The number of startups valued at more than $1 billion has quadrupled over the past two years, to almost 160. But the prospects of dozens of them have already been called into question. RBC studied three big stories The Rise and Fall of Unicorns
Non-public technology companies whose value, according to investors, exceeds $1 billion, are called “unicorns,” a formulation proposed by the founder of the venture capital fund Cowboy Ventures, Eileen Lee, back in 2013. Like mythical creatures, billion-dollar startups are a real rarity; finding them and investing in them is akin to a miracle, Li explained then. Three years ago, there were only 39 “unicorns” in the world, Fortune magazine calculated. However, in subsequent years, the “population” grew sharply - to 156 projects, and their total valuation exceeded $550 billion, the Financial Times newspaper cited data from the consulting company CB Insights in May 2016.
The current stars of the technology business - Amazon and Google - carried out IPOs without waiting for investors to increase their value to $1 billion; now they are already worth $329 billion and $485 billion, respectively. At the same time, for many startups of the latest wave, the title of “unicorn” has become an end in itself. “This is a psychologically important bar. “$1 billion is better than $800 million—in the eyes of clients, employees, and the press,” admitted Stuart Butterfield, founder and CEO of the corporate chat service Slack, who in 2015 raised $200 million from a group of investors while valuing the entire business at $3.8 billion, in an interview with Fortune. .
As a result, the speed with which startups are gaining value “on paper” has revived talk of a bubble in the technology market with renewed vigor. In 2015, Bill Gurley, an influential investor and partner of the Benchmark fund, spoke about the threat of the “unicorn invasion” on the Above the Crowd website. In his opinion, in pursuit of the next big thing (translated as “the next big thing”), investors do not audit startups well enough, and they, in turn, either deliberately manipulate financial indicators and hide the lack of an effective business model, or they themselves do not fully understand the economics of their business. Investors who have already rushed to invest in overvalued companies are spiraling down others, inflating the bubble, Gurley noted.
The skeptics' predictions began to come true. In 2015, several technology market leaders were faced with a revaluation of their own value and the threat of business restructuring. For example, the Fidelity fund reduced the valuation of the photo messenger Snapchat, which by that time had reached $16 billion, by a quarter, and the file sharing service Dropbox by 20%, from $10 billion to $8 billion. CB Insights analysts have already counted 58 “unicorns” that have stopped growing or lost in investment value based on the results of 2015.
Commission on securities and US exchanges (SEC) and other regulators are also sounding the alarm. The valuations of virtually all unicorns are “highly subjective,” SEC Chairman Mary Jo White said during a speech at Stanford Law School in March 2016. According to her, investors themselves created these risks by paying insufficient attention to asset valuation.
RBC studied the stories of three companies that had to survive a rapid rise and an even more rapid fall.
Theranos: the tale of the new Jobs
In 2003, 19-year-old Elizabeth Holmes dropped out of her prestigious studies at Stanford and launched Theranos with the money she saved. The startup offered the market a unique technology - a blood test by taking just one drop and obtaining prompt, accurate and complete results. In 12 years, Theranos went from one of many ambitious young companies to the main hope of the biotech industry, claiming the status of a breakthrough project, raising $686 million. Investors and journalists in Silicon Valley were fascinated by Holmes - she quickly gained a reputation as the “new Steve Jobs” and gained status the youngest female billionaire on the Forbes list: in 2014, Theranos was valued at $9 billion, and Holmes’s fortune was valued at $4.5 billion.
Theranos founder Elizabeth Holmes (Photo: Andrew Harrer/Bloomberg)
Everything changed in October 2015. The Wall Street Journal published an investigation from which it followed that Theranos does most of its analyzes not using its own innovative technology, but using standard laboratory equipment from other manufacturers. The publication's sources reported that the test results using Holmes' technology differed significantly from those obtained using conventional equipment, and in internal correspondence Holmes and her managers discussed the need to hide this information from the public. The scandal hit both the business reputation of Holmes herself and the company.
Theranos has been the subject of several investigations by the Securities and Exchange Commission and the US Department of Justice. Holmes is suspected of misleading investors and regulators. On May 11, 2016, Theranos announced important personnel changes: Sunny Boluani, the president and chief operating officer who helped Holmes build the legend of revolutionary technology from the very beginning, is leaving the company.
