Unicorn Valuation How Much Are They Worth

1. Understanding Unicorn Valuations

Unicorn valuations are back in the news. A recent example is the case of WeWork, which was valued at $47 billion by SoftBank just months before it filed for an IPO. The IPO was eventually pulled, and WeWork is now worth around $8 billion.

What is a unicorn?

A unicorn is a private company that has a valuation of $1 billion or more. The term was first used in 2013 by venture capitalist Aileen Lee, who chose the word because these companies are so rare.

There are now over 400 unicorns globally, with a combined value of over $1.4 trillion. The largest unicorn is Chinese e-commerce giant Alibaba, which is worth $560 billion.

Why are unicorn valuations so high?

There are a few reasons why unicorns are typically valued so highly.

Firstly, they are private companies, so there is less information available about them. This lack of information creates a lot of uncertainty, which can lead to higher valuations.

Secondly, unicorns are often loss-making companies that are investing heavily in growth. This means that their valuations are based on future growth potential, rather than current profitability.

Finally, there is a lot of competition among investors to back unicorns. This competition can drive up valuations as investors bid against each other.

How are unicorn valuations calculated?

There are two main methods used to value unicorns: the comparable companies method and the discounted cash flow method.

The comparable companies method looks at similar public companies and uses their valuation multiples to value the unicorn. For example, if Facebook is trading at 20 times its revenue, then a unicorn with the same revenue as Facebook would be valued at $20 billion.

The discounted cash flow method looks at a company's future cash flows and discounts them back to the present day. This method is more complex than the comparable companies method, but it can give a more accurate valuation if done correctly.

Why do unicorn valuations matter?

Unicorn valuations matter because they can have a big impact on the wider tech ecosystem.

For example, high valuations can attract more talent and capital to the sector, which can help to fuel innovation and economic growth. However, high valuations can also create bubbles and lead to irrational exuberance.

We saw this during the dotcom bubble of the late 1990s, when many internet companies were valued at billions of dollars despite being unprofitable and having no revenue. This eventually led to a crash, with many companies going bankrupt and investors losing a lot of money.

What can we learn from the WeWork example?

The WeWork example shows us that unicorn valuations can be very volatile and should be treated with caution. Just because a company is valued at $1 billion today doesn't mean it will be worth the same tomorrow.

This volatility can be caused by a number of factors, such as changes in the economic environment or new information about the company that changes investor perceptions.

It's important to remember that unicorn valuations are based on future growth potential, not current profitability. This means that they are inherently risky and should be treated with caution.

2. The Methodology of Unicorn Valuations

In order to value a unicorn, one must first understand the methodology behind it.

The first step is to understand the business model of the company and how it makes money. This will give you an understanding of the company's revenue streams and how they are generated.

Next, you must determine the company's costs. This includes both the direct costs of goods and services sold as well as the indirect costs associated with running the business.

Once you have an understanding of the company's revenue and costs, you can begin to estimate the company's profitability. This will give you an understanding of how much money the company is making and how much it is worth.

Finally, you must determine the company's risk. This includes both the financial risk and the operational risk. The financial risk is the risk that the company will not be able to generate enough revenue to cover its costs. The operational risk is the risk that the company will not be able to execute its business model.

Once you have an understanding of the company's profitability and risk, you can begin to estimate the company's value. This can be done using a variety of valuation methods, such as discounted cash flow analysis or comparable companies analysis.

The key to correctly valuing a unicorn is to use a combination of these methods. This will give you the most accurate estimate of the company's value.

3. The Drivers of Unicorn Valuations

Unicorn companies are those that have achieved a billion-dollar valuation. In recent years, there has been an increase in the number of unicorns, with 106 unicorns globally as of October 2019. This rise in unicorn companies is due to a number of factors, including the availability of venture capital, the growth of the global economy, and the rise of new technologies.

One of the key drivers of unicorn valuations is the availability of venture capital. venture capitalists are willing to invest large sums of money into high-growth companies in the hope of achieving a high return on their investment. This has led to a increase in the amount of money available to unicorns, which in turn has driven up their valuations.

