1. Rebirth of the Unicorn

Rebirth of the Unicorn

Globally, more than 120 start-ups have crossed the $1-billion valuation

By: | Published: September 11, 2015 12:09 AM

Most of us have heard of the Unicorn, which is a horse like creature with a long pointed horn. We are seeing the rebirth of the Unicorn in a different form in the corporate world. The new definition of the Unicorn is a startup which has achieved a valuation of $1 billion.

There are an estimated 120 Unicorns in the world, most of which are in the US (about 70+), followed by China (20+).

India has seen some unicorns springing up, too (10+). In a sense the CIA axis (China India and America) is dominating the world of Unicorns. The US is clearly the leader with the total valuation of all its unicorns crossing $3 trillion. Some of the globally well-known Unicorns are taxi service company Uber (the first to cross $50 billion valuation), accommodation company Airbnb, Snapchat, the messaging app, and Indian ones like Flipkart, Snapdeal, Inmobi, Musigma, Paytm, Zomato, Ola etc.

All these Unicorns have some common traits:
* They are all very young and have become ubiquitous and global in a very short time.
* The speed at which they become Unicorns or the time-to-the first billion value is fast reducing.
* They are all funded by a clutch of venture capitalists
* Investors in these have a FOMO (Fear of Missing Out) and hence keep piling cash into the companies.
* These are almost becoming an oligopoly of a few branded investors.
* All these companies are built using network effects and linked to the growth of the internet and mobile.
* Most of these remain private, so the larger world has only a limited idea of their financial performance and goals.
* All of these aim to become monopolies in their respective spheres of operation.
* Most of these constitute second or third attempts of the founders.
* Regulators and tax officials are trying to grapple with their business models and face challenges in regulating and taxing them.
* Traditionally companies created significant value post-listing but these companies are creating value before listing.

Hence they are attracting all varieties of investors. This may have implications for stock markets as a whole, going forward.

What does it take to build a Unicorn today
* Have an idea to resolve a problem for the consumer.
* Attract a strong team with relevant skills.
* Flesh out the idea into a business opportunity, preferably global.
* Create a solution using technology, ideally the mobile phone.
* Ensure there are significant network effects to help propagate the solution.
* Get some branded angel investors to back it.
* Create a prototype and field test it locally and iron out operating issues.
* Reach out to the VC community with a pitch and convince them.
* Get VC funding (this is getting tough, as VCs see a few hundred ideas in a year.)
* You have become a mini-unicorn.
* Now offer stock options and attract the best and brightest people.
* Now work on scaling up the business, build the brand, propagate the solution and invest aggressively without giving a thought to profitability. The idea is to be first-to-market and build scale, so that you are the first or a good target for another company. So, for now, capital is free.

There are clearly criticisms against the Unicorn culture, if one may say so. The major one is that it is only paper valuation, since very few of these are listed. The next is that these are not capital efficient; they guzzle money in search of growth and scale.

In a sense many of these companies are disruptors and are disrupting traditional markets, be it of taxi drivers, innkeepers or kirana and retailers, and are breaking the regulatory or physical barriers to enter into these markets.

One can argue that they are essentially aggregating these and making serious money for a few people while disrupting the lives of several others. All these companies employ very few people but do create some level of secondary jobs. It is important that policy makers study this and examine if we will end up with even more wealth concentration and fewer jobs.

The author is partner, India leadership team, Grant Thornton India. Views are personal and the author has relied on public sources for some of the facts.

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