Unicorn — what it means in investing
A “unicorn” is a privately held startup valued at more than $1 billion. The term is most often applied to technology-centered companies that attract large venture-capital investments based on expectations of rapid, outsized growth rather than current profits.
Origin and scale
- Venture capitalist Aileen Lee popularized the term to express how rare such startups once were; she estimated only a tiny fraction of startups reach $1 billion valuations.
- The number of unicorns has grown substantially. Estimates in recent years have put the global count in the low thousands, with collective valuations in the trillions of dollars.
- While many unicorns have become household names (for example, Uber, Airbnb, SpaceX, Palantir), some high-valued companies later proved to be overhyped or fraudulent (for example, Theranos, WeWork, Quibi).
How unicorn valuations work
- Valuations for unicorns are forward-looking and based on investor expectations about future growth, market size, and competitive position—not necessarily on current revenue or profit.
- Because many unicorns operate in emerging industries or create new markets, comparables may be scarce, making valuation highly subjective and dependent on investor sentiment and available capital.
- High valuations can reflect genuine technological innovation and scale potential or can result from hype and favorable funding conditions (e.g., abundant venture capital and low borrowing costs).
Trends and risks
- The annual pace of new unicorns has fluctuated: after a surge in 2021, the creation of new unicorns slowed in subsequent years.
- Investing in unicorns carries high risk and high potential reward: successful exits can yield very large returns, but many startups fail to deliver on early promises.
- Some “unicorn” valuations have failed to survive public scrutiny when companies go public or when operational problems emerge.
Typical exit paths
- Remain private: founders may keep control and delay public markets, but investors expect eventual liquidity.
- IPO (initial public offering): going public provides access to capital and liquidity for early investors but dilutes ownership and subjects the company to market scrutiny.
- Acquisition: selling to a larger company provides a quicker liquidity event, often at a premium if strategic value is clear.
Notable examples
- Nuro: autonomous delivery-vehicle startup founded by former Waymo engineers; grew to a multibillion-dollar valuation through large venture investments and focused on local, zero-emissions delivery vehicles.
- Instacart (Maplebear): grocery delivery platform that raised substantial private capital before pursuing a public listing; its market value after IPO reflected both growth prospects and market conditions.
- Other widely known unicorns include Uber, Airbnb, SpaceX, and Palantir.
Unicorns in hiring (HR use)
In human resources, “unicorn” describes a candidate with an unusually broad and idealized combination of skills and experience. Expecting a single hire to cover many specialized roles often creates misaligned searches and unrealistic job requirements.
How retail investors can access unicorns
- Direct investment in private unicorns is typically limited to venture capital firms and accredited or institutional investors.
- Most individual investors gain exposure only when a unicorn goes public via an IPO or when secondary markets open up for private-share trading.
- Investing in later-stage public offerings, venture funds, or ETFs focused on tech and innovation are alternative routes, each with different risk profiles.
Key takeaways
- A unicorn is a private startup valued above $1 billion; valuations are primarily based on projected future growth rather than current earnings.
- The label spans genuinely transformative companies and firms whose valuations reflected hype or weak fundamentals.
- Exits include staying private, IPOs, or acquisition; most individual investors must wait for a public listing to participate.
- The term is also used in HR to describe an unrealistic “perfect” candidate.