Unicorn (finance)#Camel startups

Aileen Lee originated the term "unicorn" in a 2013 TechCrunch article, "Welcome To The Unicorn Club: Learning from Billion-Dollar Startups". At the time, 39 companies were identified as unicorns.{{Cite journal |last=Fan |first=Jennifer S. |date=March 2016 |title=Regulating Unicorns: Disclosure and the New Private Economy |url=https://lawdigitalcommons.bc.edu/bclr/vol57/iss2/5/ |journal=BCL Rev. |volume=57 |issue=2 |page=583, note 1}} In a different study done by Harvard Business Review, it was determined that startups founded between 2012 and 2015 were growing in valuation twice as fast as startup companies founded between 2000 and 2003.{{Cite magazine |title=How Unicorns Grow |url=https://hbr.org/2016/01/how-unicorns-grow |magazine=Harvard Business Review |date=January–February 2016 |pages=28–30 |access-date=2017-03-30}}

In 2018, 16 US companies became unicorns, resulting in 119 private companies worldwide valued at $1 billion or more.{{cite web |last=Sumagaysay |first=Levi |date=October 9, 2018 |title=Venture capital: Bay Area's Lucid Motors, Zoox, Uber scored the most in third quarter |url=https://www.mercurynews.com/2018/10/09/venture-capital-bay-areas-lucid-motors-zoox-uber-scored-the-most-in-third-quarter/ |work=The Mercury News |location=San Jose, Calif. |access-date=October 15, 2018}} Globally, according to CB Insights, there were more than 803 unicorns {{as of|2021|08|lc=y}}, with ByteDance, SpaceX and Stripe among the largest,{{Cite news |url=https://www.cbinsights.com/research-unicorn-companies |work=CB Insights |access-date=2021-07-01 |language=en |title=The Global Unicorn Club}} and 30 decacorns, including SpaceX, Getir, Goto, J&T Express, Stripe, and Klarna.

The surge of unicorns was reported as "meteoric" for 2021, with $71 billion invested in 340 new companies, a banner year for startups and for the US venture capital industry; the unprecedented number of companies valued at more than $1 billion during 2021 exceeded the sum total of the five previous years.{{cite web |last=Mathur |first=Priyamvada |url=https://pitchbook.com/news/articles/us-unicorns-2021-venture-capital-valuations|title=The meteoric rise of US unicorns in 2021|date=January 6, 2022|website=pitchbook.com |access-date=July 3, 2022}} Six months later, in June 2022, 1,170 total unicorns were reported.{{Cite news |url=https://www.cbinsights.com/research-unicorn-companies |work=CB Insights |access-date=2022-07-04 |language=en |title=The Complete List Of Unicorn Companies}} IPL with $10.9 billion made into decacorn in 2022. The growth of unicorns has slowed more recently with 1248 total unicorns reported in May 2024.

During the mid-2000s, investors and venture capital firms were adopting first-mover advantage and get big fast (GBF) strategies for startups, also known by the neologism, "blitzscaling".{{Cite web|url=https://computerhistory.org/blog/blitzscaling-how-silicon-valley-learned-to-grow/|title=BLITZSCALING: HOW SILICON VALLEY LEARNED TO GROW |last=Hackford|first=Heidi|website=computerhistory.org|date=January 11, 2019|access-date=2022-07-03}} GBF is a strategy where a startup tries to expand at a high rate through large funding rounds and price cutting to gain an advantage on market share and push away rival competitors as fast as possible.Sterman, J. D., Henderson, R., Beinhocker, E. D., & Newman, L. I. (2007). Getting big too fast: Strategic dynamics with increasing returns and bounded rationality. Management Science, 53(4), 683-696. The rapid returns through this strategy seem to be attractive to all parties involved, despite the cautionary note of the dot-com bubble of 2000, as well as a lack of long-term sustainability in value creation of emerging companies of the Internet age.{{Cite journal|url=https://hbr.org/2001/03/strategy-and-the-internet/|title=Strategy and the Internet|last=Porter|first=Michael E.|journal=Harvard Business Review|date=March 2001|volume=79 |issue=3 |pages=62–78, 164 |pmid=11246925 |access-date=2022-07-03}}