Another driver of unicorn valuations is the growth of the global economy. As economies around the world have grown, so too have the markets for unicorn products and services. This has led to an increase in the demand for unicorn products and services, and consequently, an increase in their valuations.

Finally, the rise of new technologies has also contributed to the increase in unicorn valuations. New technologies have created new markets and opportunities for unicorns to grow and scale their businesses. Additionally, new technologies have made it easier for unicorns to reach new customers and markets.

All of these factors - the availability of venture capital, the growth of the global economy, and the rise of new technologies - have contributed to the increase in unicorn valuations. As more money flows into these companies and they continue to grow at a rapid pace, it is likely that their valuations will continue to increase.

4. Case Study The Facebook IPO

When Facebook went public in 2012, it did so at a valuation of $104 billion. That made it the most valuable startup in history. But not everyone thought that Facebook was worth that much. In fact, some people thought it was worth far less.

One of those people was Peter Thiel, the co-founder of PayPal and one of Facebook's earliest investors. Thiel had invested $500,000 in Facebook in 2004, when the company was valued at just $5 million. By the time Facebook went public, Thiel's stake was worth $2.2 billion.

But when asked about Facebook's $104 billion valuation, Thiel said it was "crazy." He thought the company was worth more like $15-$20 billion.

Why the huge discrepancy? Thiel was looking at Facebook from the perspective of a seasoned investor. He knew that most startups don't succeed, and he also knew that even the successful ones typically don't live up to their initial hype. So when he saw Facebook's valuation, he thought it was far too high.

On the other hand, the general public was looking at Facebook from a different perspective. They saw a popular website with over a billion users and they thought it was worth a lot of money.

Of course, Thiel was right and the public was wrong. Facebook's stock price has since fallen below its IPO price, and the company is currently valued at around $50 billion.

So what can we learn from this? First, it's important to remember that valuations are always subjective. What one person thinks a company is worth can be very different from what another person thinks. Second, it's important to be aware of your own biases when evaluating a company.

If you're an experienced investor like Thiel, you're likely to be more skeptical of high valuations like Facebook's. But if you're not an experienced investor, you might not realize how risky investing in a high-growth startup can be.

5. Case Study Chinese Unicorns

What are Chinese Unicorns?

Chinese unicorns are privately held technology companies in China with a valuation of US$1 billion or more. As of March 2019, there are 206 unicorns in China, compared to just 69 in the United States.

Why are they called Unicorns?

The term "unicorn" was coined in 2013 by Aileen Lee, founder of Cowboy Ventures, when she observed that these companies were exceedingly rare. The name unicorn has since become synonymous with high-growth startups.

What is driving the growth of Chinese Unicorns?

A number of factors are driving the growth of Chinese unicorns, including:

Increased access to capital: In the past, Chinese startups had difficulty accessing capital, but this has changed in recent years. Thanks to a booming venture capital industry, Chinese startups can now raise large sums of money to fuel their growth.

Increased access to markets: China's huge domestic market provides a major advantage for Chinese startups. They can scale quickly by selling to the country's 1.4 billion consumers. Additionally, the rise of e-commerce and mobile payment platforms has made it easier for Chinese startups to reach customers.

Favorable government policies: The Chinese government has been supportive of the country's tech sector, implementing policies that encourage entrepreneurship and innovation. For example, the government created special zones where startups can enjoy tax breaks and other benefits.

What are some notable Chinese Unicorns?

Some of the most notable Chinese unicorns include:

ByteDance: ByteDance is the company behind TikTok, a short-video app that has taken the world by storm. The company was founded in 2012 and is now valued at $75 billion.

Meituan Dianping: Meituan Dianping is a leading provider of on-demand services in China. The company offers food delivery, hotel bookings, and other services. It was founded in 2010 and is now valued at $30 billion.

Didi Chuxing: Didi Chuxing is China's leading ride-hailing service. The company was founded in 2012 and is now valued at $56 billion.

