7 Surprising Facts about Unicorn Companies?
Data Analysis of the Worlds Biggest Private Companies
Once upon a time, when a company reached a billion-dollar valuation, the event was so rare that a special term was needed. The exceptional company was called a “unicorn”. Now in 2019, a list of global unicorns contains over 400 such firms. Clearly these mythical creatures are not as magical as they once were.
The Complete List of Unicorn Countries
A unicorn startup or unicorn company is a private company with a valuation over $1 billion. As of January 2019, there…
Still, there is much that we can learn from these extraordinary animals. By combining the CBInsight unicorn list with data from Crunchbase, I was able to see a few trends among these companies. Below I present data on global unicorns as well as some reasons for why they have proliferated so wildly.
1 — Unicorns Can Be Worth Way More than a Billion Dollars
The following chart shows the top 20 unicorns by private market valuation.
As you can see, these companies stretch the “startup” connotation that we typically associate with unicorns. In fact, 22 firms globally are valued at over 10 Billion US dollars. Even if these valuations are exaggerated, this is still a tremendous amount of money to be held outside public stock markets.
However, you might notice that at least one company on this list is likely worth a lot less than its putative valuation. Embattled WeWork has recently scrapped its IPO, even after cutting its price in half. Along with Juul, and Didi Chuxing, WeWork is a poster child for this mega unicorn trend. The above three companies have the following things in common:
- Non-traditional, capital-intensive business models
- Large infusions of cash from non-VC sources (ie Softbank and Altria)
- Legal risks associated with market disruption.
In a world of near-zero interest rates, large pools of capital have merged with technology and new businesses models. Only time will tell if the lofty promises implied by these staggering valuations can be kept post-IPO.
2 — Most Unicorns Live in the United States and China
As the waffle plot below shows, the vast majority of unicorn companies are founded either in the United States or China.
This isn’t so surprising. If private companies are a microcosm of the global economy, then we would expect the distribution of unicorn companies to closely match that of global GDP. The bar charts below show both unicorn valuation and GDP per country.
Both plots highlight the same winners and follow the same power-law pattern. The USA and China are at the top of the world, followed by a long tail of other countries. Of course, when it comes to start-ups, India, Israel, the UK and South Korea, are much better represented than countries with similar GDPs. This may be a good sign for the dynamism of these economies. In contrast, Japan is conspicuously under-represented.
3— The SF Bay Area Dominates Unicorn Valuation
The power-law pattern of unicorns distribution also holds for regions within the United States. By this measure of success, The San Francisco Bay Area vastly exceeds all other US regions. In total there are 104 unicorns headquartered in the San Francisco Bay Area with a combined valuation of over 355 billion dollars. No wonder San Francisco houses are so expensive.
As seen below, the tech-heavy nature of these companies means that the Bay Area outcompetes New York, LA, Chicago, Boston, and Texas cities.
Unicorn companies may be a leading indicator of economic success. After all, the Bay Area has the highest growth rate in the nation.
Another important illustration in these graphs is the inequality that exists among regions. The nature of power-law means that the same networks that create unicorns, also exacerbate inequality. This will have an interesting ripple effect. The US coasts already dominate economic development and Democratic voting. What will happen when even more wealth flows there?
4 — Most Unicorns are Some Flavor of “Tech” Company
If we focus on the industries of unicorn companies, it might seem hard to spot any particular patterns. The below plot shows unicorn distribution by industry.
Looking more closely, it’s clear that the top industries are all some variant of what journalists call “Tech”. The leading industries here are ‘fin-tech’, ‘internet software’, ‘e-commerce’, and ‘AI’.
Looking even more deeply at the non-technical industries, we still see some relevance to the ‘tech’ sector. In ‘Health’, companies like Roivant Sciences, use machine learning and new technologies to accelerate drug development. In ‘Logistics’, companies like DoorDash leverage the explosion of mobile phones, freelance drivers, and the internet to enable direct-to-consumer food delivery. In “Automotive”, most unicorns are really self-driving car companies that leverage AI. Finally, in retail, multiple companies rely on new marketing and distribution channels that have only recently been enabled by the internet.
The “Tech”-heavy nature of these companies can be best seen by making a word-cloud of unicorn company descriptions. You can see the most common terms used below.
We see ‘services’, ‘mobile’, ‘technology’, ‘data’, ‘machine learning’, etc. Other trends are visible too. Words like ‘China’, ‘delivery’, ‘shopping’, and ‘financial’. Finally, the most import word in this plot is “platform”. Nothing scales better than a company that can tax an entire ecosystem.
