Does it seem like everything in business is moving faster these days? Once upon a time, unicorns were rare, but today they seem to be everywhere. Or at least, companies seem to reach unicorn status much more quickly than they once did. Has the race to a billion really changed that much over the past few years?
It often feels like companies announce their first release to the market only to wake up the next day with a billion-dollar valuation. Or is this just the impression we are getting? And, if it is true, what exactly is it based on – are we talking about good old-fashioned financial analysis, or is something else at play?
So, let’s try to find our way through the hype.
What is a unicorn?
It all started with Cowboy Ventures’ founder, Aileen Lee, who coined the phrase with specific reference to US-based companies valued at over USD 1bn when less than a decade old. That was how unicorns were originally assessed. At that time, fewer than 40 companies fitted the new title. Over time, the phrase broadened its meaning, which may be why it seems so ubiquitous today. Now, a unicorn can be anywhere in the world, and it’s estimated that as of December 2024, there were more than 1,200 of them.
What’s driving this surge – are these companies built on solid financials, or are valuations being fuelled by other things, whether it’s hype or charismatic headline-grabbing founders, or just an increasingly risk-tolerant investment environment?
The fastest of the fastest
This is where we run into a problem. If you pick a handful of unicorns and then look at different sources, you’ll find a wild variety of supposed timeframes for reaching the magic number. For example, one source reports that in 2012 the fintech company Avant took just over one month to reach unicorn status, surely one of the fastest in history. But another source puts the timeframe at three years – a considerable difference. In 2015, the US shopping site Jet.com was supposedly the fastest-to-unicorn status company at that time, reaching its USD 1bn valuation four months after the company was founded. But you will certainly find other examples which seem to refute that claim.
It’s worth digging under the headlines, because not all unicorns are world-famous companies. A company named Desktop Metal, which prints 3D metal, reached unicorn status in one year and nine months, the cancer detection startup Grail took the same length of time, while smartphone maker Essential took a couple of months longer at one year and 11 months. None of these companies are household names, but their rise is remarkable.
The rise of the instant unicorn
Last year, the website Visual Capitalist ranked the top ten unicorns. It defined a unicorn as a privately held startup (not listed on public stock exchanges), backed by venture capital, and with a valuation of USD 1bn. At the top were big names like ByteDance (owner of TikTok), followed by SpaceX and OpenAI. The latter is a good example of an ‘overnight’ unicorn, perhaps less to do with the offering it had at that time and more about the overall disruption AI was clearly going to bring in. Meanwhile, Threads launched with the power of Meta behind it, capitalising on widespread uncertainty about the future of Twitter (X). Interestingly, the clothing brand Shein made an appearance in the top ten unicorns list, as did enterprise tech firm Databrick and the much-used graphic design app Canva.
What’s driving these massive valuations?
So, what’s behind this explosion of unicorns, and why are they often reaching such huge valuations so quickly? A few key factors stand out that are worth considering.
- Founder hype and the ‘cult of personality’: Elon Musk, Jeff Bezos, Sam Altman – these names alone can drive the perception of a company’s value. We see them almost daily in news headlines, and in some cases they are almost more famous than the companies they head up. So, if Elon Musk announced a new venture tomorrow, it would likely attract billions of dollars in funding long before a product was released. Due to the current cult of the CEO, whoever is leading the company plays a big role in how quickly a company can reach an enormous market value.
- Industry hype and fear of missing out: The tech industry, in particular, thrives on hype. There seems to be a new gold rush every few years, whether it’s the AI boom, the cryptocurrency frenzy, or the electric vehicle (EV) revolution – all have seen companies hit billion-dollar valuations based on future potential rather than immediate revenue. The problem is these companies can collapse just as quickly. During the crypto craze, companies like FTX reached astronomical valuations only to fall apart when reality failed to meet expectations. Looking further back, we find echoes of this in the bursting of the dot-com bubble. It’s not that a Bezos-backed startup shouldn’t achieve a near-instant USD 1 billion valuation, but the presence of such a famous name can be a significant factor in the potential for overvaluation.
- Access to capital: Venture capital firms and sovereign wealth funds have more money to deploy than ever before – some investors are looking for high-growth opportunities and are willing to take bigger risks.
- The power of scale: A company that can capture millions of users instantly, like Threads or TikTok, can justify enormous valuations simply by the scale of its reach. A product can be instantly global, creating a sizable potential market. So, even if monetisation isn’t immediate, the sheer volume of users makes long-term profitability inevitable and attracts investors who are willing to take a piece of the pie and wait patiently for monetisation to come at a later point.
Are these valuations justified?
This is the big question. Some companies, like payments giant Stripe or SpaceX, have such strong business models and revenue streams to support their unicorn status that they are more than justified. Others, like fast-fashion e-commerce giant Shein, passed the billion-dollar mark thanks to aggressive market strategies and supply chain efficiencies rather than traditional profit metrics. But others are clearly riding the wave of speculation, and the big challenge for investors is how to distinguish between sustainable growth and just overinflated hype.
Because, as history has shown, what goes up can just as easily come crashing down.
The future of unicorns
Will unicorns continue to thrive, or is a market correction coming? Much depends on interest rates and the overall investment climate, and if this slows, we may see a corresponding slowdown in billion-dollar valuations. But as long as innovation continues and investors chase the next big thing, the race to a billion isn’t stopping anytime soon.