In 2013 Aileen Lee posted an op-ed on Techcrunch Welcome To The Unicorn Club: Learning From Billion-Dollar Startups
The article was an attempt to describe the past
It fundamentally changed the way markets priced the future
Let me show you how
The article was an assessment of the odds of a startup company achieving a Billion Dollar valuation
It reviewed the 39 companies that had achieved this 'Mythical Status' over the previous decade (2003-2013)
The conclusion was the odds were about 1 in every 1,538 startups had the potential become unicorns
The Takeaway: it’s really hard, and highly unlikely, to build or invest in a billion dollar company.
It confirmed what everybody knew about Venture Capital: Picking winners was hard
What happened after the op-ed was published?
Well it became remarkably easier to obtain that Billion Dollar price tag
As of mid-2022 the was over 1,150 of them
What's more it became easier just as the revenue growth opportunities for these prospective Unicorns was rapidly declining
The Unicorn Narrative fundamentally changed the market's perception of how it would value the future
Instead of equating high growth opportunities and emerging digital markets with high valuations
It chose to attribute extremely high valutions to startups seeking to disrupt maturing markets where the cost of customer acquisition was prohibitively expensive and profitability was increasingly rare
To rationalise these valuations a raft of investment double speak emerged to measure success in the absence of profitability
After all these companies were spending obscene amounts of money to grow rapidly in markets whose hyper-growth days were fast becoming a fading memory
In the end it took 7 years for the bet to pay off
The magical narrative took hold of the collective conscious and the miracle of the Unicorn Farmers was fully realised as a generation of VC's cashed in on their collective good fortune and literally brought home the bacon
Then it all went puff! Just like a magic trick the market regained its (un)common sense and the universal belief in the magic of the Unicorns dissipated
Closing thoughts?
What is fascinating about the Unicorn story is the traditional role of marketing is about creating demand for products and services
When we talk about startups we tend to ask the question what is the killer app? or, what is the problem they are trying to solve?, Who is the tribe of early adopters?, and what is the social proof that will attract them?
However, in the world of uber-financialisation, the start-up is the product, the tribe is the professional money managers, the Unicorn label is the social proof and the IPO is the killer app
Everything else is peripheral to the commercial objective... ie monetizing the future by leveraging other people's money, other people's time and other people's ideas
The deeper question of course is: Is this sustainable?
Is investing heavily in a low growth future really a strong, wise bet on a prosperous future for all?
History suggests not...
But then again perhaps the uber-financialisation of the economy and the rise of the monetary managerial class was never really about manufacturing a propserous future for all?
Further reading:
Dancing with the unicorns of future past
AirBnB, Uber and the Unicorn growth delusion