In the Forbes online ranking, Holmes' fortune has dropped to $3.6 billion. In addition, the Center health insurance, which regulates the activities of clinical laboratories, revealed violations in the Californian laboratory of Theranos: if the organization takes sanctions against the company, Holmes will be banned from engaging in medical research for two years.
Zenefits: License to Fraud
Created in 2013, Zenefits raised $583 million from investors in just three years and reached a valuation of $4.5 billion; Forbes magazine called it “the fastest-growing software company in history.” Zenefits developed HR management software. The startup gave other companies software for free, which aggregated all information about employees, and in exchange issued for them health insurance — required condition for the work of any American company, too labor-intensive for a small business that cannot afford to maintain a full-fledged HR department. Zenefits earned money just like traditional ones insurance brokers, the commission is about 5%, or an average of $450 per year per insured “life”.
Zenefits founder Parker Conrad (Photo: David Paul Morris/Bloomberg)
In January 2015, the founder and then CEO of the company, Parker Conrad, stated that Zenefits annual revenue had reached $20 million, and in another year it would break the $100 million mark. In May 2015, Zenefits raised $500 million and began to aggressively increase its staff: by September The company employed 1.6 thousand people, which is four times more than a year earlier. However, Bloomberg Businessweek magazine soon stated: “Zenefits was the ideal startup. Then it self-destructed."
One former employee referred to the company's Arizona office as a "zoo" in an interview with Business Insider: "We had a tradition: every time we closed a deal or set a new record, everyone was given shots of alcohol. At some point, we started breaking records twice a day. We should have stopped the tradition [with alcohol], but we didn’t.” By the fall of 2015, it became obvious: the company would not be able to fulfill the revenue plan of $100 million, the maximum would be $63 million. Inflated staff led to inefficiency in the work of employees, Zenefits management cut their salaries by 14% and canceled paid vacations: a company that made money on personnel management, she herself could no longer cope with internal HR, wrote The Wall Street Journal.
Problems began to emerge one after another. For example, it turned out that the software that Zenefits provides to clients does not work fully automatically, as the company claimed: not all insurers provide information synchronization services, so Zenefits employees often had to do it manually and virtually free of charge.
In addition, it turned out that the company fraudulently obtains licenses for its insurance brokers: for example, in California, for such work, a broker must complete 52 hours of online training and then pass an exam. Zenefits circumvented this requirement by using an application for Google Chrome - Macro, which counted all the employee's online time towards training. The company also did not comply with the ban on selling insurance licensed in one state in another. Preliminary results of the investigation into Zenefits in Washington showed that about 83% of the startup's brokers may not have required license, the BuzzFeed portal found out. The company faces a fine of $20 thousand for each such violation, and if they occurred throughout the country, we are talking about multimillion-dollar sanctions.
In early February 2016, the Zenefits board of directors unanimously dismissed Conrad. Even the founder of the project himself voted for the new candidate - Operations Director David Sachs. One of the new manager's first steps was to ban alcohol consumption at work. Soon, Sachs cut his staff by 17%. So far, these emergency measures have not restored investors' faith in the project: in March, the Fidelity fund wrote off part of the value of its own investments in Zenefits, lowering the company's valuation from $4.5 billion to less than $2 billion. Despite the fact that some of the company's offices are empty, it has there are still 20 thousand clients and a chance for survival - although no longer in the status of a promising “unicorn,” Businessweek noted.
Evernote: a startup without a focus
Evernote, an application for structuring and storing personal and corporate information, was created in 2007 by Russian programmer Stepan Pachikov. In 2012, the project became one of the first on the list of “unicorns”. At that time, the number of registered users of the service exceeded 30 million, and the total investment in the company reached $290 million. Evernote made money from paid subscriptions: the free version allowed you to store notes of no more than 25 MB, and paid options (from $2.99 per month) opened for users access to large amounts of data. In addition, the company offered a version for business (about $10 per month for each user), when a common “notebook” for notes could be used by all company employees.
