Fitting Label, Yet Unicorns Are No Myth


Aileen Lee tried a few lesser terms before she hit on “unicorn.” One was “home run.” Another was “megahits.” Neither quite worked for what she was going for – an unusual, mysterious word to describe what, in the tech industry, was an unusual, mysterious phenomenon: US software companies that had achieved a valuation of at least $1 billion (roughly Rs. 6,344 crores).

It was the fall of 2013, and Lee, a longtime venture capitalist, had recently started her own firm, Cowboy Ventures. Lee’s team had conducted a study of the startup market over the previous decade, and she was preparing to publish the findings in an article for TechCrunch, an online publication.

But she was stuck on nomenclature. While Silicon Valley had been trying to separate tech winners from losers for decades, it had never really coined a name for the kind of startups the industry most treasured.

“What’s the word to describe the thing that all of us are trying to do,” Lee recalled in a recent interview, “which is to found or work for or invest in a company that is the winner of all winners?”

Then the word came to her: unicorn. “It felt right,” she said. “Readable and fun and not a word that had been used before to describe this.”

Use of the term exploded immediately. Lee’s article – which carried the headline “Welcome to the Unicorn Club: Learning From Billion-Dollar Startups” – was published early on a Saturday morning, and it quickly generated a blizzard of tweets and blog posts from tech investors and founders, with many of them adopting the word.

Within weeks, “unicorn” had entered the Silicon Valley vernacular. It helped that the huge amounts of money pouring into tech startups at the time were creating more and more billion-dollar firms, giving everyone new opportunities to use the word. And they did: On the cover of Fortune, in just about every article about a new funding round and in boardrooms across the tech industry.

Today, there is no shorthand that better encapsulates both the justified and overheated optimism in the Valley. The word has also become quite useful in explaining what is going on in the venture capital business.

Although the term is sometimes criticized as yet more meaningless jargon from an industry already overstuffed with it, much of the allure comes from its precise meaning – “1 billion dollars!” Practically everyone in the industry can agree on 1 billion dollars as a benchmark for startups that have achieved breakout levels of success.

In a recent presentation, Andreessen Horowitz, one of the industry’s top venture firms, explained that one of the biggest differences between the current tech boom and the boom of the 1990s was a new surge in private financing for “late-stage” companies. Or, as the presentation put it: “The unicorn hunt is a big difference.”

And yet “unicorn” also suggests both the ambition and the absurdity inherent in the tech industry today – the idea that connecting the right bits and bytes might result in magical, mythical beasts.

One reason that Silicon Valley is simultaneously mocked and idolized is that people in the industry spend most of their days looking for corporate impossibilities. Companies like Uber and Airbnb may have seemed like the greatest of long shots initially, and yet now they may become genuine global successes.

Despite the wide usage of the term she coined, Lee has received curiously little credit. Cowboy Ventures is rarely mentioned in connection with unicorns – neither for the word nor for the analysis that crystallized the concept.

On its website, the firm has posted a short “Unicorn Handling Guide” asking people who use the term to credit the firm. It even offers specific guidance for doing so: “Include a reference and link to Cowboy Ventures or our post in TechCrunch (or hyperlink the text ‘Cowboy Ventures’) within the text of the paragraph where Unicorn or The Unicorn Club are first referenced,” it suggests.

“Yeah, I think it’s nice if people credit us,” Lee said, defending the guide. “Obviously, a lot of people haven’t.” Then she added, “But you know, you can’t get too upset about it.”

Over time, criticism of the term and concept have grown. One of the more recent criticisms is that the term describes a situation that is no longer very unusual.

In 2013, when Lee made her initial analysis, she found 39 US companies valued at $1 billion during the previous decade. Today, Lee said her firm counts around twice that many. And according to the research firm CB Insights, which counts unicorns across the globe, there are now 117 such firms.

The growth is even more pronounced when you consider that Lee looked at privately held and public companies, while today’s unicorn-counters tend to count only private companies valued at $1 billion or more.

That may raise the question: If unicorns are so common now, shouldn’t we come up with a better word, or a more selective definition?

Lee doesn’t think so. Her fund invests in companies at the “seed stage” – two- or three-person firms just getting off the ground. “I work with tiny companies, so I don’t really live in unicorn world, to be honest,” she said.

For many of those founders, the idea of approaching anything close to a $1 billion valuation seems like wishful thinking.

“I know that it may seem like it’s easy, but it’s not easy at all,” Lee said. “Relative to all the startups out there, getting a valuation of $1 billion is rarely accomplished.” According to CB Insights, only about 1 percent of tech startups can expect to turn into unicorns.

“There are so many people who try so hard and have such big dreams, and it doesn’t happen for them,” Lee said. “Or it may happen, and then it goes away. It’s not just hard to get there, but it’s hard to stay there.”


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