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Unicorns: A Practical Case Study: Bachelor of Science in Business Administration

Unicorns are private companies valued at over $1 billion. The number of unicorns has grown rapidly from 39 in 2013 to over 400 today, with the majority based in the US and China. Unicorns operate in various industries like software, transportation, fintech, and consumer internet. They pursue aggressive growth strategies like "get big fast" to achieve scale advantages. High valuations are also driven by technological innovations in areas like smartphones that expand potential markets. Unicorns aim to leverage network effects by building large user networks on their platforms.

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131 views24 pages

Unicorns: A Practical Case Study: Bachelor of Science in Business Administration

Unicorns are private companies valued at over $1 billion. The number of unicorns has grown rapidly from 39 in 2013 to over 400 today, with the majority based in the US and China. Unicorns operate in various industries like software, transportation, fintech, and consumer internet. They pursue aggressive growth strategies like "get big fast" to achieve scale advantages. High valuations are also driven by technological innovations in areas like smartphones that expand potential markets. Unicorns aim to leverage network effects by building large user networks on their platforms.

Uploaded by

Stefan Mladenoski
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UNICORNS: A PRACTICAL CASE STUDY

Bachelor of Science in Business Administration


A.Y. 2019-2020
GENERAL MANAGEMENT

Federico Giannetti
Ph.D. student
What are «Unicorns»?
What are «Unicorns»?
■ In 2013 and the venture capitalist Alien Lee, built a dataset of U.S. -
based tech companies started since January 2003 valued at 1$ billion
by private or public market and called it “The Unicorn Club” (Lee,
2013).
■ Since this definition, the term became very popular in the sector and
started to become the appellative to identify all those private
companies or start-ups valued at over $1 billion before going public.
■ When Lee gives a name for the first time to these special start-up
companies, in 2013, the club in the United States consisted of 39
companies that met all the criteria identified by the venture capitalist;
today after 6 years their number consist of 445 companies with a total
cumulative valuation of $1.344 Billion.
Who are the «Unicorns»?
Who are the «Unicorns»?
Company Country Valuation Category
Toutiao (Bytedance) China $75 Digital Media/ AI
Didi Chuxing China $56 On-Demand
WeWork United States $47 Facilities
JUUL Labs United States $38 Consumer Electronics
Airbnb United States $29 eCommerce/Marketplace
Stripe United States $23 Fintech
SpaceX United States $19 Other Transportation
Epic Games United States $15 Gaming
GrabTaxi Singapore $14 On-Demand
Bitmain Technologies China $12 Blockchain
Samumed United States $12 Biotechnology
Global Switch United Kingdom $11 Computer Hardware & Services
Palantir Technologies United States $11 Big Data
DJI Innovations China $10 Hardware

Source: CrunchBase, 2019


Who are the «Unicorns»?
Company Year Founded Valuation Category
Go-Jek Indonesia $10 On-Demand
Infor United States $10 Internet Software & Services
One97 Communications
(operates Paytm) India $10 Fintech
Coupang South Korea $9 eCommerce/Marketplace
Guazi (Chehaoduo) China $9 eCommerce/Marketplace
Coinbase United States $8 Fintech
Instacart United States $8 On-Demand
DoorDash United States $7 Food Delivery
Slack Technologies United States $7 Internet Software & Services
Roivant Sciences Switzerland $7 Biotechnology
Snapdeal India $7 e-commerce
Tokopedia Indonesia $7 Marketplace
UiPath United States $7 Robotic Process Automation
Tanium United States $7 Cybersecurity
Magic Leap United States $6 VR/AR

Source: CrunchBase, 2019


The rise of the «Unicorns» by years
450

400
401
386
350

300
305
250

200 223

150
157
100

50
81
39
0

2013 2014 2015 2016 2017 2018 2019

Source: CrunchBase, 2019


The lands of the «Unicorns»
172

172
89

Source: CrunchBase, 2019


What do they do?
2%
5% 2%
Consumer Internet
8%
Financial Services
Hardware
38%
Real Estate
Transportation
Software
25% E-commerce
Healthcare
Marketing & Advertising
Education
1% 9%
2% 8%