Evernote co-founder Phil Libin (Photo: Haruyoshi Yamaguchi/Bloomberg)
In 2011, Evernote was named "company of the year" by Inc. magazine. The company itself did not disclose financial indicators, but in August 2014, the TechCrunch portal, citing sources, reported that Evernote’s annual revenue was $36 million with an audience of 100 million people. The number of Evernote users grew to 150 million people in 193 countries; by 2015, the business version of the service was used by about 20 thousand. corporate clients. During the announcement of one of the funding rounds, the company announced its readiness to move into a “mature” stage of development and maintain its business model for decades.
However, in the fall of 2015, Evernote began laying off employees and cutting costs, Business Insider found out. The publication's sources said that Evernote's problems arose due to the spraying of new products: for example, the launch of an application with Evernote Food or PenUltimate recipes, an application for entering handwritten text from a tablet, etc. “We have a feeling that management only needs constant hype in the press. But they have no idea how to optimize the business and make it grow,” one source complained to Business Insider.
Employee reductions were the first step in new strategy belt tightening. Evernote also had to give up bonuses: the company paid for house cleaning every two weeks; many of the developers, at the company’s expense, could go to work for up to three weeks abroad or ask for a “scholarship” to pay for recharging an electric car, Business Insider pointed out. The company also canceled its annual developer conference, which it had held for four years in San Francisco.
As a result, by 2016, Evernote closed three out of ten offices and reduced 18% of its staff (before the layoffs, the company had about 400 employees). In the summer of 2015, the company’s first CEO, Phil Libin, resigned and was replaced by Google native Chris O’Neill, who had previously more than a year led the Google Glass project. Libin himself explained his departure to the Re/code portal by his reluctance to manage the company during and after its IPO - Evernote still expects to return to development, albeit as a public company.
Just a few years ago, a billion-dollar startup was an extremely rare phenomenon. However, now companies are attracting funds from venture funds at more mature stages, thanks to this the number of “unicorn” startups is growing every day. Moreover, some of them bear the proud title of “super unicorn”. This means that they managed to achieve a capitalization of more than $10 billion. On average, it takes a startup about 7 years to achieve unicorn status. More successful in this field are those companies that employ educated and experienced people, while the team has its own history and a long period of working together. And while scientists are asking the question “is this a bubble?”, entrepreneurs are wondering: “What is the secret of such rapid growth of startups?”
Xiaomi
The Chinese company, led by the “Asian Steve Jobs” Lei Jun, was founded in 2010. The “unicorn” spent the attracted investments on developing its own smartphone, and until 2012 the startup operated without profit. Today Xiaomi is a successful company, with an army of fans around the world, and a value of 46 billion dollars.
Uber
In 2009, Garrett Camp and Travis Kalanikov created Uber, which later became one of those changing the world around them. The startup, thanks to its practicality and timeliness, quickly grew into successful business, worth $41 billion. Taxi drivers around the world are on strike against a modern and democratic project, while Uber itself is introducing helicopters and boats into its fleet to cross the Bosphorus.
Airbnb
Brian Chesky, Joe Gebbia, Nathan Blecharczyk - these three people made waves in 2008 hotel business, offering Airbnb. Service for searching apartments and housing from private individuals with a transparent feedback system and reasonable prices quickly became the premier service for finding accommodation for travelers. Today the startup is valued at $20 billion.
Palantir
Palantir is a unique “unicorn” that was created in 2004. Unlike most of the representatives on our list, it is not aimed at mass consumption. Palantir is an information analysis system that is used by governments in the fight against terrorism, as well as by banks, funds and financial firms in their internal work. Because of this choice of profile, the startup took more time to conquer Olympus. Today it is valued at $15 billion.
Snapchat
“Burn after reading” - this phrase perfectly describes the application created by Bobby Murphy. Videos, photos, drawings and text messages - the messenger can transmit almost everything, and after a certain amount of time, all messages are deleted. The high degree of anonymity and ease of use has made Snapchat a leader. The service was created in 2011, and today it is valued at $15 billion.
