Why billion-dollar startups stopped being as rare as unicorns
When investor Aileen Lee named privately held startups worth over a billion dollars after a mythical beast in 2013, she could count 39 of them. By May 2024 CB Insights tallied 1,248. The label meant to signal rarity now describes a crowded herd, and critics have long warned that many of its members are priced too high.
Lee picked the unicorn precisely because such companies were statistically improbable. The bar is simple: a valuation above one billion dollars while the shares remain private, unlisted on any exchange. Bigger beasts got their own names. Past ten billion a firm becomes a decacorn, and beyond a hundred billion people have tried hectocorn and centicorn, with kilocorn floated for a private company near a trillion.
Several forces swelled the numbers. Investors in the mid-2000s embraced a get-big-fast approach, sometimes called blitzscaling, pouring money into huge funding rounds and price cuts to crush rivals, despite the warning of the dot-com crash. America's JOBS Act of 2012 quadrupled how many shareholders a company could have before publishing its accounts, so staying private got easier. A tech firm now typically waits around 11 years before listing, against roughly 4 in 1999, returning to investors for fresh cash instead. Going public carries a risk too: Square and Trivago both opened below their offer prices when the market disagreed with private valuations.
Valuation itself works differently for these companies. An established business is judged on its track record, while a startup is priced on expected growth in a market that investors must estimate from scratch. An acquisition can mint a unicorn instantly, as when Facebook paid a billion dollars for Instagram and Unilever did the same for Dollar Shave Club. The year 2021 was extraordinary, with 71 billion dollars flowing into 340 newly minted unicorns, more than the previous five years together.
Sceptics have been vocal. Bill Gurley of Benchmark warned in 2015 of a speculative bubble that would leave dead unicorns behind, blaming an excess of available money. A Stanford study in 2018 estimated these firms were overvalued by 48 percent on average. The 2022 slump, driven by rising interest rates, volatility and tighter regulation, knocked many valuations down. The idea is not new, though: in 1957 American Research and Development put 70,000 dollars into Digital Equipment Corporation, an early return on the scale that later earned the name.
Source: Unicorn (finance)
