Part I: Unicorns rising
Coined in 2013, the term ‘unicorn’ is used to refer to a private venture capital-backed firm valued at over $1 billion.
According to US private equity firm CB Insights, there are currently 986 unicorn companies worldwide with a cumulative valuation of about $3,240 billion.
The most recent addition to this global list – added January 25, 2022 – is Indian Cloud-based Human Resources Management software firm, Darwinbox from Hyderabad.
As of January 2021, India has emerged as the third highest in the world in terms of the number of unicorns headquartered there.
Between 2016 and June 2021, PricewaterhouseCoopers (PwC) found that as many as 869 firms reached the $1 billion valuation mark with about 80% of the world’s unicorns headquartered in either the US or China. This, compared to the roughly 14 companies that became unicorns between 2005 and 2010, as per Crunchbase reports.
PwC findings from a recent venture capital research report found that payment-based unicorn start-ups raise close to $12 billion in venture capital through the first six months of 2021 – almost twice the amount raised by the group in 2020, and over three times the 2019 total. This surge in fintech investment, according to them:
“..is one example of the unprecedented amount of capital flowing into unicorns, which are in turn scaling at a never-before-seen rate. Unicorns have often achieved their status because they staked out solid positions in markets that are scaling rapidly or that have the potential to scale rapidly in the near future—and they are actively changing consumer behaviour in areas such as payments, electric vehicles, the metaverse, delivery, and telehealth.”
Much of today’s record-high funds are now being invested in industrial tech, health tech, fintech, media, entertainment and digital commerce. Of these, fintech has evolved to become the largest global destination for pre-IPO capital. “Tech is now influencing so many verticals that the investments and business processes in those verticals are evolving and beginning to blur industry lines.”
As a result of the significant private capital now available to venture-backed start-ups, the timing and strategy behind IPOs – the historic channel through which firms have picked up public funding and seen valuations touch incredible heights – is now getting affected. Unicorns have now started picking up incredibly large sums in funding within the early stages itself.
According to PwC: “the growth in pre-IPO financing has led to an increase in IPO funding, and as a result, average unicorn IPO proceeds have nearly quadrupled since 2016, from $234 million to $1 billion.” Also, notably, of over the thousand companies that achieved unicorn status between 2016 and June of last year, only about 28% have exited through IPOs, M&As, SPAC, or simply, going out of business.
Traditional tech isn’t standing still either. Between the same time period, over a hundred tech unicorns specialising in machine learning, artificial intelligence (AI), robotic process automation and data analytics were born into the world. While in the US most are trying to leverage AI to improve performance, automate operations and gain greater data insights, most Chinese AI firms concentrate on aspects like facial recognition or computer vision.
Almost alarmingly, cybersecurity unicorns seem to have become rarer, with only about $10 billion going to 41 cyber companies during the same time period that enterprise and consumer tech picked up close to $100 billion in investments.
Read about the major trends in the venture capital industry and how unicorns today are competing in the digital economy in Part II.