As mythical as its namesake, a “unicorn” is a highly promising company – typically an entrepreneurial tech-based startup – with a market valuation of $1 billion or more, despite not yet having an established performance record.
The term is derived from an article by venture capitalist and Founder of Cowboy Ventures, Aileen Lee.
In her article, “Welcome to the Unicorn Club: Learning from Billion-Dollar Startups,” Lee examined the plethora of software startups founded in the 2000s.
Ultimately, she estimated that only 0.07% ever reached a $1 billion valuation, and deemed this milestone “as rare as finding a unicorn.”
Even rarer are the companies that go on to achieve “super unicorn” status.
For example, she deemed Alphabet Inc. (GOOGL) to be the first super unicorn – hardly surprising, since it boasted a pre-IPO valuation of $100 billion.
But with such incredible success, it’s no surprise that the likes of these companies have both venture capitalists and private equity investors looking for the “next big thing.”
Indeed, the bar continues to be raised.
A Dangerous Creature
In the article “The Age of Unicorns,” Fortune writers Erin Griffith and Dan Primack explain, “The rise of the unicorn has occurred rapidly and without much warning, and it’s starting to freak some people out.”
It remains to be seen whether or not this influx of tech unicorns is reflating the dot-com bubble of the 1990s.
While some investors worry that the number of companies valued at over $1 billion without having even entered the market is a clear sign of a bubble, others argue that unicorns are a reflection of a new, productivity-driven era for the tech world.
Venture capitalist Jason Green of Yammer explains, “It used to be that unicorns were these mythical creatures. Now there are herds of unicorns.”
Taming the Beast
For example, there are currently at least 10 “decacorns” – companies valued at over $10 billion – poised to IPO in the near future.
Who are they?
Well, Fortune recently compiled a list of the top 100 unicorns to watch. At the top of the list is Uber, followed by Airbnb, Palantir, Snapchat, and Elon Musk’s SpaceX.
And it’s no surprise that technology companies dominate the scene. With a wave of new internet and wireless services permeating virtually every sector and industry, innovative new smartphones, sensors, chips, and cloud-computing services are all featured.
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The unicorns who offer truly revolutionary and cutting-edge products or services will have the best chance of breaking out – and scooping the biggest gains.
So how do you profit from these mythical companies without a major investment on the ground floor?
There are several crucial factors to understand.
The Best Way to Snag a Unicorn
Unicorns aren’t just rare, they’re difficult to profit from.
First and foremost, you need to identify the genuine, long-term trends that provide the platform for unicorns’ success. Then actually find the companies that are best-positioned to capitalize on them.
No easy feat.
Without the right knowledge, it’s easy to lose out on an opportunity from a unicorn by missing it entirely.
That’s why it’s crucial to have an expert working on your behalf.
Like Wall Street Daily’s Chief Technology Analyst Louis Basenese, for example.
A renowned tech sector expert with a host of connections in the industry and at the boardroom level, he brings these opportunities to light in VentureCap Strategist – a service dedicated to unearthing the best small-cap and development-stage tech companies.
Right now, he’s homing in on the fast-growing virtual reality field – and has two companies already in the portfolio to profit from the trend.
Timing is critical, too.
The February 2016 issue of Fortune reports, “After the dotcom crash, a wave of prudence swept over the Valley. Investors kept valuations low and tried not to overcapitalize their companies.”
Until Facebook hit the market, that is.
Having passed on investments between $250 million and $500 million, many venture capitalists were left nursing pangs of regret as Facebook went public in May 2012 with a market cap of $104 billion.
So as current valuations soar, venture capitalists justify their investments by recalling the success of Facebook.
Either way, it’s time to familiarize yourself with the lucrative nature of unicorns. As technology continues to advance as a rapid pace, so too will the number of innovative, entrepreneurial startups.
P.S. Back in December, Wall Street Daily correspondent Tim Maverick delved into how to invest in unicorns, with his article “A Way to Own the Next Tech Unicorns.”
He explained that closed-end interval funds are excellent ways to invest in unicorn companies before they hit Wall Street.
“In effect,” he says, “a closed-end interval fund is a ‘strange’ mutual fund. It offers the same transparency and regulatory benefits of a normal mutual fund and it’s continuously offered and priced every day.”
One such fund – the SharesPost 100 Fund (PRIVX) – focuses on private firms that the fund manager expects to be on the verge of IPO.