SpaceX
One of the most remarkable people of our time, investor, entrepreneur, engineer-inventor Elon Musk in 2002 created a company whose goal is the colonization of Mars. Today, SpaceX creates vehicles for what it was designed to do and does everything it was designed to do. Ambitions and an innovative approach have led to the fact that SpaceX is now valued at $12 billion.
Flipkart
The Indian equivalent of Amazon and Aliexpress was created in 2007 by Sachin and Binny Bansal. A simple, thoughtful and well-executed move at Flipkart earned its developers $11 billion.
The creators of Pinterest, a service for searching, storing and sorting visual content, relied on a person’s desire to keep everything before their eyes. That’s why a virtual board arose, on which you can “pin” any picture you like. Social network was founded in 2008, and today it is valued at $11 billion.
Dropbox
One of the best cloud services for data storage, the main advantage of which is the ability to easily synchronize, was founded in 2007 by Drew Houston. Today, Dropbox is a constantly evolving product that many corporations and businesses can no longer do without, valued at $10.5 billion.
Theranos
Theranos, a $9 billion company, was founded in 2003. With a lot of hard work and years of development, Theranos is now able to offer an innovative approach to diagnostic tests that are less invasive, more effective and revealing.
Date of publication: 10/13/2015In the world of fundraising and crowdfunding, “unicorns” are startups that have reached a capitalization of over a billion dollars and started by collecting donations. Previously, it seemed that no startup could raise a million. Today, however, analysts not only laugh at this notion, but also declare that we are living in the era of “unicorns.”
“Unicorns” irritate many people: they look like another “techno-bubble” on which investors are wasting a lot of money. Others believe that the future belongs to such companies. The statistics are amazing: over the last decade, eight “unicorns” have been born per year. The list, prepared by Fortune, consists of 80 companies of this type. Moreover, some of them bear the proud title of “super unicorn”. This means that they have reached a capitalization of more than $10 billion.
Techcrunch's Unicorn Data May Seem interesting topics who are planning their own business. For example, it takes on average about 7 years to reach unicorn status. More successful in this field are those companies that employ educated, experienced people, usually aged 30+. At the same time, the team has its own history and a long period of working together.
To find out where “unicorns” live and who they are, just look at their list. We'll show you the top ten coolest unicorns for 2015 and tell you a little about each of them.
- Xiaomi
A Chinese company created in 2010, headed by the “Asian Steve Jobs” Lei Jun. The “unicorn” used the received investments to develop its own smartphone and until 2012 it worked without any profit at all. Today it is a successful company that has an army of fans in China and around the world. Estimated at $46 billion.
- Uber
Founded in 2009 by Garrett Camp and Travis Kalanick, Uber has become one of the companies changing the world. The service for calling a private driver, convenient and modern, quickly grew into something more. Taxi drivers are on strike against the democratic project around the world, and Uber itself, meanwhile, is introducing helicopters and boats into its fleet to cross the Bosphorus. Valued at $41.2 billion.
- Airbnb
Brian Chesky, Joe Gebbia, Nathan Blecharczyk - these are the names of three people who turned the world of hotels and inns upside down by offering Airbnb. A service for finding apartments and housing from individuals with a transparent review system and reasonable prices quickly became the main service for finding housing for travelers. Founded in 2008, valued at $20 billion.
- Palantir
A unique case of a “unicorn” is Palantir, founded in 2004. Unlike most of the representatives on the list, it is not aimed at mass consumption in the full sense of the word. Palantir is an information analytics system that is used by governments in the fight against terrorism, as well as by banks, funds and financial firms in their internal work. Because of this choice of profile, the company took longer to conquer Olympus. Today it is valued at $15 billion.
- Snapchat
Bobby Murphy created an app that perfectly embodies the expression “burn after reading” into reality. Videos, photos, drawings and text messages - the messenger can convey almost everything. And after a certain amount of time, all messages are deleted. The high degree of anonymity and ease of use immediately brought Snapchat to the forefront. The service was created in 2011 and is valued at $15 billion.
- SpaceX
The company, created in 2002 by one of the most remarkable people of our time, Elon Musk, has very ambitious goals. Colonizing Mars and creating transport to carry out the plan is what SpaceX is doing. And they succeed: the private rockets made by the company really do everything they were designed for. Ambition and innovation have led to SpaceX's valuation of $12 billion.