Many unicorns were created through buyouts by large public companies. In a low-interest-rate and slow-growth environment, many companies like Apple, Meta, and Google focus on acquisitions instead of focusing on capital expenditures and development of internal investment projects.{{Cite news|url=https://www.forbes.com/sites/neilhowe/2015/03/18/whats-feeding-the-growth-of-the-billion-dollar-unicorn-startups/#5549f1182654|title=What's Feeding The Growth Of The Billion-Dollar 'Unicorn' Startups?|last=Howe|first=Neil|work=Forbes|access-date=2017-03-30}} Some large companies would rather bolster their businesses through buying out established technology and business models rather than creating it themselves.

The average age of a technology company before it goes public is 11 years, as opposed to an average life of 4 years back in 1999.{{Cite news|url=https://www.economist.com/news/briefing/21659722-tech-boom-may-get-bumpy-it-will-not-end-repeat-dotcom-crash-fly|title=To fly, to fall, to fly again|date=2015-07-25|newspaper=The Economist|access-date=2017-03-30|issn=0013-0613}} This new dynamic stems from the increased amount of private capital available to unicorns and the passing of the US's Jumpstart Our Business Startups (JOBS) Act in 2012, which increased by a factor of four the number of shareholders a company can have before it has to disclose its financials publicly. The amount of private capital invested in software companies has increased three-fold from 2013 to 2015.{{Cite web|url=http://www.mckinsey.com/industries/high-tech/our-insights/grow-fast-or-die-slow-why-unicorns-are-staying-private|title=Grow fast or die slow: Why unicorns are staying private|website=McKinsey & Company|language=en|access-date=2017-03-30}}

Through many funding rounds, companies do not need to go through an initial public offering (IPO) to obtain capital or a higher valuation; they can just go back to their investors for more capital. IPOs also run the risk of devaluation of a company if the public market thinks a company is worth less than its investors. A few recent examples of this situation were Square, best known for its mobile payments and financial services business, and Trivago, a popular German hotel search engine, both of which were priced below their initial offer prices by the market.{{Cite news|url=https://www.wsj.com/articles/square-ipo-prices-at-9-a-share-below-11-to-13-range-1447893733|title=Square's $9-a-Share Price Deals Blow to IPO Market|last1=Demos|first1=Telis|date=2015-11-19|work=Wall Street Journal|access-date=2017-03-31|last2=Driebusch|first2=Corrie|issn=0099-9660|url-access=subscription}}{{Cite web|url=https://www.cnbc.com/2016/12/16/trivago-ipo-opens-at-1120-after-pricing-at-11-below-its-expected-range.html|title=Trivago IPO opens at $11.20 after pricing at $11, below its expected range|last=Balakrishnan|first=Anita|date=2016-12-16|website=CNBC|access-date=2017-03-31}}

This was because of the severe over-valuation of both companies in the private market by investors and venture capital firms. The market did not agree with both companies' valuations, and therefore, dropped the price of each stock from their initial IPO range. Investors and startups may choose to avoid an IPO due to increased regulations. Regulations like the Sarbanes–Oxley Act have implemented more stringent regulations following several bankruptcy cases in the U.S. market that many of these companies want to avoid.

Startups have capitalized on the rapid growth of new technology to obtain unicorn status. With the advent of social media and access to millions utilizing this technology to gain massive economies of scale, startups have the ability to expand their business faster than ever.

