With the Right Strategy, Catching a Unicorn Need Not Be a Fantasy

In the world of venture capital, a unicorn is much more than a mythical creature. The first time you hear this term casually thrown around in investment circles, you might wonder if you are hearing things. But unicorns are absolutely real—and, as elusive as they may seem, chasing them down can result in substantial rewards.

In finance,  a “unicorn” describes a private startup company with a valuation of $1 billion or more. According to CB Insights, which maintains a list of unicorns, as of late February 2022 there are more than 1,000 unicorns worldwide. Particularly impressive is the fact that about half of these companies joined the list in 2021 alone. Current unicorns include recognizable names like SpaceX, Instacart, Canva, JUUL, and Grammarly, but former unicornslike Google, Facebook, and Airbnbhave become practically essential to modern life. According to PwC, the major industries in which companies become unicorns are fintech, industrial tech, mobility tech, health tech, digital commerce, and entertainment and media. The pandemic itself has changed the direction of what companies become unicorns, PwC says, with 13 telehealth companies attaining unicorn status since the start of the pandemic, nine of them in the first six months of 2021.

Indian entrepreneurs have been especially active, according to a PwC India study, with 43 companies joining the list of unicorns in 2021, a huge leap over the country’s already impressive 2020 performance, when nine Indian companies joined the list. According to the study, an additional 50 Indian companies are poised to attain unicorn status in 2022, bumping the total number of Indian unicorns to over 100. Current Indian unicorns are mostly in the realms of fintech, SaaS (“software-as-a-service”), and direct-to-consumer digital commerce. As of late February 2022, according to the CB Insights list, the top-valued Indian unicorn by far is the edtech company BYJU’s, valued at US$21 billion, followed by the food ordering and delivery service Swiggy at US$10.7 billion and the hotel booking site OYO Rooms at US$9.6 billion.

For investors, catching a unicorn company at just the right moment is likely to be far more life-changing than catching an actual unicorn.

The ABCs of unicorns

Some fundamentals about unicorns. First off, all unicorns are startups. Once a unicorn goes public, it ceases to be a unicorn. “The bigger a company gets, the more people are involved in decisions, the slower decisions get made. Look, the whole theory of startups is that three motivated people can go and do something that every company can’t,” Garrett Camp, a co-founder of StumbleUpon and (former unicorn) Uber, said in a Mashable interview. But only a small fraction of startups become unicorns. A unicorn’s agility—its ability to respond quickly to changing demand and to downturns that might wreck the fortunes of other companiesis critical to its success and its unicorn status.

Like any profitable company, a unicorn needs a strong foundation. For a startup, that strong base begins with an incredible idea. And that means, in nearly all cases, an idea that disrupts an existing market.  Explains Travis Bradberry, chief people scientist at LEADx, “Influential people are never satisfied with the status quo. They’re the ones who constantly ask, ‘What if?’ and ‘Why not?’ They’re not afraid to challenge conventional wisdom and they don’t disrupt things for the sake of being disruptive; they do it to make things better.”  This disruption-in-the-interest-of-improvement is especially true of unicorn companies. Connecting with customers on a personal level and showing them how this change will add value to their lives is what separates the unicorns from the donkeys.

Getting unicorns into your portfolio

The best way to usher unicorns into your portfolio is to find qualified and high-quality venture capital funds. Good VC funds have a record of successfully identifying potential unicorns—startups with competent people who not only have pinpointed markets ripe for disruption but also have feasible plans for growth once the company takes off. 

The right investors are also crucial, says Lucy Liu, co-founder and president of Airwallex, an Australian online payments company, itself a unicorn.  A former investment banker, Liu argues that the choice of investors should not rest on who ponies up the most cash, but rather on who understands your corner of the market. “To appeal to investors, you have to think like an investor,” she says. “You’ll have a much more engaged audience if you’ve done your research and are talking with potential investors about how their expertise or network would benefit your business goals, as opposed to just their money. You need to be speaking with VCs that get your business, understand the industry you operate in, and the specific challenges that you face.”

As you can imagine, all venture capital firms are not the same. What you have to find is a talented group of people behind a venture capital firm who can identify potential unicorns, so you can get as many unicorns into your portfolio as possible.You don’t need to invest a lot of money to create wealth for yourself.  Certainly, investing in startups is risky, because there is no way to guarantee which companies will turn out to be unicorns. Speaking to a financial advisor is imperative. You cannot remove the risk when investing, so be sure to get good advice. Then, if you are lucky, you might just prove to your friends that unicorns are real.