What Makes Unicorn Startups So Special?

Andrew Deen  |

When you think of a unicorn, your first thought probably runs to a mythical white horse with a horn—but in the business world, the word takes on another meaning. Unicorn startups have nothing to do with equines or fairy tales, but they do have mythical qualities: they’re privately held, venture-backed companies that are valued at more than $1 billion. Though unicorns aren’t a new phenomenon, the rise of Silicon Valley (101 of the 229 unicorns in 2016 were headquartered in California) and the new tech boom have caused more of them to pop up than ever. In fact, Silicon Valley consultancy firm Play Bigger showed that modern startups are growing around 2x faster than they were 10 years ago. But what makes unicorns special? What makes them stand out from all the other startups out there?

The Rise of New Industries

Some of the most visible unicorns are taking part in a new industry—an industry that is almost a new economy. The “sharing economy” allows people to trade and sell goods and services—think Uber ridesharing and Airbnb vacation rentals. The rise of big data has allowed these companies to match users with others who can provide them with the service they need—cutting out a taxi company, hotel, or middleman. By becoming early adopters in the sharing economy, these unicorn companies are blazing new trails and have little to no competition—making their growth rapid. Another growing industry that is helping some companies become unicorns is the IoT (Internet of Things)—one of the next frontiers for technology. Investors are pouring money into these companies in the hopes that they will become the leading players in this exciting industry that’s developing rapidly.

Analytics

The majority of businesses in the United States have realized the value in big data, and many are trying to leverage that data to make better business decisions. New tech companies have the advantage of starting with powerful data at their fingertips, while older companies often have to build an analytics team from the ground up. Big data, combined with executives’ experience, can make for a potent combination, leading to faster growth.

Digital Marketing and “Going Viral”

Part of the reason that there have been more companies reaching the coveted unicorn status has been the rise of digital marketing and social media. If a post takes off with something that resonates for people, it can get a company a lot of free or cheap attention in just hours. Global engagement can take place at lightning speed when a company’s product or service goes viral—which can lead to explosive growth.

Inflated Valuations

Though unicorns are undoubtedly special, there’s also a lot of inflation that has gone on in valuations over the last few years. Without an IPO, venture capital firms assign a valuation to a company that may not be accurate. While this can be exciting at first, it can lead to trouble down the road when more accurate figures become available and valuation stagnates or decreases.

The Right Place, The Right Time, The Right Investors, the Right Founders

As with most things in life, the success of unicorn startups is dependent on a number of different factors. It isn’t one kind of “secret sauce” that makes a new company race to the top of the pack. It’s the combination of the right product/business model coming into the market at the right time, combined with the right founders and investors. Though the stereotype of the typical founder is a twenty-something male, it’s actually more common for successful unicorn founders to be educated, in their 30s, working with a partner they’ve worked with in the past.

You might look at Facebook and think it’s a wonder of the business world, but in addition to the hard work and good ideas involved, it took a little bit of creativity and a little bit of luck to turn the platform into one of the most impressive unicorns in the world. 2015 was a big year for unicorns, but with investors becoming more cautious as time goes on, the rate of unicorn companies may slow down—but probably never cease.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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