Unicorn

The term is mainly used to refer to innovative, fast-growing companies, often in the technology, software, fintech, healthcare, or digital sectors.

The designation of "unicorn" is based on a valuation achieved during a private funding round. It does not necessarily mean that the company is profitable or publicly traded, but rather that investors consider it to have significant growth potential.

Today, unicorns play a central role in the world of venture capital, growth equity, and, more broadly, private equity.

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Where does the term "unicorn" come from?

The term was popularized in 2013 by American investor Aileen Lee, founder of Cowboy Ventures.

At the time, private companies valued at over a billion dollars were rare, much like the mythological creature from which they take their name. The term was intended to highlight the exceptional nature of these companies.

With the rise of private markets and technology investments, the number of unicorns has surged worldwide, although they remain a minority among private equity-backed companies.

How does a company become a unicorn?

A company typically achieves unicorn status during a funding round.

When an investor agrees to invest in a company based on a valuation of over one billion dollars, that company is then classified as a unicorn.

This valuation is based on several criteria:

• Revenue growth;
• The size of the addressable market;
• The potential for international expansion;
• The technology or innovation developed;
• The quality of the management team;
• Profitability outlook.

The valuation therefore reflects investors' expectations at a given point in time.

Unicorns and Valuation: Beware of Common Misconceptions

The term "unicorn" is often associated with economic success, but it is important to distinguish between several concepts.

Valuation is not the same as revenue

A company valued at $1 billion does not necessarily generate $1 billion in revenue.

A valuation is no guarantee of success

Growth prospects may change, and the market value of certain companies may rise or fall over time.

A unicorn isn't necessarily profitable

Many fast-growing companies prioritize investment and business expansion over the pursuit of sustainable profitability.

What role do unicorns play in private equity?

Unicorns often represent the most iconic companies in the private market ecosystem.

Venture Capital

Early-stage investors typically get involved in the earliest stages of development.

Growth Equity

Growth equity funds often support companies once they have reached a significant size and are looking to accelerate their expansion.

Initial public offering or sale

Some unicorns then go public or are acquired through strategic deals.

The journey of a unicorn thus illustrates the various stages of financing innovative companies.

The different types of unicorns

As the technology ecosystem has evolved, new terms have emerged.

Unicorn

A privately held company valued at over $1 billion.

Decacorne

A privately held company valued at over ten billion dollars.

Hectocorne

A privately held company valued at over $100 billion.

These categories are still primarily used in the technology and digital sectors.

Some examples of unicorns

Companies that have achieved unicorn status include:

• Bigpanda;
• Databricks;
• EcoVadis;
• PayFit;
• Qonto.

These companies operate in a variety of sectors but generally share strong growth and potential for international expansion.

The risks associated with investing in unicorns

High-growth companies may offer significant growth potential but also present specific risks.

Valuation risk

High valuations are often based on assumptions about future growth.

Execution risk

Success depends on the company's ability to implement its development plan.

Market risk

Changes in the economic or competitive environment can affect a company’s growth.

For this reason, investors generally diversify their investments rather than concentrating their exposure on a single company.

The History of Unicorns

2013: the term first appeared

Aileen Lee popularized the term “unicorn” to refer to the rare startups valued at over a billion dollars.

The 2010s: Acceleration of the Trend

The growth of private markets and technology investments is leading to a significant increase in the number of unicorns worldwide.

Today

Unicorns are a major component of the global venture capital and growth equity ecosystem.

FAQ

What is a unicorn in finance?

A unicorn is a privately held company valued at over $1 billion in a private funding round.

Is a unicorn company necessarily profitable?

No. Unicorn status is based on a company’s valuation, not on its profitability.

Do all unicorns end up on the stock market?

No. Some go public, while others are acquired by industrial groups or financial investors.

Disclaimer: Investing involves the risk of capital loss. Past performance is not indicative of future results. The information presented in this article is intended solely for educational and informational purposes. It does not constitute investment advice or a recommendation to buy or sell any financial instrument.

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