Identifying so-called unicorn companies early can be very rewarding for early investors, but what exactly does it mean to be a unicorn and how do investors benefit from these companies? Here’s what you need to know about investing in unicorn companies.
What is a unicorn company?
A unicorn company is a privately held company that achieves a valuation of $1 billion or more. As their name suggests, unicorn companies are rare and often include companies in emerging industries that are seen as disruptive.
Unicorn companies can come from any industry, but in recent years have largely been concentrated in the technology sector. It’s not easy for a private company to grow to a $1 billion valuation, but the companies that do often have some common characteristics:
- Major market opportunities: It’s hard to become a big company unless you’re in a big market. Companies like Alphabet and Meta Platforms have benefited from shifts in the global advertising market.
- Innovative and disruptive: Unicorns can offer a product or service that changes the way an industry previously operated. Think about how Uber and Lyft changed the transportation or taxi industry.
- Strong leadership: A company can have a great idea, but it needs great leadership from the management team and CEO to actually deliver results. Amazon’s Jeff Bezos was instrumental in driving the company’s success in retail and cloud computing.
- Fast growth: Companies that achieve unicorn status typically experience very high revenue growth. Unicorns may lose money in their early years, but sales growth is usually high.
How investing in unicorn companies works
When companies start, the founders often first raise money from friends and family to help them get off the ground. Then, angel investors and venture capital firms step in to provide additional financing in exchange for a stake in the company. For example, in an investment in a unicorn company, a venture capital firm might take a 10 percent stake for a $100 million investment, implying a total valuation of $1 billion.
For individual investors looking to invest in unicorn companies, the unfortunate reality is that these types of investments will be off limits until the companies go public through an initial public offering, or IPO. But that doesn’t necessarily mean you missed out on a great investment. Many companies that came public as unicorns have richly rewarded shareholders in recent years.
Examples of unicorn companies
There are many companies that were once unicorns and are now household names. According to CB Insights, there were more than 1,200 unicorns in the world as of October 2023. Here are some of today’s biggest unicorns:
| Company | Valuation | Country | Industry |
|---|---|---|---|
| Source: CB Insights, October 2023 | |||
| ByteDans | $225 billion | China | Media and entertainment |
| SpaceX | $150 billion | US | Industrialists |
| SHEIN | $66 billion | Singapore | Consumer and retail |
| Stripe | $50 billion | US | Financial services |
| Databricks | $43 billion | US | Enterprise technology |
| Kanva | $25.4 billion | Australia | Enterprise technology |
| Revolution | $33 billion | United Kingdom | Financial services |
| Epic games | $31.5 billion | US | Media and entertainment |
| Fanatics | $31 billion | US | Consumer and retail |
| Open AI | $29 billion | US | Enterprise technology |
In short
Unicorn companies are private companies that are worth $1 billion or more based on their most recent valuation. Companies that achieve unicorn status are often fast-growing, disruptive companies with great market opportunities. Investing in private companies is typically reserved for institutional investors, so individual investors looking to get a piece of the action will have to wait until these companies go public.
