A unicorn company is similar to scooping a gold medal in the Olympics or having your music certified platinum. It is considered a lifetime achievement! For entrepreneurs, it indicates you’ve achieved what most people in your industry aspire to. It is not simple to become a unicorn, yet more entrepreneurs are doing so than ever before. With that in mind, it’s worth looking at how they got there and what it means to be one.
Definition of a Unicorn Company
To put it in simple terms, a unicorn company must meet two requirements. First, it must be privately held. Second, it should be valued at more than $1 billion. We call them “unicorns” because they are extraordinarily rare. To pique the interest of investors, a business must do an outstanding job of addressing a market need. Having said that, a herd of unicorns has emerged in recent years. Entrepreneurs now view it as an aspirational ambition rather than a “miracle”. It isn’t easy—just like earning that gold medal!—but it’s doable. It all depends on how successfully you develop and execute the launch plan.
How the value of a Unicorn Company is determined
Because unicorn companies are still creating income streams and onboarding customers, valuation differs from that of established companies. You cannot determine the company’s value from the revenue generated over the year by looking at the annual report.
Instead, unicorn companies are priced based on how much investors believe they are worth. For example, if an investor buys a 20% ownership in a firm for $200 million, the investor feels the startup is worth $1 billion.
It is crucial to understand that this is simply an “on paper” value. For example, ByteDance, the Chinese super-unicorn behind Tiktok, has raised “only” $13.1 billion in venture financing yet is valued at $360 billion. When we talk about unicorn firms we are referring to the “post-money value” rather than the actual equity capital invested in the firm.
The emergence of unicorn companies
Unicorn firms have increased dramatically over the last decade, from 39 in 2003 to 139 in 2013. The question is: Why?
There are now over 1,200 unicorns, worth a total of $3,840 billion. This extraordinary acceleration within the club has prompted many to question whether the startup investment frenzy is too hot. In other words, are we facing a scenario in which what we believed were “unicorns” were actually horses?
When you look at where unicorns are forming, investor enthusiasm is a key factor. For example, last year, cryptocurrency and blockchain businesses accounted for around half of the truly huge developing unicorns. Cryptocurrency was the popular trend (before the FTX crisis, which briefly chilled the space). Investors wanted to be a part of the conversation, so there was tremendous competition to discover and fund exciting firms.
Also Read: Anticipations For Year Of Return Africa Event
However, over-enthusiasm wasn’t the main cause of the rapid increase of Unicorn companies.
Remember that being a privately held company is a crucial characteristic of a unicorn. Historically, the only way for a company to reach a $1 billion valuation was to go public via an IPO. However, this is changing. Startups with a strong founding team and outstanding ideas for solving market problems can raise huge amounts of private cash early on, leading to billion-dollar valuations before going public.
Unicorn companies are examples of disruptive innovation
You will need more than a captivating idea to stay aloft in the market.
Many outstanding firms have fantastic products but never reach unicorn status. Why? because only disruptive innovation can account for that $1 billion valuation. Only businesses that disrupt the way we think about an industry and what we take for granted that end up succeeding. Google, the first super-unicorn, transformed how we interacted with the Internet. AirBnB challenged the lodging monopoly, while Uber exposed the flaws in the taxi sector.
Similarly, crypto fintechs have emerged as the most successful unicorns in recent years due to their severe disruption of traditional finance.
A unicorn company is likely built on technology
Approximately 87 percent of unicorns have some type of software at the heart of their product, with an additional 7% focusing on technology hardware. You can create a business in any industry and provide any product or service. However, unless it has technology, it is unlikely to attract the funding required to become a unicorn.
A unicorn firm grows fast
A unicorn company will often break beyond the $1 billion barrier in five years. That is extremely rapid growth. A unicorn company’s goal is to raise as much capital as possible. It’s normally a risk because if the market doesn’t move with the startup, the value may plummet. It is also the only way for a company to keep ahead of the competition and position itself as the disruptor.
Are you ready to become the next unicorn entrepreneur?
Building a firm to a billion-dollar valuation is not easy, and it will never be. Regardless of how enthusiastic you are, having a truly excellent startup strategy is what’s going to save the day.
The Africa Unicorn Summit, held in Nairobi, is Africa’s top event for promoting innovation and entrepreneurship. The summit will be held on October 13th -15th, 2024. It brings together experts from diverse industries to talk about trends, opportunities, and methods to boost the startup and business ecosystems, with a focus on producing unicorns.
Join us as we explore the possible benefits and prospects of twinning partnerships between African cities and global technology hubs.
Get your ticket HERE and kickstart your journey to becoming an African Unicorn entreprenuer.
