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February 17, 2022

Hunting Unicorns: Finding, Making and Preserving Billion-Dollar Startups

In mythology, a unicorn is a legendary creature that symbolises beauty, grace and purity. But that isn’t the type of unicorn we’re talking about today. 


In the tech world, a unicorn is a startup valued at $1 billion.


This article aims to highlight the shared characteristics and indicators of unicorn startups for two purposes: 


  1. To make it easier for investment companies to identify highly profitable opportunities on their quests to hunt unicorns.
  2. To provide guidelines and inspiration for young startups hoping to become unicorns.


Whether you’re looking to invest in or become a unicorn, we’re about to help you understand what startup unicorns are and what trends are evolving in their magical realm. We’ll also pull lessons from case studies including Airbnb, Instacart and Jet.com.

Tech Unicorn floating in front of a pastel background to symbolise startup unicorns or billion dollar startups
Image of author

Written by

Ryan Hodgson

Portfolio Analyst

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What are Unicorns?


Unicorns, like the mythological creature from which they draw their name, are among the rarest and most interesting investment cases. As mentioned, a unicorn refers to a privately held startup with a value of over $1 billion. 


According to the Global Unicorn Index 2021, the global number of unicorns is between 953-1058. 


Some unicorns are represented by the largest emerging companies around the world, like Bytedance and Uber. These companies have taken the world by storm, introducing disruptive technology and becoming household names. Others are lesser-known but no less significant, like Rapyd and Gemini.


At The Delta, we’ve begun the process of identifying patterns and common characteristics among unicorn startups. These patterns concern their inception, operations, growth trajectories, long-term stability, and more. This is because, as venture builders, we’re always on the hunt for unicorns. 


We’ve gone through our broader list of unicorns around the world to do a general trend analysis, and chosen three unique examples of unicorns as case studies.


Airbnb: From Air Mattresses to Empire


Airbnb co-founders Brian Chesky (right), Nathan Blecharczyk (centre), and Joe Gebbia (left).
Source: Airbnb


We all know and love Airbnb: the unicorn that started with three roommates renting out air mattresses in their apartment to make rent. Valued at over $100 Billion in 2021, the short-term rental company has managed to defy expectations and become one of the largest and most successful unicorns to date. 


Airbnb’s business model is to bring short-term rental providers and rent-seekers together on their platform. In return, they take a small commission on on-platform transactions. 


Their unique use of disruptive technology resulted in them capturing significant portions of both the long-term rental and hotel industry.


Here are two critical learnings from Airbnb’s success: 


  1. Investors and founders with disruptive business models should consider how regulation will evolve as the company does. Airbnb became very successful very quickly which meant they had to react just as quickly to ensure that stakeholders like pre-existing industries, communities and customers are protected. 
  2. Companies like Airbnb and Uber, amongst others, have shown an increased tendency towards the success of decentralised business models


While Airbnb is still thriving today, other unicorns — such as this next case study — haven’t been so lucky. 


The Cautionary Tale of Jet.com


Jet.com is an example of fast, unsustainable success within the wider unicorn ecosystem, despite its relative lack of notoriety. 


The eCommerce giant reached unicorn status in an unprecedented 4 months in 2015, a feat that’s still unmatched. The company was later acquired for $3.3 Billion by Walmart in 2016, but in the years following, it experienced a significant degree of financial turmoil. 


The company was eventually dissolved and closed in June 2019.


Jet.com’s value proposition originated from its unique pricing algorithm, which helped many retail customers and businesses save money through strategic shopping practices. This included providing discounts for mutually beneficial behaviour, like bulk orders.


Their failure has been attributed to multiple factors including a lack of proper brand positioning and a flawed business plan. Most importantly, Jet.com failed to keep up with its rapid growth. 


Here’s what we’ve learnt from Jet.com’s mistakes:


  1. Companies that achieve early success need to keep developing their internal processes to be able to support their rapid growth in the long run.
  2. Time should be spent validating a business plan to ensure its long-term profitability, desirability and viability.
  3. Marketing 101: don’t overlook brand positioning.


Jet.com failed after reaching unicorn status. This next unicorn comes from a founder who already had 20 failed startups. This suggests that long-term success may be tied to early failures and resilience. 


Instacart: A Combination of Resilience and Timing


Instacart makes grocery shopping easier by providing an online portal with options for grocery delivery from a wide selection of local stores. The logistics and delivery services company is currently valued at $39 Billion. 


Graph showing the positive impact Instacart has had on employment in the groceries industry.
Source: prnewswire


Their growing success is the result of their ability to accurately assess and fulfil the needs of their customer base. Unicorns that simplify everyday tasks and save their users time have become significantly more popular in today’s attention economy, where the economic value of time is becoming greater and greater. 


Additionally, services that have adjusted well to lifestyle changes – like those prompted by the global COVID-19 pandemic – are poised for rapid growth. Capitalising on Zeitgeist is an important characteristic for unicorns.  


