Starting as a description used by venture capitalists and generally gaining popularity as a phrase, the word ‘unicorn’ to describe a high-value company has been around for a couple of decades now. It’s especially common in the financial community but has made its way into pop culture, due to the nature of some of the emerging businesses.
But what exactly qualifies as a unicorn, and does it have any definition beyond monetary value?
What is a unicorn company?
Unicorns are defined as a company valued at more than $1 billion (around £882m), predominantly through potential growth and investment, but sometimes also with capital. Typically, they are privately owned and not listed on the stock market, particularly in the beginning as the vast majority are created as startups before entering hypergrowth.
The term was coined in 2013 by Aileen Lee. During that period, the description of ‘unicorn’ was apt because companies topping $ 1 billion in value were decidedly rare. In fact, in the decade of 2003 – 2013, just 39 start-ups were valued at over $1 billion. It was extremely unusual to see, hence the term; ‘unicorn’.
Since that period, however, the amount of available investment for these businesses has risen drastically. The number of unicorn companies across the world has been steadily increasing since the early 2010s. In fact, PWC reports that in 2016 there were 165 unicorns, and by mid-2021, there were 743, an increase of 350%.
The UK unicorns
As for UK unicorns, 2021 had the largest concentration to date, with 25 companies reaching the high-held status. Many of these organisations are well-known due to their disruptive, innovative nature leading to popularity within their customer base and through social media. Some famous UK-based unicorn companies are; fitness clothing company Gymshark, banking experts Oaknorth, and the hospitality company BrewDog.
Because of the sheer size of investment required, unicorn investors are typically venture capitalists or private investors. Although they mostly start out as privately owned companies, many do work their way into a public IPO, such as Deliveroo and Wise. However, not all unicorns will go down this route or are even suitable candidates for an IPO. Research from Bessemer Venture Partners found that only 1 in 6 are ready to go public, due to their unicorn company status not matching up with their expected turnover.
And there is a global bias too. The USA has more unicorn companies than the rest of the world put together, with 770 as of November 2022. To get some perspective, there are currently 56 in the UK and 220 in Silicon Valley alone. America dominates, but investment and opportunity is slowly spreading across the globe.
In 2021, European investment was competitive with that from the US, showing that opportunities are rife on the other side of the pond. 75% of European unicorn companies may be based in the UK, France, and Germany, but that number is slowly spreading into other nations too.
Is ARR a better indication?
When establishing unicorn company status, valuations have been the traditional route to go down. But the elite title is perhaps not as elusive as it once was, with over a thousand unicorn companies popping up across the world.
Whilst investment may have allowed such a description, in terms of revenue many make well below the billion-dollar status. Some have as little as a million dollars, leaving them with significantly less of an imprint on the global economy. Even organisations like Meta, long described as a ‘Super Unicorn’ have hit relatively hard times. The social media giant recently laid off 10,000 global staff, citing a need for efficient spending within its workforce.
With the unpredictability of the global economy, and the value of unicorns generally based on ongoing development and potential growth, many of these companies are complicated to value. Their disruptive nature means they often have stand-alone business models, making market comparisons hard. That’s why monitoring ARR, and watching for other signs of growth can be key, when determining if a business will achieve the coveted IPO unicorn success, or not.
Today’s unicorns shape investment strategies and redefine traditional processes in the industries they operate within. They expand rapidly and employ tens of thousands across the globe. Red Flag Alert, and our partners at Growth Flag, keep a steady eye on the growth of companies across the UK, and we see exciting signs of fresh innovation and opportunities for investors. Fintech leads the way, but health tech and edtech are also growing sectors ripe for unicorn status, to join the likes of Monzo, Checkout.com, and many others flying the flag for the UK’s potential to attract large investors.