- Flipkart
Similar to Amazon and Aliexpress, but in India it is Flipkart. It was created in 2007 by Sachin and Binny Bansal. A simple, thoughtful and well-executed move brought its developers a valuation of $11 billion. Not bad!
Pinterest, a convenient service for searching, storing and sorting visual content, has relied on the passion for moodboards and, in general, the desire of a person to keep everything in front of his eyes, but in order. That’s why a virtual “board” arose, on which you can “pin” any picture you like. The social network was founded in 2008, and today is valued at $11 billion.
- Dropbox
One of the best cloud services for data storage, the main advantage of which is the ability to easily synchronize, was founded in 2007 by Drew Houston. Today, Dropbox is an ever-evolving product that many corporations and businesses cannot do without. And even more so for ordinary users. Valued at $10.4 billion.
- Theranos
The future of medicine, Theranos was founded in 2003 by Elizabeth Holmes. With a lot of hard work and years of development, Theranos is able to offer an innovative approach to diagnostic tests. They are less invasive, more effective and revealing. Today Theranos is valued at $9 billion.
Unicorns are companies with a capitalization of more than $1 billion.
The name of the mythical creature is given to very real private companies and startups worth more than $1 billion. It was these companies that radically changed entire industries, made a real revolution and became household names in modern world technologies.
TOP 10 unicorn companies in the world
1. Uber ($68 billion) - USA.
A few years ago, when Americans increased their fare, Garrett Camp and Travis Kalanick decided to help their fellow citizens reduce them by creating a service for searching, calling and paying for Uber taxis. Their innovative service has expanded its geography significantly since then to also include car rental services, helicopter transportation and self-driving cars.
2. Didi Chuxing ($50 billion) - China.
Uber's Chinese rival was able to surpass the latter's performance in the US and reach 20 million rides per day in China. Offering not only taxi service, but also car rental, luxury transportation and car rental, Didi Chuxing has become one of the most successful private companies of the 21st century.
3. Xiaomi ($46 billion) - China.
Xiaomi is a software and electronics manufacturer founded in 2010. In less than seven years, the company became a leader in the smartphone market and developed some of the most popular mobile applications, laptops and devices household appliances in the world. With 8,000 employees, Xiaomi truly is one of the most impressive unicorns in the world.
4. AirBnB ($29.3 billion) - USA.
AirBnB was founded in 2007 by Brian Chesky and Joe Gebbia and began as an attempt to rent out a small loft space for daily rent. The venture quickly turned into a large and successful enterprise, since existing players in the hotel market could not satisfy consumer demand. With revenue growth of 80% between 2015 and 2016, AirBnB expanded to 65,000 cities worldwide.
5. SpaceX ($21.2 billion) - USA.
As the world's largest aerospace engineering and space transportation company, SpaceX has expanded significantly since its founding in 2002 by entrepreneur Elon Musk. SpaceX was the first private company, which launched a spacecraft into orbit and is now working with the International Space Station to deliver cargo. In addition, the company announced the first human flights to Mars and tourist flights to the moon.
6. Palantir Technologies ($20 billion) - USA.
Palantir is engaged in data analysis for financial institutions, as well as to combat terrorism and cyber fraud. The company was founded in 2004 and has revolutionized data analytics for government, healthcare and financial institutions. Despite the fact that the company is valued at more than $20 billion, it does not plan to go public in the near future.
7. WeWork ($20 billion) - USA.
WeWork was founded in 2010 with the goal of providing shared workspaces in 16 different countries. The company is now valued at more than $20 billion and provides physical and virtual workspaces, employee benefits and social events to workers around the world.
8. Lu.com ($18.5 billion) - China.
This online finance marketplace was founded in 2011 as a P2P lending platform. Since then, Lu.com has become the second largest online lender in China and has already issued approximately $2.5 billion in loans.
9. China Internet Plus Holding ($18 billion) - China.
China Internet Plus Holding was formed by merging two successful competitors Meituan and Dianping in 2015. The company is valued at more than $18 billion and is one of the world leaders in restaurant reservations, event tickets and other services.
