|The world is going to need a bigger unicorn stable soon!
The market seems to be throwing up many records in 2021, with one of the best examples being the growing number of companies achieving unicorn status, or in other words, privately owned (that is, unlisted) startup companies valued at over US$1 billion.
As their namesake suggests, unicorn companies aren’t meant to be a commonality. The truth is, most startups don’t succeed. But, according to CB Insights, there are now 771 unicorns, with 1.18 new unicorns now minted every day (by June 2021, there were already 69% more new unicorns than in the whole of 2020).
Behind the phenomenon is Venture Capitalists, who, despite multi-billion operating losses (not always but in many cases), are willing to put their risk capital to use in these growth dreams. It is, of course, all about the future cash flows these companies will be able to generate and not so much about the profits or losses they make today.
While we may leave it to our fund managers to decide which companies have the strategy and balance sheets worth investing in, we are not blind to these unicorns’ critical role.
- Innovation – Profitable or not, disruptive business models and technologies often challenge traditional corporations, ultimately forcing them to innovate in order to stay relevant.
- Lifestyle – Unicorns are often responsible for providing consumers with access to cheaper services. Think cheap streaming, food delivered to our door and marketplaces such as Airbnb. The lifestyles we lead today could not have been afforded by previous generations (which begs the question… if we are paying too little for services, who is funding the difference?).
- Early investors – Some investors that get in early may be able to sell their stakes at a positive return. By the same token, when the mass market comes to the realisation that many of these unicorns won’t ever become profitable, existing investors will bear the losses. Rule of thumb, if you’re hearing noise about an exciting new startup, chances are you’re already too late…