The valuations that designate start-up companies as unicorns and decacorns differ from established companies. A valuation for an established company stems from past years' performances, while a start-up company's valuation is derived from its growth opportunities and its expected development in the long-term for its potential market.{{Cite web|url=http://www.mckinsey.com/business%20functions/strategy-andcorporate-finance/our-insights/valuing-high-tech-companies|title=Valuing high-tech companies|website=McKinsey & Company|language=en|access-date=2017-03-30}} Valuations for unicorns usually result from funding rounds of large venture capital firms investing in a start-up company. Another significant final valuation of start-ups is when a much larger company buys out a company, giving it that valuation; some examples are Unilever buying Dollar Shave Club and Facebook buying Instagram for $1 billion each, effectively turning Dollar Shave Club and Instagram into unicorns.{{Cite web|url=http://fortune.com/2016/07/19/unilever-buys-dollar-shave-club-for-1-billion/|title=Unilever Buys Dollar Shave Club for $1 Billion|website=Fortune|access-date=2017-03-30}}{{Cite news|url=https://www.wsj.com/articles/SB10001424052702303815404577333840377381670|title=Insta-Rich: $1 Billion for Instagram|last1=Raice|first1=Shayndi|date=2012-04-10|work=Wall Street Journal|access-date=2017-03-30|last2=Ante|first2=Spencer E.|issn=0099-9660}}

Bill Gurley, a partner at venture capital firm Benchmark, predicted in March 2015 and earlier that the rapid increase in the number of unicorns may "have moved into a world that is both speculative and unsustainable", that will leave in its wake what he terms "dead unicorns".{{cite news|year=2015|title=Bill Gurley Sees Silicon Valley on a Dangerous Path |url=https://www.wsj.com/articles/bill-gurley-sees-silicon-valley-on-a-dangerous-path-1445911333 |work=The Wall Street Journal |access-date=26 December 2015 |quote=Subtitle: Subtitle: Venture capitalist says companies hurt themselves by trying to delay going public |author=Winkler, Rolfe |url-access=subscription }}{{cite journal|year=2008|title=Tech: How To Survive Great Depression 2.0 Without Firing Everyone|url=http://www.businessinsider.com/2008/10/benchmark-s-bill-gurley-how-to-survive-depression-without-canning-everyone?op=1|journal=Business Insider|access-date=26 December 2015|quote=It seems every serious venture capital firm has now had a chat with its portfolio companies about how it[']s time to fire people... VC-extraordinaire Bill Gurley's Benchmark has had the same chat with its companies, but Bill tells peHUB that there's actually an alternative to canning half your company: Move to San Jose|author=Blodget, Henry}}{{cite journal|year=2015|title=Bill Gurley Predicts 'Dead Unicorns' in Startup-Land this Year|url=http://fortune.com/2015/03/15/bill-gurley-predicts-dead-unicorns-in-startup-land-this-year/|journal=Fortune|access-date=26 December 2015|quote=Subtitle: A crash would affect more than just startups. ... Bill Gurley, the prominent investor behind Uber and Snapchat, has been sounding the tech bubble alarm for months now. He's preached about the dangerous appetite for risk in the market, the alarmingly high burn rates and the excess of capital sloshing around in Silicon Valley. “There is no fear in Silicon Valley right now,” he said. “A complete absence of fear.” He added that more people are employed by money-losing companies in Silicon Valley than ever before. Will there be a crash? “I do think you’ll see some dead unicorns this year,” he said, using the term used to describe startups with valuations higher than $1 billion.|author=Griffith, Erin}} Also he said that the main reason of unicorns' valuation is the "excessive amount of money" available for them.{{cite journal|year=2018|title=Legendary investor Bill Gurley says that there's a 'systematic problem in Silicon Valley' because it's too easy to get cash|url=http://www.businessinsider.com/bill-gurley-interest-rates-corporate-governance-problem-silicon-valley-2018-2?IR=T|journal=Business Insider|access-date=12 March 2018|quote=There's so much easy money in the tech industry, entrepreneurs can afford not to be accountable to their investors. That "excessive amount of money," he says, can inflate a startup's valuation—even if they don't deserve it.|author=Rob Price}} Similarly, in 2015 William Danoff, who manages the Fidelity Contrafund, said unicorns might be "going to lose a bit of luster" due to their more frequent occurrence and several cases of their stock price being devalued.Reuters (01 December 2015). [https://www.cnbc.com/2015/12/01/fidelity-star-danoff-grows-cautious-about-unicorn-phenomenon.html Fidelity star Danoff grows cautious about unicorn phenomenon], CNBC.com, accessed 31 Jan 2020 Research by Stanford professors published in 2018 suggests that unicorns are overvalued by an average of 48%.{{cite journal|year=2018|title=Squaring Venture Capital Valuations with Reality|journal=Stanford University Working Paper|quote=We develop a valuation model for venture capital-backed companies and apply it to 135 U.S. unicorns—private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find reported unicorn post-money valuations average 48% above fair value, with 13 being more than 100% above.|author=Gornall and Strebulaev|ssrn=2955455}}{{cite journal|year=2017|title=How Valuable Is a Unicorn? Maybe Not as Much as It Claims to Be|url=https://www.nytimes.com/2017/10/16/business/how-valuable-is-a-unicorn-maybe-not-as-much-as-it-claims-to-be.html|journal=New York Times|access-date=11 March 2018|quote=The average unicorn is worth half the headline price tag that is put out after each new valuation.|author=Sorkin, Andrew}}

