Unicorn company definition
Unicorn is a privately held startup company valued at over one billion dollars.
Terms as “unicorn in business” or “Unicorn startup ” refer to companies classified as a startup under private holding and have obtained a valuation of a level 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 since the unicorn is known as being a rare species.
When 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 2012 to 2015 were experiencing growth in terms of their valuations at a rate that was two times faster than businesses that had been started from the years 2000 to 2013.
Once the year 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 implementing startups at this present time. This strategy applies the effort of startups to expand quickly via enormous supplies of funding and lower prices to achieve a large portion of the market share and beat 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 over time.
Many 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. Some larger companies prefer to pep up their companies by engaging in purchasing 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 unicorns can attain. 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 before the company’s need to provide disclosure of its financial records to the public. Thus, it is indicated that there was a three-fold increase in the amount of private capital placed on investment purposes about software businesses from 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 the initial public offering, which is abbreviated as IPO, to have access to capital or achieve a valuation at a higher level. The companies can 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 perceives that the company has a valuation lower than what investors believe the company’s valuation is. When the public market is not in agreement with a company’s valuation, it can then engage in decreasing the price for each stock about the initial range of the IPO.
Furthermore, startups and investors do not have a strong desire to address the hassles 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 much more stringent elements after the resurgence of many cases of bankruptcy within the US market. As a result, many private companies wish to avert such regulations.
Startups are further engaging in being savvy to take advantage of the influx of new technology within the past ten years to achieve unicorn status quickly. With the eruption of social media and the fact that millions of people engage in such technology to access massive global markets, startups can 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 in 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 unique compared to companies that have been established for a longer period of time. Hence, the valuation of a company established for quite a while is based on the premise of the companies’ performance over the past years. On the other hand, the valuation of a company that is a startup is based on the potential opportunities for growth and the long-term development that is anticipated.