What Is a Unicorn Startup?
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A unicorn startup is a privately held company that investors value at more than $1 billion. The name is a joke about rarity: when the term appeared, a startup reaching that valuation was about as common as a mythical animal. CB Insights, which keeps one of the best-known public lists, defines it plainly as a private company with a valuation over $1 billion.
Two parts of that definition do most of the work. The company has to be private, so it has not listed its shares on a stock exchange. And the number is a valuation, not revenue, profit or cash in the bank. A company can be a unicorn while losing money, and a profitable business with real customers can be worth far less than $1 billion and never get the label.
This article covers where the word came from, how a unicorn valuation is calculated, the related terms for larger companies, how common unicorns are, and why the label deserves some skepticism. It's reference material, not investment advice.
Where the Term Came From
Venture capitalist Aileen Lee coined the term in a November 2013 TechCrunch article, "Welcome To The Unicorn Club". Her working definition was narrower than today's usage: U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors. She found 39 companies that met it, which she called the Unicorn Club.
Her dataset was small on purpose, and the rarity was the point. She estimated that about 0.07 percent of venture-backed consumer and enterprise software startups reached that level, roughly one in 1,538. She also reported that those companies took seven years on average to reach a liquidity event such as an acquisition or IPO, and eight or more years when still-private firms were included.
Two other details from the article are worth keeping. First, she counted four types of business as the main sources of value: e-commerce, audience-based models, SaaS and enterprise software. Second, she found enterprise unicorns were worth about 26 times the private capital they raised, against about 11 times for consumer unicorns. Those figures describe her 2013 sample, not today's market, so treat them as history rather than a benchmark.
Over time the word lost its original limits. Today people apply it to any private company above $1 billion, in any industry and any country, and the "public market investors" part of her definition has dropped out.
How a Unicorn Valuation Is Set
A unicorn valuation usually comes from a financing round. Investors agree to buy new shares at a certain price, and the company's valuation is that price multiplied by the total number of shares. This is a post-money valuation: the value of the company right after the new money goes in.
Here is a simple example with invented numbers. Say investors put in $200 million at a post-money valuation of $1 billion. Those investors own 20 percent of the company. If the next round is priced higher, the headline number rises. If it's priced lower, that's a down round, and the company may drop below the line.
Because the number is set by a negotiated private deal, it's an agreement between a few parties and not a market price. Nobody can buy or sell the whole company at that value on a given afternoon. That's the main difference from a listed company, whose share price changes every second.
Why the Headline Number Can Mislead
The $1 billion figure usually assumes every share is worth the same as the most recent preferred share sold. In practice, startups issue different classes of stock, and the newest investors often negotiate extra protections. A liquidation preference is one of the most common: it decides who gets paid first, and how much, when the company is sold or listed.
Researchers William Gornall and Ilya Strebulaev studied this in a National Bureau of Economic Research working paper, "Squaring Venture Capital Valuations with Reality". They looked at 135 U.S. unicorns using terms from legal filings. Here is what they report in the abstract:
- Reported unicorn post-money valuations averaged 50% above fair value, and 15 were more than 100% above.
- Most unicorns had given recent investors major protections: IPO return guarantees (14%), vetoes over down-IPOs (24%) or seniority over all other investors (32%).
- Common shares, which lack those protections, were 58% overvalued.
- After adjusting for those terms, almost half (65 of 135) lost their unicorn status.
The paper is from 2017, covers only U.S. companies in its sample, and is a working paper that hadn't been peer-reviewed at the time of publication. The takeaway isn't that every unicorn is overpriced by that much. It's that a headline valuation hides the deal terms behind it. Two companies with the same $1 billion label can leave very different amounts for employees holding common stock.
Decacorns, Hectocorns and Related Terms
Once the original word caught on, people added labels for bigger companies. CB Insights' unicorn tracker classes companies valued over $10 billion as decacorns and companies valued over $100 billion as hectocorns.
| Term | Valuation threshold | Typical meaning |
|---|---|---|
| Unicorn | Over $1 billion | Private company valued at a billion or more |
| Decacorn | Over $10 billion | A unicorn that has grown tenfold past the line |
| Hectocorn | Over $100 billion | Very rare; the top tier of private companies |
These are informal labels used in the press and by data providers. No regulator defines them, and different trackers draw the line slightly differently, for example in how they treat companies that have since listed.
How Many Unicorns Are There?
The count has grown enormously since Lee's 39. CB Insights' tracker currently lists 1,447 unicorn companies worldwide, with a total cumulative valuation of about $7,376 billion. The same page names Airbnb, Facebook and Google as well-known former unicorns: companies that crossed the line privately and later went public.
Treat any single count as a snapshot. Lists differ by provider because each uses its own rules for valuation dates, secondary sales and which rounds qualify. The count also changes as companies list, get acquired, raise at lower prices or shut down.
Key Facts: Unicorn Startup
- A unicorn is a private company valued at more than $1 billion (CB Insights definition).
- Aileen Lee coined the term in TechCrunch in November 2013 and found 39 U.S. software companies that met her criteria.
- Her sample put the odds at about 0.07 percent of venture-backed software startups, roughly 1 in 1,538.
- Decacorns are valued above $10 billion and hectocorns above $100 billion.
- CB Insights' tracker currently lists 1,447 unicorns worth about $7,376 billion combined.
- Gornall and Strebulaev (2017) found reported valuations of 135 U.S. unicorns averaged 50% above fair value once deal terms were counted.
Unicorn Status Is Not the Same as Success
A few things the label doesn't tell you.
It doesn't mean profit. Many unicorns are valued on growth and potential. Metrics such as burn multiple and default alive show whether a company can fund itself, and the valuation says nothing about them.
It isn't permanent. The valuation is a point in time. A company that raises at a high price and later raises at a lower one is no longer worth the original figure, even if lists lag behind.
It doesn't mean founders and employees are rich. Founders and employees usually hold common shares or options, which sit behind preferred investors. How much they receive depends on the cap table, the exit price and the preferences on top of the common stock. After equity dilution from several rounds, ownership percentages are smaller than they were at the start.
It isn't a goal in itself. The valuation reflects what investors expected at one moment. Building a company that reaches $1 billion is a result of a market and a business model, not a plan you can follow step by step. Many strong companies never raise at that scale, and some choose not to.
Why Investors Chase Unicorns
The economics of venture capital explain the interest. Venture funds expect most investments to return little and a small number to return a great deal. A company that grows into a billion-dollar valuation can pay back an entire fund, so investors compete to back possible winners early. That competition pushes valuations up. Strategies such as blitzscaling take this to an extreme, trading efficiency for speed to win a market before rivals do.
For the company, a high valuation can bring cheaper capital, attention from candidates and credibility with large customers. The cost is pressure to keep growing fast enough to justify the number at the next round or at an initial public offering.
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