For high-growth companies looking for the highest valuations possible, it comes down to potential and opportunity. When investors of high-growth companies are deciding on whether they should invest in a company or not, they look for signs of a home run to make exponential returns on their investment along with the right personality that fits the company.MacMillan, I. C., Siegel, R., & Narasimha, P. S. (1985). Criteria used by venture capitalists to evaluate new venture proposals. Journal of Business venturing, 1(1), 119-128. To give such high valuations in funding rounds, venture capital firms have to believe in the vision of both the entrepreneur and the company as a whole. They have to believe the company can evolve from its unstable, uncertain present standing into a company that can generate and sustain moderate growth in the future.

To judge the potential future growth of a company, there needs to be an in-depth analysis of the target market. When a company or investor determines its market size, there are a few steps they need to consider to figure out how large the market really is:{{Cite news|url=https://www.entrepreneur.com/article/270853|title=5 Strategies to Effectively Determine Your Market Size|last=Zhuo|first=Tx|date=2016-03-07|work=Entrepreneur|access-date=2017-03-30|language=en}}

• Defining the sub-segment of the market (no company can target 100% market share, also known as monopolization)
• Top-Down market sizing{{Cite news|url=https://www.b2binternational.com/publications/market-size-techniques/|title=Market Sizing: Is There A Market Size Formula? {{!}} B2B International|work=B2B International|access-date=2017-03-30|language=en-US}}
• Bottom-Up analysis
• Competitor analysis

After the market is reasonably estimated, a financial forecast can be made based on the size of the market and how much a company thinks it can grow in a certain time period.

To properly judge the valuation of a company after the revenue forecast is completed, a forecast of the operating margin, analysis of needed capital investments, and return on invested capital needs to be completed to judge the growth and potential return to investors of a company. Assumptions of where a company can grow to needs to be realistic, especially when trying to get venture capital firms to give the valuation a company wants. Venture capitalists know the payout on their investment will not be realized for another five to ten years, and they want to make sure from the start that financial forecasts are realistic.

With the financial forecasts set, investors need to know what the company should be valued in the present day. This is where more established valuation methods become more relevant. This includes the three most common valuation methods:{{Cite web|url=http://www.venturevaluation.com/en/methodology/valuation-methods|title=Valuation methods {{!}} Venture Valuation|website=www.venturevaluation.com|language=en|access-date=2017-03-30}}

• Discounted cash flow analysis
• Market comparable method
• Comparable transactions

Investors can derive a final valuation from these methods and the amount of capital they offer for a percentage of equity within a company becomes the final valuation for a startup. Competitor financials and past transactions also play an important part when providing a basis for valuing a startup and finding a correct valuation for these companies.

The sharing economy, also known as "collaborative consumption" or "on-demand economy", is based on the concept of sharing personal resources. This trend of sharing resources has made three of the top five largest unicorns (Uber, DiDi, and Airbnb) become the most valuable startups in the world. The economic trends of the 2010s powered consumers to learn to be more conservative with spending and the sharing economy reflected this.{{Cite news|url=https://www.forbes.com/sites/mnewlands/2015/07/17/the-sharing-economy-why-it-works-and-how-to-join/#441c1bfe58e1|title=The Sharing Economy: Why it Works and How to Join|last=Newlands|first=Murray|work=Forbes|date=July 17, 2015|access-date=March 31, 2017}}

