What is a Unicorn Company or Startup?

A new business that is valued at more than $1 billion and is privately owned (they aren't listed on stock exchanges) is termed as Unicorn Company or Startup. Variants include a decacorn, valued at over $10 billion, and a hectocorn,valued at over $100 billion.

So such companies are actually generating billions of dollar worth of revenue?

No. But due to the size of investment, the company valuation grows to the lauded 10-figure sum. Even a loss making company is also included in Unicorn Companies list!

According to AIThority when the term unicorn emerged back in 2013, there were only 40 private companies with a valuation of one billion dollars in the world. Since then, the number of these financial giants jumped 12.5 times, reaching around 500 in September.

Some famous Unicorn Companies globally:

Airbnb is a U.S. startup in the travel industry. It has a value of $38 billion and its investors include General Catalyst Partners, Andreessen Horowitz and ENIAC Ventures.

Kuaishou is a Chinese mobile and telecommunications company with a valuation of $18 billion. Its investors include Morningside Venture Capital, Sequoia Capital and Baidu.

SpaceX is a U.S. startup from Tesla (NASDAQ:TSLA) co-founder and CEO Elon Musk. It has a valuation of $33.3 billion and investors include Founders Fund, Draper Fisher Jurvetson and Rothenberg Ventures.

Famous Global Unicorns

Unicorn Companies    Valuations    Valuation Date

Airbnb    ~$100 Billion    Listed

Stripe    $36 Billion    April, 2020

SpaceX    $46 Billion    August, 2020

Palantir Technologies    $20 Billion    -

Epic Games    $15 Billion    October, 2018

Robinhood    $8.3 Billion    May, 2020

Instacart    $13.8 Billion

July, 2020

Doordash    ~$72 Billion (On debut)

Listed

Rivian    $5.0 Billion

September, 2019

Magic Leap    $4.5 Billion

February, 2016

Source- Wikipedia

Famous Indian Unicorn companies (Baahubali's)

Unicorn Companies

Sector    Valuations

Byjus classes    Edtech    $10.8 Billion

Snapdeal    E-Commerce    $6.5 Billion

Flipkart    E-Commerce    $21 Billion

InMobi    Mobile Ads    $1 Billion

Ola    Ride Hailing    $6.4 Billion

Paytm    Payments    $16 Billion

Zomato    Foodtech    $3.9 Billion

Swiggy    Foodtech    $3.6 Billion

PolicyBazaar    Insurance  Tech    $1 Billion

Dream11    Gaming    $2.5 Billion

Nykaa    E-Commerce    $1.2 Billion

Dailyhunt    Content - News    $1 Billion

Oyo Rooms    Budget Hotels    $10 Billion

RazorPay    Payments (B2B)    $1 Billion

Zerodha    Stock Broking    $3 Billion

Source - Google. *Valuations data may vary

Can a Retail investor invest in such companies?

As we deal in unlisted shares, we usually get lot of inquiries regarding Indian Unicorn Startups such as Ola, Zomato, Dream11, etc. 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. Meanwhile, Unicorn stock to retail investors "Yeh log jinse mai Anjaan hu, Mai inka Bhagwaan Kaise?" :D

So, Retail investor has no access to Unicorn companies as also the lot size and valuations are totally out of their reach!

How unicorn companies are valued?

Funding! 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. Unlike established companies where EPS, PE Ratio, CAGR, Debt-Equity Ratio are given more importance, in unicorn companies a long-term view and focus solely on future potential is considered. 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.

How Unicorn Companies burst of their engines?

High valuations are primarily gained through hiring the best talent, gathering lots of users, and shooting for the moon with huge 15% week-by-week growth rates. From a practical standpoint, it's a demonstration of what the company could achieve on a larger scale.

If it's a success, venture capitalists seek to scale it up through plunging huge amounts of money into the company, and thus increasing the valuation. Social Media too plays an important role here.

Risks

> Continuous Losses: Many Unicorn Companies, as the name suggests "Startup" initially incur big losses in the growth phase, failure in converting to profits after a certain period can destroy such companies.

> Funding Failure: As we saw that funding acts as a fuel to valuation of such startups, such startups as they incur significant losses in establishing stage now if such startup fails in raising funding the    valuations may come down at rapid rate.

> Margin Imbalance: Unicorn Companies usually rely on disrupting traditional business by playing on very thin margin. A small change in margin may bring a big trouble!

> Poor IPO: There is a continuing problem with unicorn companies of becoming overvalued. When this happens, it doesn't take long for the market to discover the truth, which is why so many IPOs don't  go as well as people hoped.

