The term ‘unicorn’ fascinated us as a child as we read about this mythological creature resembling a horse with a single horn on its forehead possessing magical abilities in our books.
Today, it is something every start-up aspires to be. We always talk about unicorn start-ups like Uber, Airbnb, Paytm, Snapdeal and others, but little do we discuss what the term ‘unicorn start-up’ actually means and why are startups given this title.
In the most simple terms, a start-up is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market. Furthermore, a start-up that reaches the valuation of $1 billion is referred to as a unicorn start-up.
How was the term ‘Unicorn’ coined?
The unicorn craze was kicked off in 2013 by Aileen Lee, a venture entrepreneur and Founder of CowboyVC—a seed-stage investment fund based in Palo Alto, California.
While writing an article for an American online newspaper, TechCrunch, Lee wanted to understand how probable it is to find and fund promising startups. She conducted research and discovered that only 0.07% of venture-backed businesses were evaluated at more than $1 billion.
She wanted a word that would capture the essence of this group of tech startups (39 start-ups) that carried valuations over $1billion which gave rise to the term ‘unicorn start-up’.
It is important to mention here that the term ‘unicorn’ was limited to tech start-ups back then. However, there has been an evolution of hundreds of unicorns across the world in different sectors which no more limits the term to tech space.
Idea behind the name
The idea behind the term was simple. First one being the rarity of such start-ups. Unicorns are rare success stories. A billion-dollar company doesn’t happen every day. There are thousands of start-ups in tech every year, and only a handful wind up becoming a unicorn company.
The second one was the aspiration and disruption. Most unicorn start-ups disrupt the market with major innovation, or tap into a new market with a different idea or product. Uber changed the way people book cabs, Airbnb capitalised on the sharing economy, Snapchat disrupted the social networking sphere, etc.
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The unicorn craze was kicked off in 2013 by Aileen Lee, a venture entrepreneur and Founder of CowboyVC—a seed-stage investment fund based in Palo Alto, California.
Logic behind the $1 billion threshold to become a ‘Unicorn’
According to Lee, there’s a strong psychological difference in perception of a company when it reaches the unicorn status. She believes that one billion is better than $800 million because it’s the psychological threshold for potential customers, employees, and the press.
Today, every other start-up is racing to become the next unicorn. The entry into the unicorn club not only validates a start-up’s business model by giving it the much-desired stamp of success, but also underlines its value proposition in the eyes of investors. A unicorn’s brand grows in both visibility and operational outlay, which leads directly to greater business opportunities for the organisation.
