Unicorn in business
A unicorn is a privately held startup company valued at over one billion dollars.
When you hear the term unicorn in business, a unicorn is considered to be a company that is classified as a startup which is under private holding and has obtained a valuation of a level that is equivalent to or higher than one billion dollars. This term was first developed in the year of 2013 by Aileen Lee who is a world renowned venture capitalist. She had decided that the term unicorn was the perfect choice to represent these types of startup ventures that were highly successful due to the fact that the unicorn is known as being a rare species.
At the time that the famous Aileen Lee proceeded to use the term unicorn for these startup companies, it was realized that only thirty-nine such companies could be classified as unicorns. Other research indicated that startups that had commenced from the years of 2012 to 2015 were experiencing growth in terms of their valuations at a rate that was two times faster in comparison to businesses that had been started from the years of 2000 to 2013.
Once the year of 2018 arrived, sixteen companies within the nation of the United States of America had gained the classification of unicorn status. This, therefore, resulted in the presence of one hundred and nineteen companies that were privately owned with a valuation of one billion dollars or more on a global scale. This was impressive indeed.
Grow fast strategies
It appears that venture capital agencies and investors are prone to adopt grow fast strategies when it comes to implementing startups at this present time. This strategy applies the effort of startups expanding quickly via enormous supplies of funding and lowering prices in order to achieve a large portion of the market share, along with beating off the competition as quickly as possible. The exponential returns that come in rather fast from such a strategy tend to be overtly pleasing to all stakeholders. On the other side of the spectrum, it cannot be denied that there is the cautionary element of the possibility of foregoing sustainability in the creation of value for a long period of time, which can happen to online companies by times.
A large number of unicorns were formulated when there were buyouts performed through large companies that had been publicly held. It is the tendency of companies that have an environment of slow growth and interest rates that are low to place their concentration on acquisitions rather than the development of projects for internal investment opportunities or capital expenditures. There are some larger companies that prefer to pep up their companies by engaging in the purchasing of other business and technology models that are already established instead of engaging in the creation of these entities by their own efforts.
Private and public holding
Before a technology company transfers to being held by the public, it is usually under private holding for approximately eleven years in comparison to four years as was the trend in the year of 1999. The stemming of the dynamic shift is related to the increase in the amount of capital at the private level that can be attained by unicorns. In addition, another contributing factor is based on the implementation of The US Jumpstart Our Business Startups Act, which was orientated in the year of 2012. This act allowed the augmentation of the number of shareholders that a company could possess by as much as four times prior to the need of the company to provide disclosure of its financial records to the public. It is, thus, indicated that there was a three-fold increase in the amount of private capital that was placed in investment purposes in relation to software businesses during the year of 2013 to 2015.
Access to more rounds of funding
Because of the implementation of several rounds of funding, there is no need for businesses to engage in initial public offering, which is abbreviated as IPO, in order to have access to capital or to achieve a valuation a higher level. The companies can simply resort to relying on their investors for increases in more capital. There is also the risk that IPOs may cause a devaluation for the business when the public has the perception that the company has a valuation lower than what investors believe the valuation of the company is. When the public market is not in agreement with the valuation of a company, it can then engage in decreasing the price for each stock pertaining to the initial range of the IPO.
Furthermore, startups and investors do not have a strong desire to address the hassles that are associated with going public due to the increase of many regulations when doing so. Take into consideration for example regulations such as the Sarbanes-Oxley Act. Such regulations have applied elements that are much more stringent after the resurgence of many cases of bankruptcy within the US market. As a result, many private companies wish to avert such regulations.
Startups further are engaging in being savvy to take advantage of the influx of new technology within the past ten years in order to quickly achieve unicorn status. With the eruption of social media and the fact that millions of people engage in the usage of such technology to access massive global markets, startups are able to form the expansion of their companies much more rapidly than in former times. With this being the case, it cannot be denied that unicorns have experienced much growth due to innovations pertaining to P2P platforms, mobile smartphones, social media applications and cloud computing.
In terms of valuations that allow startups to achieve unicorn status, such valuations are considered to be unique in comparison to companies that have been established for a longer period of time. Hence, the valuation of a company that has been established for quite awhile is based on the premise of the performance of the companies over the past years. On the other hand, a valuation of a company that is a startup is based on the potential opportunities of growth and the long-term development that is anticipated.