> Declining social media mention: Unicorn companies rely on a social media buzz to continue going from strength to strength.

> IPO: IPOs are rarely surprises. Most people are aware of when a company is about to go public. If this anticipation never builds, or if it builds and then IPO doesn't happen, it's pretty clear that the company is experiencing problems.

Conclusion: Most of retail investors are crazy behind the unicorn startups shares. As mentioned such investment opportunities are just for Venture Capitalists. Investment in such companies may be subject to high risk owing to higher valuations, huge lot size & high risk of failure!

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The Unicorn Companies

 December 26, 2020

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Main article: Organizational founder

Founders or co-founders are people involved in the initial launch of startup companies. Anyone can be a co-founder, and an existing company can also be a co-founder, but the most common co-founders are founder-CEOs, engineers, hackers, web developers, web designers and others involved in the ground level of a new, often venture. The founder that is responsible for the overall strategy of the startup plays the role of founder-CEOs, much like CEOs in established firms.

The language of securities regulation in the United States considers co-founders to be "promoters" under Regulation D. The U.S. Securities and Exchange Commission definition of "Promoter" includes: (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer;[19] However, not every promoter is a co-founder. In fact, there is no formal, legal definition of what makes somebody a co-founder.[20][21] The right to call oneself a co-founder can be established through an agreement with one's fellow co-founders or with permission of the board of directors, investors, or shareholders of a startup company. When there is no definitive agreement (like shareholders' agreement), disputes about who the co-founders are, can arise.

Self-efficacy refers to the confidence an individual has to create a new business or startup. It has a strong relation with startup actions.[22] Entrepreneurs' sense of self-efficacy can play a major role in how they approach goals, tasks, and challenges. Entrepreneurs with high self-efficacy—that is, those who believe they can perform well—are more likely to view difficult tasks as something to be mastered rather than something to be avoided.

Startups are pressure cookers. Don’t let the casual dress and playful office environment fool you. New enterprises operate under do-or-die conditions. If you do not roll out a useable product or service in a timely fashion, the company will fail. Bye-bye paycheck, hello eviction.

Iman Jalali, chief of staff at ContextMedia[23][unreliable source?]

Entrepreneurs often feel stressed. They have internal and external pressures. Internally, they need to meet deadlines to develop the prototypes and get the product or service ready for market. Externally they are expected to meet milestones of investors and other stakeholders to ensure continued resources from them on the startups.[24] Coping with stress is critical to entrepreneurs because of the stressful nature of start up a new firm under uncertainty. Coping with stress unsuccessfully could lead to emotional exhaustion, and the founders may close or exit the startups.

Sustaining effort is required as the startup process can take a long period of time, by one estimate, three years or longer (Carter et al., 1996; Reynolds & Miller, 1992). Sustaining effort over the long term is especially challenging because of the high failure rates and uncertain outcomes.[24]

Some startup founders have a more casual or offbeat attitude in their dress, office space and marketing, as compared to executives in established corporations. For example, startup founders in the 2010s may wear hoodies, sneakers and other casual clothes to business meetings. Their offices may have recreational facilities in them, such as pool tables, ping pong tables, football tables and pinball machines, which are used to create a fun work environment, stimulate team development and team spirit, and encourage creativity. Some of the casual approaches, such as the use of "flat" organizational structures, in which regular employees can talk with the founders and chief executive officers informally, are done to promote efficiency in the workplace, which is needed to get their business off the ground.[25]

In a 1960 study, Douglas McGregor stressed that punishments and rewards for uniformity in the workplace are not necessary because some people are born with the motivation to work without incentives.[26] Some startups do not use a strict command and control hierarchical structure, with executives, managers, supervisors and employees. Some startups offer employees incentives such as stock options, to increase their "buy in" from the start up (as these employees stand to gain if the company does well). This removal of stressors allows the workers and researchers in the startup to focus less on the work environment around them, and more on achieving the task at hand, giving them the potential to achieve something great for both themselves and their company.

The failure rate of startup companies is very high. A 2014 article in Fortune estimated that 90% of startups ultimately fail. In a sample of 101 unsuccessful startups, the top five factors in failure were lack of consumer interest in the product or service (42% of failures); funding or cash problems (29%); personnel or staffing problems (23%); competition from rival companies (19%); and problems with pricing of the product or service (18%); more than one factor can be cited as a cause for failure so these numbers add up to more than 100%.[5] In cases of funding problems it can leave employees without paychecks. Sometimes these companies are purchased by other companies if they are deemed to be viable, but oftentimes they leave employees with very little recourse to recoup lost income for worked time.[27] More than one-third of founders believe that running out of money led to failure. Second to that, founders attribute their failure to a lack of financing or investor interest. These common mistakes and missteps that happen early in the startup journey can result in failure, but there are precautions entrepreneurs can take to help mitigate risk. For example, startup studios offer a buffer against many of the obstacles that solo entrepreneurs face, such as funding and insufficient team structure, making them a good resource for startups in their earliest phases.[28]

