Unicorns
Chapter Twenty-One
Syllabus topic 3, "Meaning and concepts of Business Start-ups & UNICORNS"
Pages 49 to 50 of 62
The definition
A unicorn is a privately held start-up whose valuation has reached one billion United States dollars.
Three elements, and all three are needed:
Privately held. Once the company lists on a stock exchange it stops being called a unicorn, whatever it is worth.
A start-up, so a young company, not an established business that happens to be private.
A valuation of one billion dollars or more, and the word is valuation, not turnover, not profit and not assets.
Where the word comes from
It was coined in 2013 by Aileen Lee, an American venture investor, in an article about the rarity of such companies. The point of the name was that they were as rare as the mythical animal. At the time she counted a few dozen in the United States; there are now hundreds worldwide and more than a hundred in India, so the metaphor has worn out and the word has stuck.
The family of words
The vocabulary is asked, and it is a straightforward ladder.
| Word | Valuation |
|---|---|
| Minicorn | 1 million dollars and above |
| Soonicorn | Under a billion but expected to reach it, a "soon to be unicorn" |
| Unicorn | 1 billion dollars |
| Decacorn | 10 billion dollars |
| Hectocorn, also called a super unicorn | 100 billion dollars |
Minicorn and soonicorn are the two the Indian ecosystem uses most, because the Start-up India initiative tracks companies on their way up.
How the valuation is arrived at
This is the part most answers miss, and it is the part a commerce student should be able to explain.
A unicorn's valuation is not a market price. It is the figure implied by the most recent funding round.
An investor puts in Rs. X for a Y per cent stake. The post-money valuation is Rs. X divided by Y per cent. If an investor pays Rs. 500 crore for 5 per cent, the company is valued at Rs. 10,000 crore, and the pre-money valuation is Rs. 9,500 crore.
Three cautions follow, and an answer that gives them is a better answer.
One investor sets it. The figure comes from a negotiation between the company and one fund, not from a market of many buyers and sellers.
The last round may be stale. A valuation set eighteen months ago may bear no relation to what the company is worth today, and the word "unicorn" is used long after the round.
Preference terms distort it. An investor's shares usually carry a liquidation preference, so in a sale he is paid first. A company "valued" at a billion dollars may be worth far less to its ordinary shareholders, because the preferred shareholders take the first slice.
A company whose next round is at a lower valuation is said to have taken a down round, and it stops being a unicorn.
The rest of this chapter
Module one is free. The rest of this chapter comes with the B.Com. (Accountancy) Semester 1 notes.
You are reading a chapter from a later module. Everything in module one of every subject stays free, and so does the syllabus.
Notes: ₹499 Already bought it? Sign in
Free either way: the syllabus, and module one of every subject.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.