Unicorns: What Are They and How to Find Them?

In one of our previous blog posts, we briefly explained what unicorns are: startups valued at over $1 billion. In this publication, we will delve deeper into the types of unicorns and share tips on how investors can identify future unicorns.

The History of the Term

The creator of the term "unicorn" is venture capitalist Aileen Lee, a partner at Cowboy Ventures. She coined the term in 2013, believing that unicorns, often associated with something rare and magical even in fairy tales, were the perfect metaphor for the small percentage of startups that "survive" to reach such a high valuation.

I used the word 'unicorn' because it is ... kind of magical, that takes some alchemy, some great timing—a lot of things have to come together. It’s not easy

Aileen Lee

Venture capitalist Source.

When the term was first introduced, such companies were indeed rare. However, over the past decade, their numbers have grown significantly. As of mid-2024, there are more than 1,200 unicorns worldwide, perhaps even over 1,400.

Why Do Unicorns Attract Investors?

1. High Growth Potential

Unicorn companies often operate in fast-growing industries like technology, artificial intelligence, biotechnology, or fintech. Their valuations reflect investors' expectations for future revenue growth and market dominance.

2. Innovation

Most unicorns offer unique products or services that have the potential to disrupt entire industries. For example, Uber revolutionized the taxi industry, while Airbnb transformed the travel sector.

3. IPO Attractiveness

For many investors, acquiring shares in a unicorn represents a chance to be at the forefront of technological innovation and the potential to profit from a future public offering.

Examples of Successful Unicorns

Some unicorns have grown into global giants that reshaped their industries:

• SpaceX — A private aerospace company revolutionizing space exploration. One of the companies in our portfolio. Learn more here.
• Rubrik — An international vendor of data management solutions. Another company in our portfolio. More about it here.
• Neuralink — A private company developing brain implants for people with paralysis. Also part of Raison’s portfolio. Read more here.

How to Identify a Promising Unicorn?

Investors should focus on the following aspects:

• Team
  A strong team of founders and managers is a key indicator of a company’s potential for success.

• Market
  A large and rapidly growing market offers more opportunities for scaling.

• Product
  A unique product or service that addresses a critical consumer problem is a hallmark of a promising unicorn.

When searching for a potential unicorn company, you can use the following strategies:

1. Utilize Databases
   There are databases where you can find key information about private companies, such as financial performance, funding history, and founders.

2. Networking
   Attend events for investors and entrepreneurs, and join niche communities. Networking can be a valuable source of information about potential unicorns.

3. Social Media
   Social media platforms like X (formerly Twitter), LinkedIn, and Facebook can be great tools for both identifying and staying up-to-date on the latest news about startups. Follow industry influencers, venture capitalists, and other investors to learn about new companies and trends that are drawing significant attention in the industry.

Valuing a Unicorn

Many startups in scientific or tech-driven fields do not generate profits in their early years. Therefore, evaluating unicorns based on financial performance is often unproductive. Instead, investors rely on long-term forecasts and projections of the startup's future growth and development.

Conclusion

Unicorns remain one of the most discussed topics in the investment world. They symbolize innovation, ambition, and tremendous growth potential. However, investors must remain mindful of the risks and carefully analyze companies before committing funds. A balanced portfolio and a measured approach to selecting investment targets can help minimize risks and achieve success.

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