What Is Unicorn?
A Unicorn is a privately held startup company that has reached a valuation of $1 billion or more. The term is widely used in the Venture Capital industry to denote the rarity of such successful startup companies. Achieving unicorn status signifies a significant milestone in a company's growth trajectory within the broader category of startup funding and private equity.
History and Origin
The term "Unicorn" was coined by Aileen Lee, a venture capitalist and founder of Cowboy Ventures, in an article published on TechCrunch in November 2013 titled "Welcome To The Unicorn Club: Learning From Billion-Dollar Startups."28 Lee chose the mythical creature to emphasize the statistical rarity of privately held companies achieving a valuation of $1 billion or more.26, 27 At the time of her article, she identified only 39 such companies.24, 25 This designation quickly gained traction and became a prevalent benchmark for success within the technology and startup ecosystems.23
Key Takeaways
- A Unicorn is a private company valued at $1 billion or more.
- The term highlights the rare and exceptional nature of such high-value startups in the investment landscape.
- Unicorn status is often achieved through multiple rounds of equity funding from venture capitalists and other investors.
- While once extremely rare, the number of unicorns globally has significantly increased since the term's inception, though they remain statistically uncommon among all startups.21, 22
Formula and Calculation
The term "Unicorn" refers to a valuation threshold, not a specific financial formula or calculation method. A company achieves unicorn status when its pre-money or post-money valuation, as determined by its latest funding round, reaches or exceeds $1 billion. The valuation process for private companies typically involves methods such as discounted cash flow (DCF) analysis, comparable company analysis, and precedent transactions. Investors like angel investors and venture capitalists conduct extensive due diligence to arrive at these valuations.20
Interpreting the Unicorn
Interpreting a company's unicorn status goes beyond merely acknowledging its $1 billion valuation. It signifies a significant level of investor confidence and often indicates a disruptive business model, rapid growth, and substantial market potential. For many startups, achieving unicorn status is a stepping stone toward a potential Initial Public Offering (IPO) or acquisition, serving as a key exit strategy for early investors seeking significant returns. However, the valuation is often based on future projections rather than current profitability, leading to inherent risk.
Hypothetical Example
Imagine a technology startup called "InnovateNow" that develops a groundbreaking AI-powered platform for personalized education. After several successful funding rounds, including seed funding and Series A funding, InnovateNow seeks a new round of financing. A consortium of venture capital firms reviews InnovateNow's financial projections, user growth, and market opportunity. Based on their analysis, they agree to invest $200 million for a 15% stake in the company.
To determine the post-money valuation:
Post-Money Valuation = Investment Amount / Equity Stake
Post-Money Valuation = $200,000,000 / 0.15
Post-Money Valuation = $1,333,333,333.33
Since the post-money valuation of InnovateNow exceeds $1 billion, it officially becomes a Unicorn. This valuation reflects the strong belief of investors in the company's future growth and its potential to capture a substantial share of the education technology market.
Practical Applications
The concept of a Unicorn is primarily used within the venture capital and private equity spheres to categorize and track highly successful startups. These companies often attract substantial media attention, which can further fuel their growth and brand recognition.19 Unicorns play a significant role in the overall health of the startup ecosystem, often leading to large acquisitions or IPOs that can stimulate broader market activity. For instance, Facebook, prior to its IPO in 2012, was a private company that attracted massive valuations from investors, ultimately going public with a market capitalization exceeding $104 billion.17, 18
While global venture capital funding experienced shifts, the emergence of new unicorns continues to be a key indicator of innovation and investor confidence in certain sectors, such as artificial intelligence.14, 15, 16
Limitations and Criticisms
Despite the allure of unicorn status, the concept faces several limitations and criticisms. A primary concern is that the high valuations of some unicorns may not always be supported by fundamental financial metrics like revenue or profitability, particularly in periods of abundant Venture Capital.13 Critics argue that these valuations can sometimes be inflated by competitive funding rounds and the desire for investors to secure a stake in a high-profile company, potentially leading to a "bubble-like" environment.11, 12
The private nature of unicorns means they are not subject to the same stringent public reporting requirements as publicly traded companies, leading to less transparency regarding their financial health. This lack of public scrutiny can make it challenging for external observers to independently verify reported valuations. Furthermore, a significant number of companies that achieved unicorn status have later seen their valuations decrease or failed to meet growth expectations, with some studies indicating a substantial portion of unicorns may be overvalued.8, 9, 10 Regulatory bodies like the SEC also provide guidance on the valuation of illiquid and complex assets, which includes private company investments.5, 6, 7
Unicorn vs. Decacorn
The terms "Unicorn" and "Decacorn" both refer to privately held startup companies with exceptionally high valuations, but they denote different tiers of value.
A Unicorn is a privately held startup valued at $1 billion or more.
A Decacorn is a privately held startup valued at $10 billion or more.
The term "Decacorn" follows the same naming convention as "Unicorn," but uses the prefix "deca-" to signify a factor of ten, reflecting a valuation ten times greater than that of a unicorn. Essentially, a decacorn is a super-unicorn, representing an even rarer and more successful class of private companies. While a Unicorn is a significant achievement, a Decacorn indicates an even more extraordinary scale of growth and market penetration.
FAQs
How many unicorns are there in the world?
The number of unicorns is constantly changing due to new companies reaching the $1 billion valuation mark and others going public or being acquired. As of mid-2025, there are generally over 1,200 unicorns globally.3, 4
What happens after a company becomes a unicorn?
After becoming a unicorn, a company typically continues to grow, often seeking further investment rounds. Many unicorns eventually pursue an Initial Public Offering (IPO) to list their shares on a public stock exchange, or they are acquired by larger corporations.
Why is the term "unicorn" used?
The term "unicorn" was chosen to highlight the extreme rarity of startups achieving a $1 billion valuation at the time the term was coined in 2013. Like the mythical creature, such companies were considered exceptional and difficult to find.
Is unicorn status a guarantee of success?
No, unicorn status is not a guarantee of long-term success or profitability. While it reflects significant investor confidence and market potential, many factors can impact a company's future, including market changes, competitive pressures, and operational challenges. Valuations, particularly in the private market, can also be subjective and may not always reflect underlying profitability or sustainable business models.
Can a company lose its unicorn status?
Yes, a company can lose its unicorn status if its valuation falls below $1 billion, often due to subsequent down rounds of funding, poor financial performance, or a recalibration of market expectations. These companies are sometimes referred to as "de-horned" unicorns or "horses."1, 2