10. Pinterest ($12.3 billion) - USA.
Pinterest was founded in 2009 and is now valued at just over $12.3 billion. The media platform is used by collectors, businesses and marketers around the world. Pinterest serves as a “catalog of ideas” for users on a variety of topics.
You've probably heard about unicorns - mythical animals that are often found in medieval legends and fairy tales. In August 2015, unicorns unexpectedly migrated from fairy tales to real life. True, already as a term. In her essay, venture capitalist and owner of Cowboy Ventures Eileen Lee called “unicorns” startup companies whose capitalization exceeded $1 billion in five years. The term caught the fancy of Silicon Valley investors, and now we have more than 229 “unicorns” with a total value of $1.3 trillion. According to Insider Pro, it took WhatsApp about two years to reach the $1 billion mark, Uber about 2.2 years, and electric car maker Tesla a little over four years. By comparison, it takes about 20 years for a standard Fortune 500 company to reach a $1 billion capitalization. “Unicorns” began to appear in bulk on the market, and their rapid growth only confirms the myths about magical creatures.
Year of the Unicorn
According to a report from Spoke Intelligence and VB Profiles, 81 companies joined the unicorn crowd last year, including one decacorn, a startup with market value in more than $10 billion. Apparently, a capitalization amount of $1 billion will not surprise anyone. The top three today include ride-hailing service Uber, smartphone maker Xiaomi, and online home booking service Airbnb. The first two always strive to overtake each other. Last year, the Chinese manufacturer of software, smartphones and smart bicycles, Xiaomi, was referred to by the American publication The Fortune as the “king of unicorns,” although Uber is leading the list this year.
The number of new unicorns is growing almost exponentially. Over a ten-year period (from 2003 to 2013), only 39 new “unicorns” appeared in the world, while today their number is already 229. Venture Beat provides such data in its report. Needless to say, unicorns “reproduce” no worse than rabbits. Kepler Analytics CTO Tom Jacobs notes that the market is experiencing a startup boom, with companies like Delivery Hero, a food delivery service, or Instacart, a service that delivers food from a store within an hour, increasingly appearing on the market. “I wouldn’t be surprised if the next biggest startup turns out to be some kind of Uber for cookies,” he wrote in his column for TechCrunch.
An endangered species
Following the term unicorn (unicorn - editor's note), another neologism appeared - unicorpse. Loosely translated into Russian, it sounds like “the corpse of a unicorn” or, in its softer meaning, “a dying unicorn.” Apparently, not everyone falls under the spell of the mythical artiodactyls. So, for those who like apocalyptic talk about the fate of startups, which may also soon become nothing more than a myth, there is no better target for criticism than “unicorn” companies. For example, venture capitalist Marc Andreessen said on Twitter that “startups with high capital burn rates will evaporate.” Bill Gourley, a partner at the Benchmark Foundation, noted last year that "an absolute lack of fear" would lead to "dead unicorns." This happens because over time, the magical flair around the “unicorn” dissipates and we are faced with a far from fairy-tale picture: technology startups are overvalued, and a “bubble” is inflating in the sector, which threatens to burst.
A contender for relegation could also be Palantir, which produces software and works with big data (large volumes of data - editor's note). The mysterious Silicon Valley startup credited with creating a program to help find Osama Bin Laden is struggling to find corporate clients. Last year, deals with three giants - Coca-Cola, American Express and NASDAQ - fell through, and candy maker Hershey's said it "didn't see value from Palantir in 2015." It is becoming increasingly noticeable that the value of such companies is declining: “unicorns” are devalued and lose their magical power. Due to overvaluation of assets, such companies do not always become commercially successful, and venture investors do not become superstars in this business.
The death of a unicorn company is not so difficult to imagine: projects are stopped and employees leave their jobs, at best moving to other companies that are busy working on similar projects. But unlike the crisis in 2008, employees have no means of insuring themselves against default in the event of a unicorn collapse. However, in pursuit of quick money, choosing the next “unicorn” looks much more promising than investing in a company with a conservative business model.
If you had the opportunity and means to become a venture investor, where would you prefer to invest - in long-running Microsoft or in “unicorns” like Airbnb or Snapchat?