E-commerce and the innovation of the online marketplace have been slowly taking over the needs for physical locations of store brands. A prime example of this is the decline of malls within the United States, the sales of which declined from $87.46 billion in 2005 to $60.65 billion in 2015.{{Cite news|url=https://www.forbes.com/sites/trangho/2016/12/04/how-to-profit-from-the-death-of-malls-in-america/#6a5bfbd261cf|archive-url=https://web.archive.org/web/20161204223409/http://www.forbes.com/sites/trangho/2016/12/04/how-to-profit-from-the-death-of-malls-in-america/#6a5bfbd261cf|url-status=dead|archive-date=December 4, 2016|title=How To Profit From The Death Of Malls In America|last=Ho|first=Ky Trang|work=Forbes|access-date=2017-03-31}} The emergence of e-commerce companies like Amazon and Alibaba (both unicorns before they went public) has decreased the need for physical locations to buy consumer goods. Many large corporations have seen this trend for a while and have tried to adapt to the e-commerce trend. Walmart in 2016 bought Jet.com, an American e-commerce company, for $3.3 billion to try to adapt to consumer preferences.{{Cite news|url=https://www.wsj.com/articles/wal-mart-to-acquire-jet-com-for-3-3-billion-in-cash-stock-1470659763|title=Wal-Mart to Acquire Jet.com for $3.3 Billion in Cash, Stock|last=Nassauer|first=Sarah|date=2016-08-08|work=Wall Street Journal|access-date=2017-03-31|issn=0099-9660}}

In support of the sharing economy, unicorns and successful startups have built an operating model defined as "network orchestrators".{{Cite news|url=http://zinnov.com/blog/rise-of-the-unicorns/|title=Rise of the Unicorns|date=2015-08-27|work=Zinnov Thoughts|access-date=2017-04-01|language=en-US}} In this business model, there is a network of peers creating value through interaction and sharing. Network orchestrators may sell products/services, collaborate, share reviews, and build relations through their businesses. Examples of network orchestrators include all sharing economy companies, companies that let consumers share information, and peer-to-peer or business-to-person selling platforms.

The following is a list by Dutch research company dealroom:{{Cite web |date=2023-03-29 |title=Tel Aviv has the fifth most unicorn companies in the world |url=https://www.calcalistech.com/ctechnews/article/rylraozb2 |access-date=2024-06-13 |website=ctech |language=en}}Dealroom, 2023 https://dealroom.co/uploaded/2024/03/Tel-Aviv-2024-report-2.pdf?x90202

File:Tel Aviv Aerial 01.jpg center]]

Unicorns per 1 million people:

File:Bay Area by Sentinel-2, 2019-03-11 (small version).jpg, USA]]

A minicorn is a startup with a valuation that exceeds $1 million. These are startups post product-market fit and with substantial revenue growth.{{cite web | title=Minicorns to Hectocorns: the Stages of Startup | website=ITEL Learning Systems | date=2023-03-30 | url=https://itel.com.sg/minicorns-to-hectocorns-the-stages-of-startup/ | access-date=2024-01-06}}

A soonicorn is a startup that is growing quickly and has the potential to reach $1 billion valuation in the near future.{{cite web | last=Nayyar | first=Trisha | title=Here’s Everything You Need To Know About A Soonicorn | website=Inc42 Media | date=2023-07-28 | url=https://inc42.com/glossary/soonincorn/ | access-date=2024-01-06}}{{cite web | title=Definition of Soonicorn | website=Collins Dictionary | date=2024-01-06 | url=https://www.collinsdictionary.com/submission/23595/soonicorn | access-date=2024-01-06}}{{cite web | title=The 2022 European Unicorn & Soonicorn Report | url=https://europeanunicornmap.com/wp-content/uploads/2022/04/The-2022-European-Unicorn-Soonicorn-Report-by-i5invest-i5growth-v1.2.pdf | access-date=2024-01-06| archive-url=https://web.archive.org/web/20240106165232/https://europeanunicornmap.com/wp-content/uploads/2022/04/The-2022-European-Unicorn-Soonicorn-Report-by-i5invest-i5growth-v1.2.pdf| archive-date=2024-01-06}}

