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Unicorns: golden nuggets in the tech world

11/04/2015 10:27
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131 tech startups combined are worth more than Google. Uber and Airbnb top the list of unicorns.

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Aileen Lee chose the term unicorns, a mythical animal invented by ancient poets featuring the body of a horse and a single horn in the center of its forehead, to describe tech companies that have secured a valuation of at least 1 billion dollars in some stage of their fundraising. The founder of Cowboy Ventures conducted a study in 2013 that revealed that just 0.1% of companies reached said figure. This led her to coin the oneiric term for such companies, which represent true golden nuggets. Her aim was to describe the startups that have been worth one billion dollars over the last 10 years.

“The term romanticizes techno-companies: takes them from the remote and unintelligible to the magical and even lovable", Lee told International Business Times when discussing the genesis of the name. The term gained traction unusually fast after appearing in an article posted on TechCrunch. Aileen Lee coined the term to define "the winner among the winners". The startup that everyone wants to invest in. When she published her post “Welcome to the unicorn club”, within just a few short hours the new term had already been picked up by analysts and investors, while hundreds of people began using the name in the offices and corridors of Silicon Valley.

Another bubble?

Unicorns in the United States have one thing in common. They may be helping to inflate another bubble. Not a stock market bubble, as seen in the 2000s, but private investors channeling large sums of money into such companies have caused valuations swell disproportionately to the profits that they generate. Uber, Twitter, SNAPCHAT, Airbnb and Pinterest are hot property, just as their predecessors were during the ​Internet bubble. Bear in mind that new startups have proliferated because they require less money and physical and human resources to get underway.

An article by Forbes entitled Tech unicorns, the next market bubble? examines “The vertiginous race to fund these tech startups, which poses serious concerns regarding their viability and is reviving fears of another bubble that may be ready to burst, just like the dotcom bubble 15 years ago, which caused the Nasdaq, the leading tech index, to lose 78% value in just two years”.

According to Forbes the value of unicorns is inflated, but that doesn't mean a bubble is being created: Are unicorns overvalued? Yes. “Investments in such companies are speculative, in the sense that there is considerable uncertainty regarding how they will perform going forward", says Aleksi Aaltonen, Assistant Professor of Information Systems at Warwick Business School in the UK.

So are we seeing a new bubble? Not necessarily. The specialist and founder of the Moves app believes "investors have plenty of experience valuing tech enterprises, and if any fail to live up to standards they are far less likely to bring down the entire industry".

Another article, What bubble? The unicorn boom is just getting started, agrees: “The presence of so many unicorns is not necessarily a sign of increased risk. High growth companies are replacing market flotations with private capital. And why not? There is abundant cash and remaining a private company avoids the headache of an IPO and having to render accounts to shareholders every quarter".

Bubble or not, one thing is for sure; unicorns are conquering the market. There are now 140 unicorns in the world compared to 75 at the end of last year. Most of them are in the United States, but every week another appears in China or India. And the "best of the best" at present according to CB Insights, is Uber. 

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