Source: CrunchBase, 2019


Main characteristics
■ Unicorns are featured by one of the following four business models,
namely i) consumer e-commerce, ii) consumer audience, iii) software-
as-a-service, and iv) enterprise software;
■ A period of, at least, seven years before going public or being acquired
■ Focus on a single product/service;
■ Young founding team (about 30 year-old) having prior start-up and tech
experience, and composed of people who spent their school or college
period together.
Let’s have an empirical look…
An empirical view: Snap Inc. (a)
■ Snap Inc. is a United States based tech and social
media company founded in 2011

■ The main product is a social network that allows users to send


and receive ephemeral pictures (can be seen for a short time
only).

■ In just 6 years Snap Inc transform itself from a “funny” social


media app into a successful company valued over $20 billion in
the Public market (Yahoo Finance, 2017) with more than 1,859
employees in 19 countries and 158 million daily active users
(Spangler, 2017).
Timeline of Snap Inc.
Regain value after
Creation High-growth phase Low-growth phase IPO at a valuation improvement in users
and aggressive and diverisifaction around $20 billion
(July 2011) experience
fundraising through acquisition
(March 2017) (January, 2019)
(February 2013) (March 2015)

Start-up phase and Product monetization Maturity phase and Loss after Ipo and
expansion strategies re-branding rise of competiton
(April 2012) (November 2014) (September 2016) (April, 2017)

Source: Techcrunch, 2019


Snap Inc. Share Price

Source: Yhaoo Finance, 2019


Vs Twitter Inc. Share Price

Source: Yhaoo Finance, 2019


An empirical view: Snap Inc. (b)
■ Snap Inc. struggle after one month since the IPO, due to the decrease
in share price and loss of users, linked with the aggressive actions
made by Facebook’s Instagram.

■ The diversification strategies (e.g. Spectacles production) reveal


themselves not profitable and successful as expected, and show the
need for finding new strategies to anticipate death and to start again
the growth and the success.

■ New acquisition (e.g. Placed, Zenly) and new partnership (e.g. Amazon,
Spotify) stimulated the engagement of the users across the platform
(i.e. the time spent on the app), and had a positive impact in the terms
of the increase of market value and in number of users regained.
What do they differently do?
Analysis of main characteristics
Get Big Fast (GBF)
strategy

A strategy where a start-up tries to expand at a higher rate through


large funding rounds and a free-price offering to stimulate the
adoptions, this result in customer lock-in where the additional time,
and effort make it difficult to switch. This Business Model generates
learning by doing, scale economies, network effects, information
contagion, accumulation of resources and increase demand building
the firm’s positional advantage until it dominates the market.
Analysis of main characteristics (2)
Relationships with the advancements in
technology

High valuations are being pushed upward by a uniquely profitable


flood of technological innovations like smartphone. The new way of
connecting people has enlarge the potential market of a new firm to
an enormous number of user, and use massive economies of scale
to reach millions of people while only paying a handful of salaries and
avoiding costs.
Analysis of main characteristics (3)

Valuation Criteria

The final valuation price is based on the latest series’ price, applied
to all outstanding shares, in which Venture Capitals and others
decide to invest just for the possibility to be part of a successful
brand rather than use the typical valuation methods reviewed for
the companies most important assets.
Analysis of main characteristics (4)

Network Orchestrator

Business model that consist on the creation of a network of peers in


which the participants interact and share in the value creation, this
generate a network effect, where each additional participant
increases the value for every others.
In conclusion…
Conclusion
• Thanks to the Venture Capitals’ support, unicorns easily overcome
the typical gaps expressed by Stinchcombe’s Liability of Newness
(1965), in terms of reliability, experience and resources.

• They create a speculative “bubble” due to their constant need for


cash flow and the strictly relationship with Venture Capitals and
their valuation criteria.

• The losses after the IPO are typical due to the change in
expectations from the investors.
Thanks for your attention
for further information contact
federico.giannetti@uniroma2.it

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