'Unicorns': what are they, why are they called that, and why are there so many?
With Europe's fintech "unicorns" reportedly about to welcome another newcomer - digital bank Monzo - to their ranks, we take a look at what exactly millennials' favourite mythical beast has to do with finance...
They seem to be having a bit of a moment, leading the New Statesman’s Hannah Rose Woods to declare we have reached “Peak Unicorn” in this very good piece last year.
“There is a strong current of Nineties nostalgia that blends the ironic celebration of childhood kitsch with wilful self-infantilisation,” she wrote.
Millennials like unicorn hair, unicorn cakes, unicorn clothes, and as I was horrified to discover, there’s a Starbucks “Unicorn Frappuccino” (that can’t be right). I have to admit, I’m not a massive fan of the abundance of unicorn paraphernalia. My Little Pony wasn’t my idea of fun as a kid either.
But, having read her piece, I do completely agree with Hannah that there is an element of knowingness in “countering the rising tide of global hate and uncertainty with a pretend sparkly magic horse”. I might even start to like them.
But back to finance, what do unicorns have to do with finance? Why do they keep being mentioned in the business pages?
What’s a fintech ‘unicorn’?
So, unicorns are all the rage with start-ups and in certain investor circles too. There’s no getting away from them!
In the finance world, a unicorn is a privately held start-up valued at more than ONE BILLION DOLLARS. That’s about £785 million.
A company’s value is measured by its market capitalisation – the total value of all the company’s shares.
Many unicorns are financial technology, or fintech, start-ups - a multi-billion dollar industry. Fintechs are essentially businesses focused on using tech to help people manage their money – getting loans, buying goods or investing, for example.
The UK is officially the tech unicorn capital of Europe, according to analysis by Dealroom and Tech Nation. In June, they claimed the UK was home to 37% of Europe’s total unicorn companies and those 13 had a combined value of $23 billion.
The UK companies named in the research were: medical start-up BenevolentAI, augmented reality start-up Blippar, cyber security business Darktrace, delivery firm Deliveroo, online fashion business Farfetch, peer-to-peer lender Funding Circle, cancer drug start-up Immunocore, virtual reality start-up Improbable, challenger bank OakNorth, biological analysis firm Oxford Nanopore, fintech challenger Revolut, e-commerce firm The Hut Group, and international transfer business TransferWise.
Since then it has been reported this month that Monzo, the digital challenger bank, looks set to become a unicorn.
Why are they called unicorns?
The first mention of the term “unicorn” was made by venture capitalist Aileen Lee in 2013 in a piece about the statistical rarity of a one billion dollar start-up.
The founder of Cowboy Ventures, a fund that backs internet entrepreneurs, wrote for TechCrunch.com about 39 members of what she called the “Unicorn Club”.
Lee said: “It’s really hard, and highly unlikely, to build or invest in a billion dollar company. The tech news may make it seem like there’s a winner being born every minute – but the reality is, the odds are somewhere between catching a foul ball at an Major League Baseball game and being struck by lightning in one’s lifetime”.
As Lee claimed, funds do not need to back billion-dollar companies to succeed. It just seems the world’s a bit obsessed with the soaring valuations of young tech start-ups.
Which are the unicorn companies and why are there so many?
Proof enough that unicorns aren’t rare anymore is the fact that people even refer to a “herd of unicorns” or a “blessing of unicorns”.
How many unicorns are there today? CB Insights is keeping an ongoing list of unicorn companies valued at $1billion or more with its unicorn tracker here. At the time of publishing, it had 260 companies on it. This year 53 companies have joined the global “Unicorn Club” so far. Last year 70 firms joined, an increase of more than 60% on 2016, according to the database.
Tech start-ups are being valued higher and faster than before. Part of the reason is a huge increase in capital from venture investors, hedge funds and mutual funds.
As Jason Rowley explains on TechCrunch.com: “There was a time not so long ago when nine-figure venture capital rounds weren’t a near-daily feature of tech business news.
But now funding rounds of $100 million or more cross the wires with stunning frequency. The era of supergiant rounds is now the new normal.”
According to Keith Wright, writing for CNBC, in 1999 the average life of a tech company before it went public was four years, while today it is 11. Companies are staying private for longer.
What other terms has the start-up world got up its sleeve?
Lee also referred to Facebook (now public) as the “super-unicorn of the decade”, a “super-unicorn” being a company worth more than $100billion.
But there’s also the “decacons” (companies valued at more than $10 billion) and “dead unicorns” (billion-dollar valued companies that have stalled). I’ve also seen a $100 billion company referred to as a “hectocorn”.
Marc Benioff, founder and chief executive of cloud computing company Salesforce, predicted “there are going to be a lot of dead unicorns” at the World Economic Forum in Davos in 2015.
He is not alone in questioning whether the unicorn trend can last.
Read more: App of the week: Revolut (4 stars)
Read more: App of the week: Monzo (5 stars)