What are the world's unicorn companies?
Despite some notable poor unicorn IPOs in 2019, interest in the planet’s biggest startups is showing no sign of waning. Here’s a deep dive into the world of unicorns: including what they are and how to invest in them.
What is a unicorn company or startup?
A unicorn company or startup is a new business that is valued at more than $1 billion and is privately owned – meaning they aren’t listed on stock exchanges. Some well-known current examples include Airbnb, Robinhood and Stripe in the US, or Transferwise in the UK.
The term was coined by Aileen Lee, a venture capitalist, in an article written in 2013. She used it to describe the relative rarity of such companies, estimating that just 0.07% of software startups from the 2000s would reach valuations above $1 billion.
Unicorns may be rare, but decacorns – startups with a value of $10 billion – are rarer still. And only a handful of hectocorns, which are worth over $100 billion, have ever existed. Notable examples include Google and Facebook, which both surpassed $100 billion in value before their respective initial public offerings (IPOs). In her original article, Aileen Lee referred to these companies as ‘super unicorns’.
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How many unicorn companies are there?
There are currently 452 unicorn companies according to CB Insights, an angel investment database. Those 452 startups have a combined value of around $1.3 trillion, roughly equal to that of Apple: the largest listed company in the US.
The total number of unicorns around the world is exploding. Aileen Lee’s original TechCrunch article noted that just 39 existed in 2013, with four born each year in the prior decade. In 2018, there were 151 new billion-dollar startups. Despite some notable exits from the unicorn list in 2019, 142 companies joined.
The exact number of current unicorns varies from source to source. That’s mostly down to disagreements over what constitutes a startup. For example, some claim that Ant Financial is the only hectocorn in existence today – but CB Insights doesn’t include the Chinese fintech giant on its list at all.
List of the world’s biggest unicorn companies
|Valuation||When did it join the unicorn list?|
|Didi Chuxing||$56 billion||31/12/2014|
Source: CB Insights, 2020
Bytedance – $75 billion
Bytedance is a Chinese software company. It was founded in 2012 by Zhang Yiming, and is best known for its content platform Toutiao (or ‘Headlines’ in English) and social media app TikTok.
Toutiao shows personalised news and information feeds to its users, using machine learning to tailor content to each reader’s personal preferences. TikTok enables users to create and share short music or looping videos. TikTok hit 1 billion downloads in 2019.
Didi Chuxing – $56 billion
Didi Chuxing, known by its users as DiDi, provides a variety of transport options via its app. These options include Uber-style taxis, private cars and shared rides as well as bike sharing, vehicle rentals and more.
The company is the leading private transport in China, with 550 million users and millions of drivers as of 2018. In 2016, it acquired its biggest rival, Uber China. It was rumoured to be planning an IPO in 2019 but didn’t end up following US competitors Lyft and Uber by floating.
Didi Chuxing and Bytedance are both headquartered in Beijing. China may be home to the world’s biggest unicorns, but the US still has more overall – with 196 to China’s 165.
Stripe – $35.25 billion
The biggest unlisted startup in the US is currently Stripe, which makes software that enables businesses to make and receive payments online.
Patrick and John Collison founded Stripe in 2009, and the company was worth $100 million by the time of its Series A investment in 2012. It joined the unicorn list in 2014, and by 2016 was valued at $9 billion. Peter Thiel, the entrepreneur and co-founder of PayPal, was an early investor.
The company has been described as ‘ripe for an IPO’ in 2020.
Airbnb – $35 billion
Airbnb is an online platform where members can advertise their living spaces as short-term lodging.
For many years, Airbnb and Uber were the poster-child ‘sharing economy’ unicorns. But while Uber opted to list in 2019, Airbnb held fire. The business has announced plans for an IPO at some point in 2020.
Unlike many unicorns, Airbnb is actually a profitable business – the company made $93 million in 2017. It’s also relatively old, hitting a valuation of $1 billion all the way back in 2011.
But Airbnb’s valuation has somewhat flatlined in recent years. The business crossed the $30 billion mark in 2016 but has only added $5 billion in value since. In that time, Stripe has grown by around $26 billion.
Find out more about Airbnb’s IPO, and take your position on its eventual list price with our grey market (if available).
SpaceX – $33.3 billion
SpaceX has a lofty goal: to reduce the cost of space travel and eventually enable the colonisation of Mars. It has made significant strides towards that ambition since its launch in 2002, including successfully reusing an orbital rocket in 2017. The company plans on launching the first crewed mission for its Dragon 2 craft in May 2020.
Space travel isn’t cheap, so perhaps unsurprisingly SpaceX is heavily dependent on outside capital, raising over $1 billion in 2019 alone. The company does make money too, though – mostly from a contract with NASA.
How to trade or invest in unicorns
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.
With IG, however, you can speculate on the market capitalisation of certain companies before they float – thanks to our exclusive grey markets. You’ll also be able to invest in the shares of unicorns once they list on the stock market, or speculate on their price movements with CFDs or spread bets. Notable IPOs in recent years include Uber, Lyft, Facebook, Twitter and Alibaba.
How are unicorn startups valued?
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. Alternatively, sometimes unicorns are priced when they are acquired by someone bigger: for example, when Facebook bought Instagram for $1 billion.
It’s worth noting that the quoted size of a unicorn tends to be a ‘post-money’ valuation. That means it takes any recent investment into account.
But how do investors determine the value of a new business? Unlike with established companies, they’ll usually take a long-term view and focus solely on future potential. 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.
Occasionally, that approach can backfire. SoftBank, a leading investor in WeWork, took a nearly $4.6 billion hit when the company failed to float in 2019.
Venture investing and unicorns
The spectacular growth in the number of unicorns in the world is partially down to a surge in venture capitalism, creating a sharp rise in the amount of private capital available for startups. The increasingly popular ‘get big fast’ strategy has also contributed. The last decade saw a push to invest heavily in companies while they are young, so that they get big fast and outmuscle potential competitors.
Some argue that venture investors are getting overenthusiastic when pricing businesses, inflating the price of startups that should be valued in the millions. Instead of carrying out proper risk analysis, they are diving in out of a fear of missing the next big thing.
Only time will tell us whether the unicorn boom is a bubble or not. If today’s big startups go on to secure significant profits for their investors, they’ll be looked back on as a smart opportunity well taken. If they go the way of WeWork, then the unicorn boom will be remembered alongside the dotcom bubble as an example of investor folly.
Unicorn companies summed up
- A unicorn is a startup company that is worth over $1 billion
- The world’s biggest examples today are Bytedance, Didi Chuxing, Stripe, Airbnb and SpaceX
- Private investors can only take a position on unicorns when they choose to list
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