Unicorns are mythical business creatures – majestically grazing in the land of plenty (of opportunity). They represent the term for a start-up company that has achieved a stunning valuation in excess of $1B and most importantly, has done so within a seriously short and exponentially accelerated time frame. Very often Unicorns roam with only a morsel of revenue banked, but a conversely substantial spend and a whizzy Algorithm or two. Exclude Xiaomi from this comment about lack of revenue, for they achieved $12B in revenue last year through 37 million smartphone sales! This unicorn is ranked second behind Uber in its valuation and is only 5 years old. Staggering indeed.
As every investor, mentor, guru and analyst who hangs about in “Tech” will tell you – valuation is based on trajectory, people, product and the all powerful word of wonder weight – Scalability. When will you go global? How is that Competitive Moat looking? User acquisition numbers, what sign up pace, what demographic buy in, what mass appeal? What’s the underpinning CAC??? Unicorns need metrics and plenty of them… Are rivals starting to move in with far more cash, scrappiness and voracious appetite? Probably…
Look around – The payment gateway sector is a very busy playground right now and yet Unicorns like Klarna, Stripe, Powa, Square are all worth over the fabled $B mark and have achieved that in a time frame of under 5 years, in what is becoming a crowded market.
Uber is the T-Rex of the Unicorns – Grrrr, Taxi!! – $51B valuation through sheet market optimism, a slick app and beautiful styling, as opposed to a clear and tangible validation. Profits and Revenue numbers are harder to come by than adverse press seems to be for that top of the table Unicorn… But, the big 5 Unicorns are worth $160 Billion between them – Uber, Xiaomi, Airbnb, Palantir, Snapchat… (Snapchat had $0 revenue in 2013 and yet boasted a valuation tag of $10B). The list beyond the top 5 includes other loss making giant start-ups like Docusign and Slack, that play in an environment where HOT companies at the moment are the payment gateways like Mozido, Transferwise, Stripe and i-Zettle. Finding and filling gaps and creating space for the Loan and financing model companies like SoFi (student loan), Jumubox and Funding Circle means there is money in money again. The good Unicorns are nourishing our needs of having the ability to manage life from the phone and these are the areas that provide the extensive opportunities within Tech. 10 years and I fear that A “wallet” and “cash” may be kept in a box in the attic, along with “photo albums” and “paperbacks”…
Interestingly the Unicorns are geographically diverse, although certainly dot (com) the landscape prominently in San Francisco’s Silicon Valley – We still have interlopers at the watering hole – Xero (accounting software) is the anomaly hailing from New Zealand, Adyen the online processor for payments used by Airbnb is head quartered in Holland. A number of Unicorns hail from Mumbai, Beijing or Stockholm?? (Spotify and others). Its a global gathering, but as someone who works in start-ups, in Tech, in London its exceptionally rewarding to see the credibility of growth in such a powerful and hot sector is happening so majestically in the English Capital. It’s a much needed tonic since London suffered a loss of Bankable credibility during the implosion brought about by the Financial crisis. feel As a sector it is further endorsed this week as Activision purchased Candy Crush maker – King, for over $6B!
BUT – Can the valuation of any businesses potential continue to grow with such aggression, that is heavily valuing user numbers way beyond the substance of the actual product? In 1999, before the Bubble burst – there were 457 U.S. IPO’s and these were mostly in the land of Tech. Since 2000 the number has risen steadily to break 275 last year. Proceeds from IPOs are around the same mark as they were in the year before the crash and the CEO of Slack (a Unicorn of majesty) recently told the global listener that all was well – neighhhh, surely not. A vested and invested interest if ever there was one… But, maybe the fact that we know a storm is coming will allow the market to reflect and correct, baton down the stable and hatches and maybe we know enough to prevent another senseless pop. But as long as the Unicorns continue to grow in numbers – it seems we have a bubble in the virtual cloud and something needs to happen in order to rebalance to equilibrium…