5 — Unicorn Companies Vary in Age
Some have argued that the explosion of unicorn companies is due to the failure of public markets. According to them, the reporting requirements of public companies are so onerous, that firms end up staying private longer than they used to.
While there is undoubtedly merit to this claim, the data shows that unicorn companies are not really that old. Below is a histogram of the ages of global unicorn companies.
As we can see, most businesses are only 4–10 years old and likely headed for an IPO. The outliers are older companies that seem content to stay private. These include both Supreme and Epic Games — two firms that spent a long time growing slowly, which have only recently seen wild growth.
Unicorn Age by Country
The criticisms against US public markets can also be tested by doing a country-based analysis. Histograms for unicorn age in the United States and China are shown below.
And below are plots showing the amount of time it took both US and Chinese companies to hit unicorn status.
From these plots, we see that the median age of a US unicorn is 8 years. In contrast, the median age of a Chinese unicorn is only 6 years. This seems to support the idea that the US IPO market is less healthy than the Chinese one.
However, this result is more likely a function of Chinese companies growing faster. The median time it takes a Chinese unicorn to hit a one billion dollar valuation is 4 years. For US companies, the median time to unicorn status is 6 years.
Overall the average number of years it takes a global company to get to 3 commas is 6.94 years
After noticing that Chinese firms seem to grow faster, I thought it would be interesting to see which companies grow the fastest. To do this, I divided a company’s valuation by its age. Plotting the top companies by this valuation-to-age metric, it is again clear that Chinese businesses are among the fastest-growing. In contrast, the top US companies (Juul and WeWork) are examples of how US companies can sometimes let valuation get ahead of business fundamentals.
6 — A Few Companies Dominate Unicorn Fundraising
The examples of WeWork and Juul are instructive in terms of fundraising as well as growth. These firms have tremendous valuations, but they also raised amazing amounts of capital.
Plotting a histogram of the funds raised by global unicorns, we see a few of these extreme outliers.
While most unicorns have raised a few hundred million dollars, a handful of companies have raised billions. These companies tend not to be traditional tech companies. Besides Juul and WeWork, we have Airbnb and a bunch of ride-sharing firms (Grab, Didi, Ola). All of these businesses have high capital requirements. Most of them are also funded by SoftBank.
The median amount of money raised by a unicorn turns out to be 382 million USD. Most of this comes in later funding rounds. These rounds are generally led by large institutional investors and tend to dominate the average return of these companies. If we divide the median valuation of these unicorns by the median of funds raised, we get a ratio of 4.15. This means that later funding rounds imply about a 4x return. The overall returns of these institutional investors is likely much lower, due to the sampling bias of this dataset.
Nevertheless, some of these businesses have had great returns. A plot of the best unicorn investments (valuation to funding) is shown below.
The overrepresentation of Chinese companies may be due to missing Chinese data on Crunchbase. Chinese companies tend to rely on convertible debt financing, which may not make it into these statistics.
7 — Softbank is the New Giant of Unicorn Investing
As we alluded to earlier, there is one name that comes up again and again in unicorn financing — ‘Softbank’. With their Vision Fund, this company has invested over a $100Bs and has a combined 271 Billion Dollars in unicorn company valuations. Whether these returns manifest post- IPO is an open question.
Future economists will one day puzzle over “unicorn” companies. They will have to explain the explosion of these massive private companies and the conditions that created them. A few key themes will emerge. Unicorns were driven by new technological and business advancements. They were made possible by giant pools of private money searching for yield. They carried inherent risk, but could also generate staggering returns. Finally, they were a microcosm of global economic development, with China and the United States (particularly the SF Bay Area) leading the way. When the history books are written, these trends will have shaped the entire world.
Bonus — Most Unicorn Companies Start with the Letter ‘S’
I thought it would be fun to see if there was any trend in the naming of US unicorns. A long time ago, the letter ‘A’ was overrepresented — the better to show up in yellow pages and early search engines.
Among present-day companies, we see a good spread of popular English letters like ‘S’, ‘T’, ‘R’, and ‘M’. We also see a bunch of ‘D’ companies, 3 of which have the word ‘data’ in them. Similarly, there are many ‘I’ companies. 4 of these follow the Apple pattern of putting ‘i’ before a word (iCarbonX, Icertis, iFood, Ivalua) and 11 of which start with “In” (eg Infi, Infinidat, InMobi, Instacart, Intellifusion, InVision etc).
More surprising is the proliferation of ‘C’ companies (eg Calm, Canva, Carbon, Casper, etc). Two of these have “cloud” in the name, but that’s not enough to explain the ‘C’ trend. It seems that like baby names and fashion styles, popular company names shift over time.