A decacorn is a startup with a valuation above $10 billion.{{cite web | title=Startup Valuations: What are Minicorns, Soonicorns, Unicorns, Decacorns, and Hectocorns | website=Tech News 180 | date=2023-03-14 | url=https://technews180.com/what-are-minicorns-soonicorns-unicorns-decacorns-and-hectocorns/ | access-date=2024-01-06}}

A hectocorn is a rare term, typically used to describe startups with a valuation above $100 billion.{{cite web | last=Kothari | first=Maitry | title=Apart from unicorn, what are the different ‘corns’ of the startup world? | website=DNA India | date=2023-09-26 | url=https://www.dnaindia.com/explainer/report-apart-from-unicorn-what-are-the-different-corns-of-the-startup-world-minicorn-soonicorn-decacorn-hectocorn-3062102 | access-date=2024-01-06}}

Like unicorn, camel is a term commonly used to describe startups.{{cite web | last=Lazarow | first=Alex | title=Forget Unicorns. Startups Should Be Camels. | website=Entrepreneur | date=2020-04-07 | url=https://www.entrepreneur.com/growing-a-business/forget-unicorns-startups-should-be-camels/347659 | access-date=2023-12-28}}{{cite web | last=Lazarow | first=Alex | title=Startups, It’s Time to Think Like Camels | website=Harvard Business Review | date=2020-10-16 | url=https://hbr.org/2020/10/startups-its-time-to-think-like-camels-not-unicorns | access-date=2023-12-28}} The term refers to companies that can survive unfavourable conditions with minimal resource expenditure.{{cite web | title=Unicorns är ute – nu letar riskkapitalet efter kameler | website=Realtid | date=2023-09-29 | url=https://www.realtid.se/startupexperten-unicorns-ar-ute-nu-letar-riskkapitalet-efter-kameler/ | language=sv | access-date=2023-12-28}}{{cite web | title=Build a Camel Startup | website=Toronto Metropolitan University | date=2023-10-02 | url=https://dmz.torontomu.ca/camel/ | access-date=2023-12-28}}{{cite web | last=Shamia | first=Gadi | title=Startups Should Forget Aspiring To Be Unicorns—Be Camels Instead | website=Forbes | date=2022-11-08 | url=https://www.forbes.com/sites/forbestechcouncil/2022/11/08/startups-should-forget-aspiring-to-be-unicorns-be-camels-instead/?sh=53587e742057 | access-date=2023-12-28}}{{cite web | last=Snobar | first=Abdullah | title=Council Post: 2023 Is The Year Of Camel Startups | website=Forbes | date=2023-02-21 | url=https://www.forbes.com/sites/forbestechcouncil/2023/02/21/2023-is-the-year-of-camel-startups/ | access-date=2023-12-28}}

The categorization of startups as unicorns has been subject to criticism. For example, an economic policy focused on enabling more unicorns, as the European Union is striving to do,{{Cite web|url= https://eur-lex.europa.eu/resource.html?uri=cellar:12e835e2-81af-11eb-9ac9-01aa75ed71a1.0001.02/DOC_1&format=PDF |website=European Commission |title = 2030 Digital Compass: the European Way for the Digital Decade |language=en|access-date=2022-12-12}} threatens to lose sight of other societally desirable forms of entrepreneurship.{{ Cite journal |last1=Kuckertz|first1=Andreas|last2=Scheu|first2=Maximilian|last3=Davidsson |first3=Per|date=2023|title= Chasing mythical creatures – A (not-so-sympathetic) critique of entrepreneurship's obsession with unicorn startups | journal= Journal of Business Venturing Insights |volume=19 |issue = Article e00365|pages=e00365 | doi=10.1016/j.jbvi.2022.e00365 |s2cid=254432203 |doi-access=free }}

• List of unicorn startup companies
• List of venture capital firms
• First-mover advantage
• Unicorn bubble
• Venture capital financing

{{reflist|}}

• {{Cite web |title=The Complete List of Unicorn Companies |url=http://www.cbinsights.com/research-unicorn-companies |website=CB Insights}}

Category:2010s neologisms

Category:Valuation (finance)