Failed entrepreneurs, or restarters, who after some time restart in the same sector with more or less the same activities, have an increased chance of becoming a better entrepreneur.[29] However, some studies indicate that restarters are more heavily discouraged in Europe than in the US.[30]

See also: Entrepreneurship education

Many institutions and universities provide training on startups. In the context of universities, some of the courses are entrepreneurship courses that also deal with the topic of startups, while other courses are specifically dedicated to startups. Startup courses are found both in traditional economic or business disciplines as well as the side of information technology disciplines. As startups are often focused on software, they are also occasionally taught while focusing on software development alongside the business aspects of a startup.[31]

“The best way of learning about anything is by doing.” – Richard Branson

Founders go through a lot to set up a startup. A startup requires patience and resilience, and training programs need to have both the business components and the psychological components.[32] Entrepreneurship education is effective in increasing the entrepreneurial attitudes and perceived behavioral control,[33] helping people and their businesses grow.[32] Most of startup training falls into the mode of experiential learning (Cooper et al., 2004; Pittaway and Cope, 2007), in which students are exposed to a large extent to a real-life entrepreneurship context as new venture teams (Wu et al., 2009).[12] An example of group-based experiential startup training is the Lean LaunchPad initiative that applies the principles of customer development (Blank and Dorf, 2012) and Lean Startup (Ries, 2011) to technology-based startup projects.

As startups are typically thought to operate under a notable lack of resources,[34] have little or no operating history,[35] and to consist of individuals with little practical experience,[36][37] it is possible to simulate startups in a classroom setting with reasonable accuracy. In fact, it is not uncommon for students to actually participate in real startups during and after their studies. Similarly, university courses teaching software startup themes often have students found mock-up startups during the courses and encourage them to make them into real startups should they wish to do so.[31] Such mock-up startups, however, may not be enough to accurately simulate real-world startup practice if the challenges typically faced by startups (e.g. lack of funding to keep operating) are not present in the course setting.[38]

To date, much of the entrepreneurship training is yet personalized to match the participants and the training.

A startup ecosystem can contribute to local entrepreneurial culture.

The size and maturity of the startup ecosystem is where a startup is launched and where it grows to have an effect on the volume and success of the startups. The startup ecosystem consists of the individuals (entrepreneurs, venture capitalists, angel investors, mentors, advisors); institutions and organizations (top research universities and institutes, business schools and entrepreneurship programs and centres operated by universities and colleges, non-profit entrepreneurship support organizations, government entrepreneurship programs and services, Chambers of commerce) business incubators and business accelerators and top-performing entrepreneurial firms and startups. A region with all of these elements is considered to be a "strong" startup ecosystem.

One of the most famous startup ecosystems is Silicon Valley in California, where major computer and internet firms and top universities such as Stanford University create a stimulating startup environment. Boston (where Massachusetts Institute of Technology is located) and Berlin, home of WISTA (a top research area), also have numerous creative industries, leading entrepreneurs and startup firms. Basically, attempts are being made worldwide, for example in Israel with its Silicon Wadi, in France with the Inovallée or in Italy in Trieste with the AREA Science Park, to network basic research, universities and technology parks in order to create a startup-friendly ecosystem.

Although there are startups created in all types of businesses, and all over the world, some locations and business sectors are particularly associated with startup companies. The internet bubble of the late 1990s was associated with huge numbers of internet startup companies, some selling the technology to provide internet access, others using the internet to provide services. Most of this startup activity was located in the most well-known startup ecosystem - Silicon Valley, an area of northern California renowned for the high level of startup company activity:

The spark that set off the explosive boom of "Silicon startups" in Stanford Industrial Park was a personal dispute in 1957 between employees of Shockley Semiconductor and the company’s namesake and founder, Nobel laureate and co-inventor of the transistor William Shockley... (His employees) formed Fairchild Semiconductor immediately following their departure... After several years, Fairchild gained its footing, becoming a formidable presence in this sector. Its founders began leaving to start companies based on their own latest ideas and were followed on this path by their own former leading employees... The process gained momentum and what had once begun in a Stanford’s research park became a veritable startup avalanche... Thus, over the course of just 20 years, a mere eight of Shockley’s former employees gave forth 65 new enterprises, which then went on to do the same...[39]

Startup advocates are also trying to build a community of tech startups in New York City with organizations like NY Tech Meet Up[40] and Built in NYC.[41] In the early 2000s, the patent assets of failed startup companies were being purchased by people known as patent trolls, who assert those patents against companies that might be infringing the technology covered by the patents.[42]

Diagram of the typical financing cycle for a startup company

Startup investing is the action of making an investment in an early-stage company. Beyond founders' own contributions, some startups raise additional investment at some or several stages of their growth. Not all startups trying to raise investments are successful in their fundraising.

