data company Databricks (valued at $43 billion), autonomous driving startup Cruise ($30 billion), generative AI firm OpenAI ($29 billion), AI generative video Runway ($1.5 billion), and AI language translation DeepL ($1.1 billion), among others.
The light from research
The existence of unicorns – companies with high valuations – is theoretically linked to venture scalability and (potential) exponential growth. Recent research indicates that new companies, especially those that can grow fast and are valued at over a billion dollars, often delay going public. They do so to get a better price for their stock later on. This delay is more noticeable if there is a lot of investment money available for them. Simply put, companies that can rapidly expand their business and access significant investment funds prefer to wait a little longer before selling their stock publicly, counting on a higher price when they do.
In practical terms, it is a strategic decision. Entrepreneurs can strategize how to attract investors and determine the optimal timing for taking their companies public. Investors, armed with this information, can make better choices about where to put their money for potentially greater returns. Market experts can leverage these insights to predict market movements and make sound financial decisions.
Endangerment and hope
But what is interesting is that unicorns are now endangered. During the era of cheap money, raising funds was easy. But every year we get fewer and fewer new unicorns. The “Unicorn club” got fewer than 100 new members in 2023, with only 29 unicorns in early-stage funding rounds (seed, Series A, Series B). Many of these unicorns were AI-related, what a surprise. The Economist, in its podcasts, has highlighted this trend and raising doubts about how unicorn valuations are “calculated”.
There is still hope for these endangered species but they must adapt to the new reality of our market. Investors are becoming less tolerant of the cash-burning startups, and these companies must learn to do more with less. It’s no longer just about relentless growth in terms of employees or salaries; there is a greater emphasis on unit economics and a sustainable path toward profitability. When combined with the excitement surrounding AI, the new generation of startups will likely to be more serious, focused on margins, and take a longer-term view towards business sustainability.
Back to reality, always/never objective
And as a final point in this newsletter, I would like to bring some insights from another study on unicorns – one that brings us back to reality. According to Kuckertz, Scheu and Davidsson (2023), the widespread aspiration of startups to become "unicorns" is misguided because it prioritizes high valuation over real value creation and overlooks the diverse nature of entrepreneurship. We need a change in our approach:
In fact, most successful companies are small and medium-sized enterprises (SMEs) that play a vital role in employment and economic value, refuting the overemphasis on "unicorns" as the primary model of entrepreneurial success. By prioritizing sustainable value creation, we can make a shift towards supporting ventures that focus on sustainable business models, rather than chasing memebrship status in a mythical “Unicorn club,” and create a more inclusive entrepreneurial ecosystem.
I think, this unicorn example shows that the old approaches are outdated, inadequate, or no longer working. It is time for change and action.
"The people who are crazy enough to think they can change the world are the ones who do." (Steve Jobs)
Let's be crazy enough to think we can change the world for a better future.
Planner Dsm-Firmenich | Philip Morris | MSc in Management
9 个月Tatyana, your article is truly insightful! The current trend surrounding unicorns reminds me of the dot-com bubble in the late 90s. It's remarkable how, even two decades later, we're witnessing a similar phenomenon in a new form.