6. Caveats and Criticisms of Unicorn Valuations

The unicorn valuation is a relatively new way to value private companies that have achieved billion-dollar valuations. The method was popularized by Aileen Lee of Cowboy Ventures, who used it to value companies such as Airbnb, Dropbox, and Pinterest.

The premise of the unicorn valuation is simple: you take the company's current valuation and divide it by the number of years it took to reach that valuation. For example, if a company is valued at $1 billion and it took 10 years to reach that valuation, its unicorn value would be $100 million.

The unicorn valuation has come under fire from some in the finance world who argue that it doesn't take into account a number of important factors, such as a company's future growth potential. Others argue that the method is too simplistic and doesn't reflect the true value of a company.

However, the unicorn valuation does have its merits. For one, it's easy to understand and calculate. Second, it gives investors a quick way to compare different companies. And lastly, it's a useful tool for identifying overvalued companies.

So, what do you think? Is the unicorn valuation a useful tool or a flawed way to value private companies? Let us know in the comments below!

7. Further Reading on Unicorn Valuations

When it comes to valuing private companies, there are a lot of factors to take into account. But one thing is for sure: unicorns are worth a lot.

What is a unicorn?

A unicorn is a privately held startup company with a valuation of over $1 billion. These companies are typically high-growth and have raised a lot of money from venture capitalists.

Why are they called unicorns?

The term was first used in 2013 by Aileen Lee, a partner at Kleiner Perkins Caufield & Byers, when she wrote a blog post about the rarity of these companies. At the time, there were only 39 unicorns in the world. Today, there are over 400.

What are the most valuable unicorns?

The most valuable unicorn is Ant Financial, which is Alibaba's payments affiliate. Ant Financial is valued at $150 billion. Other valuable unicorns include Uber ($68 billion), Airbnb ($31 billion), and Xiaomi ($46 billion).

What are the factors that go into valuing a unicorn?

There are a few key factors that go into valuing a unicorn:

1. Growth potential: Unicorns typically have high growth potential. This means that they have the potential to grow at a much faster rate than other companies.

2. business model: The business model of a unicorn is usually very disruptive. This means that it is different from the traditional models of businesses in that industry.

3. market opportunity: The market opportunity for a unicorn is usually very large. This means that there is a lot of room for the company to grow.

4. Team: The team behind a unicorn is usually very strong. This means that they have the experience and the skills to grow the company.

5. Funding: Unicorns typically have raised a lot of money from venture capitalists. This means that they have the capital to grow their business.

What are the risks associated with investing in unicorns?

There are a few risks associated with investing in unicorns:

1. They are private companies: Because unicorns are private companies, they are not subject to the same disclosure requirements as public companies. This means that it can be difficult to get information about their financials and their business plans.

2. They are high-growth companies: Because unicorns are high-growth companies, they can be volatile. This means that their stock price can go up and down quickly.

3. They are unproven: Because unicorns are unproven, there is no guarantee that they will be successful. This means that there is a risk that they will not meet their growth potential and will not be able to generate returns for investors.

8. About the Authors

The median pre-money valuation for a unicorn company is now $1.4B.

We believe there are four primary drivers of value for a unicorn company:

1) The quality of the team and management: This is always the most important driver of value, but is especially important for high growth companies as they need to be able to execute at scale.

2) The market opportunity: A large and growing market provides a company with more room to grow and increases the likelihood of success.

3) The competitive landscape: A company with a strong competitive position is more likely to be successful than one with a weak position.

4) The business model: A company with a strong business model that can generate profitable growth is more valuable than one with a weak model.

The most important driver of value for a unicorn company is the quality of the team and management. A strong team with a proven track record is essential for a high growth company. The market opportunity and the competitive landscape are also important drivers of value, but the business model is the most important driver of profitability and long-term success.

A strong business model is essential for a high growth company. The business model must be able to generate profitable growth. A company with a strong business model can more easily raise capital, scale up quickly, and achieve profitability.

The quality of the team and management, the market opportunity, the competitive landscape, and the business model are all important drivers of value for a unicorn company.

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