In the United States, the solicitation of funds became easier for startups as result of the JOBS Act.[43][44][45][46] Prior to the advent of equity crowdfunding, a form of online investing that has been legalized in several nations, startups did not advertise themselves to the general public as investment opportunities until and unless they first obtained approval from regulators for an initial public offering (IPO) that typically involved a listing of the startup's securities on a stock exchange. Today, there are many alternative forms of IPO commonly employed by startups and startup promoters that do not include an exchange listing, so they may avoid certain regulatory compliance obligations, including mandatory periodic disclosures of financial information and factual discussion of business conditions by management that investors and potential investors routinely receive from registered public companies.[47]

Investors are generally most attracted to those new companies distinguished by their strong co-founding team, a balanced "risk/reward" profile (in which high risk due to the untested, disruptive innovations is balanced out by high potential returns) and "scalability" (the likelihood that a startup can expand its operations by serving more markets or more customers).[citation needed] Attractive startups generally have lower "bootstrapping" (self-funding of startups by the founders) costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that the startup has the potential to grow rapidly with a limited investment of capital, labor or land.[48] Timing has often been the single most important factor for biggest startup successes,[49] while at the same time it's identified to be one of the hardest things to master by many serial entrepreneurs and investors.[50]

Startups have several options for funding. Revenue-based financing lenders can help startup companies by providing non-dilutive growth capital in exchange for a percentage of monthly revenue.[51] Venture capital firms and angel investors may help startup companies begin operations, exchanging seed money for an equity stake in the firm. Venture capitalists and angel investors provide financing to a range of startups (a portfolio), with the expectation that a very small number of the startups will become viable and make money. In practice though, many startups are initially funded by the founders themselves using "bootstrapping", in which loans or monetary gifts from friends and family are combined with savings and credit card debt to finance the venture. Factoring is another option, though it is not unique to startups. Other funding opportunities include various forms of crowdfunding, for example equity crowdfunding,[52] in which the startup seeks funding from a large number of individuals, typically by pitching their idea on the Internet.

Startups can receive funding via more involved stakeholders, such as startup studios. Startup studios provide funding to support the business through a successful launch, but they also provide extensive operational support, such as HR, finance and accounting, marketing, and product development, to increase the probability of success and propel growth. [53]

The first known investment-based crowdfunding platform for startups was launched in Feb. 2010 by Grow VC,[63] followed by the first US. based company ProFounder launching model for startups to raise investments directly on the site,[64] but ProFounder later decided to shut down its business due regulatory reasons preventing them from continuing,[65] having launched their model for US. markets prior to JOBS Act. With the positive progress of the JOBS Act for crowd investing in US., equity crowdfunding platforms like SeedInvest and CircleUp started to emerge in 2011 and platforms such as investiere, Companisto and Seedrs in Europe and OurCrowd in Israel. The idea of these platforms is to streamline the process and resolve the two main points that were taking place in the market. The first problem was for startups to be able to access capital and to decrease the amount of time that it takes to close a round of financing. The second problem was intended to increase the amount of deal flow for the investor and to also centralize the process.[66][67]

Internal startups are a form of corporate entrepreneurship.[68] Large or well-established companies often try to promote innovation by setting up "internal startups", new business divisions that operate at arm's length from the rest of the company. Examples include Bell Labs, a research unit within Bell Corporation and Target Corporation (which began as an internal startup of the Dayton's department store chain) and threedegrees, a product developed by an internal startup of Microsoft.[69] To accommodate startups internally, companies, such as Google has made strides to make purchased startups and their workers feel at home in their offices, even letting them bring their dogs to work.[70]

See also: List of unicorn startup companies

Some startups become big and they become unicorns, i.e. privately held startup companies valued at over US$1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures. According to TechCrunch, there were 452 unicorns as of May 2019, and most of the unicorns are in the USA, followed by China. The unicorns are concentrated in a few countries. The unicorn leaders are the U.S. with 196 companies, China with 165, India with 19 and the U.K. with 12.[71] The largest unicorns included Ant Financial, ByteDance, DiDi, Uber, Xiaomi, and Airbnb.