Unicorn: What It Means in Investing, With Examples

In the language of venture capital, a unicorn refers to a privately held startup company with a valuation exceeding $1 billion. These companies, often found in technology and other sectors requiring massive capital to bring products to market, have included household names like Airbnb Inc. (ABNB).

What Are Unicorns?

Venture capitalist Aileen Lee popularized the term in the early 2010s. "I used the word 'unicorn' because it is ... kind of magical, that takes some alchemy, some great timing—a lot of things have to come together. It’s not easy," she had said. "The vast majority of companies that are venture-funded and [have] people who are super smart and have great intentions and build great products, they don’t actually reach that level of valuation. It’s a pretty hard thing to do."

These privately held startups are said to defy traditional growth metrics, leveraging supposed "cutting-edge" or "paradigm-shifting" advances to achieve rapid market penetration and exponential growth. Yet, despite Lee's intentions, the term's prominence in the past decade has often highlighted something less magical than fantastical about many billion-dollar firms whose values were based more on hype—and occasionally outright fraud—than fundamentals and traditional risk analysis. Their rarity during the low interest rates of the late 2010s and even as rates rose in the 2020s has also been less than the name for a mythic creature might suggest: CB Insights puts the number of such firms worldwide at about 1,200 in 2024, while Crunchbase lists over 1,400 the same year.

Below, we explore what it means for a company to achieve unicorn status, providing examples of notable unicorns that have either soared to new heights or fumbled as investors and sometimes regulators got a closer look at their books. We'll also review the broader implications of unicorns for investors, regulators, and the global economy.

Understanding Unicorns

A unicorn means a privately owned startup valued at over $1 billion. To become a unicorn, companies must have an idea that appears innovative and marketable, have a clear vision for growth, and a viable way to pitch all this to venture capitalists and private investors.

Aileen Lee, founder of Palo Alto-based Cowboy Ventures, a seed-stage venture capital fund, coined the term. Reviewing software startups founded in the 2000s, she estimated that only 0.07% ever reached a $1 billion valuation. According to Lee, startups that reach this mark are so rare that finding one is as difficult as finding a mythical unicorn. She also argued that the first unicorns weren't the formed-in-a-garage tech firms of the 1970s or the even earlier private venture firms of the 1950s but first arrived in the 1990s. Alphabet Inc. (GOOG)—then Google—she noted, was the clear super-unicorn of the group, earning the moniker with a valuation of more than $100 billion. Many unicorns arrived in the 2000s, though Meta Platforms (META), formerly Facebook, is the decade's only super-unicorn. Other more popular unicorns based in the U.S. include home-sharing giant Airbnb and fintech companies Robinhood and SoFi Technologies Inc. (SOFI).

There are several options that unicorns have for their exit from startup status:

• Remaining private: Founders who want to retain control tend to keep their unicorns private. But this limits the potential for growth. And they have to find ways to give funders a return on their investments.
• Going public: Companies can access the capital they need to grow with an initial public offering (IPO). Some unicorn executives may be slow to take their companies public because it means diluting ownership.
• Appealing to a buyer: Company owners and executives can achieve their goals quicker than if they remain private or go public.
  

Unicorn Valuations

The value of unicorns is generally based on how investors and venture capitalists feel they will grow and develop, which comes down to longer-term forecasting. This means their valuations have nothing to do with their financial performance. In fact, many of these companies rarely generate any profits when they first get running—and never do in the end.

Investors and capitalists may come across some hurdles, though. If there are no other competitors in the industry—making the startup a first of its kind—there may be no other business model with which to compare, making it a somewhat complicated process.

Unicorns and Venture Investing

Since the publication of Lee's article, the word unicorn has become widely used to refer to startups in the technology, mobile technology, and information technology sectors—usually at the intersection of all three—with very high valuations not necessarily supported by their fundamental finances.

Benchmark Capital partner Bill Gurley has been a famous critic of the term, arguing that "late-stage investors [are] desperately afraid of missing out on acquiring shareholding positions in possible 'unicorn' companies" and "have essentially abandoned their traditional risk analysis."

Whether the technology sector's unicorns are just newer forms of hyper-valuations seen in previous eras, such as the dot-com bubble of the late 1990s. "The Customer-Funded Business" author John Mullins has argued that the increase in the number of new companies valued above $1 billion is a clear sign of froth in markets.

Others argue that the large number of companies with high valuations reflects a new wave of technologically driven productivity, like the invention of the printing press nearly 600 years ago, is the analogy often used. Still, others suggest that globalization and the monetary policy of central banks created great waves of capital sloshing around the globe on a hunt for unicorns since the Great Recession, which was only catapulted by essentially interest-free money in the late 1990s/early 2020s.

Examples of Unicorns

Far from being merely mythological creatures, unicorns are a regular feature in business and finance. In fact, there are more than 1,200 unicorns around the world, perhaps more than 1,400, as of mid-2024. Collectively, they are valued at over $3,888 billion.

Some familiar U.S.-based unicorns include Uber, Airbnb, SpaceX, Palantir Technologies Inc. (PLTR), WeWork, and Pinterest Inc. (PINS). China claims some unicorns as well, including Didi Chuxing, Xiaomi, China Internet Plus Holding (Meituan Dianping), and Lu.com.

Here are other unicorns worth reviewing:

Nuro

One hot unicorn startup is Nuro, an autonomous vehicle delivery company that was founded by two engineers from Waymo, which is Google's self-driving car project. Founded in 2016, Nuro became a unicorn startup after receiving a $940 million investment from SoftBank Group, which put the company's valuation at $2.7 billion.

Nuro found its own space in the autonomous vehicle industry, focusing on zero-emissions local delivery vehicles. Since then, Nuro has grown and acquired other startups including Ike Robotics. The company is now actively testing and operating fully driverless models in California and Texas. In March 2022, Nuro hit a valuation of $8.6 billion, the last data publicly available.

Instacart

Grocery delivery app Instacart was another unicorn with over $2.7 billion in funding. The company was founded in San Francisco in 2012 and delivers from local stores including Whole Foods, Safeway, Jewel-Osco, Costco, and Harris Teeter.

In March 2022, the company slashed its $39 billion valuation by nearly 40% to about $24 billion. The move was motivated by market conditions and the need to appeal to a better labor pool. The much-anticipated IPO finally came on Sept. 19, 2023. Shares were valued at $30 each, then popped 43% to a high of $42.95, only to close at $33.70. Although the company had a target valuation of $9.3 billion in September 2023, its market cap was about $8.75 billion in June 2024.

Unicorns in Human Resources

The term isn't just exclusive to the world of startups. In fact, it is also a common word used to describe a recruitment phenomenon within human resources. HR managers may have high expectations to fill a position, leading them to look for candidates with higher qualifications required for a specific job. In essence, they seek unicorns, which creates a huge disconnect between their ideal candidate and those in the pool of people available.

For example, a medium-sized firm might want to recruit someone with marketing experience, social media, writing, sales, and management experience. They may also seek someone who speaks three different languages. While it may be cost-effective to hire one person with all those skills rather than multiple employees handling the separate tasks, it's often the case that those people aren't available, and if they are, the budget for the position may not allow for their hire in any case.

The Bottom line

Unicorns are startups whose valuations exceed $1 billion. Companies that reach unicorn status are usually financed by venture capitalists as major innovators, and many end up going public through an IPO. The company's high valuation doesn't derive from financial performance but is based on investor sentiment about the company's growth prospects. Since unicorns aren't publicly traded companies, retail investors must wait until their shares are made available to the pubic through an IPO to invest in them.