Unicorn Investment

A privately owned startup firm with a valuation of over $1 billion is referred to as a “unicorn” in the venture capital sector. Aileen Lee, the founder of Cowboy Ventures, a seed-stage venture capital firm located in Palo Alto, California, was the first to coin the word. Aileen Lee, a venture capitalist, created the phrase in 2013.

As of March 2022, there are over 1,000 unicorn enterprises throughout the world.

The existence of unicorns is a contentious topic. While some experts feel that unicorns are just a product of technological advancement and innovation, others argue that the growing number of unicorns is a symptom of an industry bubble.

 

Valuation of Unicorns

The value of unicorns is based on valuations created by venture capitalists and investors who took part in the company’s fundraising rounds. Because unicorns are all startups, their worth is essentially determined by their potential for growth and predicted development. The value of unicorns is unrelated to their actual financial performance or other essential information. Many of the firms have yet to make any profits, despite their excessively high valuations.

 

Unicorns are valued abnormally high for a variety of reasons.

The following factors are sometimes used to justify abnormal valuations:

  1. A plan for rapid expansion

For the development of a business, venture investors nowadays largely rely on fast-growth methods. Such methods promote significant sums of money to be invested in each round of funding in order to gain as much market share as feasible as quickly as possible, as well as to avoid the formation of major competitors in the marketplace. As a result, the value of a unicorn firm rises with each round of funding. 

  1. Purchases

Many potential firms are currently unable to achieve the standards for an IPO. Instead, internet behemoths like Facebook and Google buy a slew of startups to diversify their portfolios and thwart the emergence of big competitors.

Large corporations gain from the agreements since they may purchase existing technology rather than having to construct something identical from the ground up. The fierce rivalry among the IT behemoths prompts them to offer a considerable premium, inflating the value of target firms and resulting in the creation of unicorns.

  1. New ideas

Technology advancements enable firms to develop more quickly. Unicorn firms are able to reach their consumers faster and reduce the time it takes to reach mass production by utilizing innovative technology.

For the year 2021, India has been ranked as the third-best country for hosting unicorn enterprises. With 33 unicorn firms, India has pushed the United Kingdom out of third place, where just 15 unicorns were created in the same year. In 2021, the United States added 254 unicorns, while China added 74 unicorns, bringing the total number of unicorns to 487 and 301, respectively.

In 2021, Indian companies were expected to collect $42 billion in investment across 1,584 deals. Over 6 lakh job possibilities have been created in India’s startup ecosystem, which has seen over 60,000 new firms launched across 56 different industries since 2016. President Ram Nath Kovind made a specific note of this in his Presidential speech on January 31, 2022, when he stressed the new potential that India’s entrepreneurs are bringing in.

Leave a Reply

Your email address will not be published.

Scroll to top