In short, here’s what we’ve learnt from Instacart:


  1. Startups need to listen to their customers and ensure that their business ideas solve the problems they’re facing to be successful.
  2. Failures are learning opportunities that help to validate your business ideas and set you up for future success — your 21st attempt could be a unicorn.
  3. Timing is everything. The shift towards staying at home throughout the COVID-19 pandemic is key to Instacart’s success.


Now that we’ve learnt what we can from our case studies, it’s time to consider broader industry trends concerning unicorns.


Broader Trends

 

To hunt unicorns, you need to know where they thrive. The vast majority of unicorns originate from first world countries like the USA, Germany or the UK, or industry-specific business-friendly environments like China and India. 


Reasons for this are that these nations’ populations are wealthier, access to capital is easier and, often, business environments are more conducive to rapid growth.


However, not all unicorns emerge from the first world. 


Nubank in Brazil, Getir in Turkey, Wiz in Israel and Bolt in Estonia all buck the trend and prove that unicorns, while endemic to wealthier environments, can be found across the world. 


Prospective Unicorns should assess whether their current business environment is conducive to rapid growth, and if not, adapt accordingly. Among other things, a growth-conducive environment is made up of:


  • Government regulations
  • Infrastructure
  • Taxation terms
  • Subsidisation
  • Infant industry protection


The Delta’s dual bases in Cape Town, South Africa and Berlin, Germany, serve to capitalize on the positive elements of each of these environments.


In the last five years, more and more unicorns have emerged from the digital economy, through digitisation and automation of pre-existing products and services, the creation of unique and ground-breaking fintech, or through other means. 


Examples of this are Canva and Stripe, as well as companies like Airbnb and Uber. As such, it’s become increasingly important for venture companies to establish a digital presence, or better yet, be primarily digitally based. 


Tech-based startups – assuming trends hold – are becoming the most attainable method of reaching unicorn status. This is predicated on both the efficiency of new technology and the internet facilitating the expansion of markets, increasing exposure and overcoming geographical barriers to market entry.


Interestingly, it appears that the median age of companies that reach unicorn status has remained relatively constant over time. Here’s the average number of years from founding to unicorn status by continent: 


  • Asia: 5 years
  • Europe: 6 years
  • North America: 6 years
  • Africa: 8 years


Concerning the African continent, the data is skewed due to a minuscule sample size.


While there’s a large amount of variety in the industries represented by the fastest unicorns, eCommerce/Marketplaces and internet-based software and services were, by a significant margin, the best performing industries for the number of unicorns, irrespective of how long they took to reach unicorn status. 



Image summarizing the biggest unicorn startups at the end of 2021.
Source: Visual Capitalist


How We Hunt Unicorns at The Delta 

As venture builders, the Delta is responsible for identifying prospective ventures and helping them realise their potential. Here’s what The Delta looks for in prospective ventures:


Unicorns should have a unique value proposition


A unique value proposition allows for new businesses to claim significant portions of the market in a short amount of time, which facilitates rapid and sustainable growth. Additionally, unique value propositions are more difficult to emulate, making longevity less of a concern.


Unicorns disrupt pre-existing industries with a unique offering to consumers. This might be predicated by a novel business or revenue model or through the application of emerging technologies. 


Unicorns should have a digital presence


This unique value proposition often relies on emerging digital technologies. Operating in the digital space has given businesses access to markets around the globe and has served to drastically increase growth. 


Even traditional businesses will require significant incorporation of newer technologies within the current age to reach the fabled $1 Billion valuation required to be classified as a unicorn. While it’s not required that a prospective unicorn be fundamentally underpinned by new technology, it increases the chances of rapid growth.


Unicorns should display a growth mindset


As cliché as it’s become, it’s critically important for prospective unicorns to prioritise the processes that lead to growth from an operational standpoint. Much of this is complemented by a strongly dedicated core of founders, who are willing to put in the requisite work to guide the company forward. 


It’s commonly believed that the limitations of the founders become the limitations of the venture, and as such, it’s essential for founders to display a set of important characteristics. These include resilience, vision, flexibility, ingenuity, and passion. 


Once this conducive internal environment is met, expectations around the company’s growth can be set and later, realised.


Unicorns should operate in a conducive external environment


While unicorns can succeed when the deck is stacked against them from an environmental standpoint, conducive external conditions make long-term rapid growth significantly more achievable. 


Ultimately, while no environment is perfect, and while the internet can mitigate some of these conditions, a business needs to be supported, not hindered, by its surroundings. This is where The Delta enters the equation. 


As a venture catalyst, The Delta provides the conditions and resources required to take new ventures through each stage of the startup lifecycle, in order to help these businesses realise their potential. This comes in the form of: 


  • Early-stage validation assistance
  • Product design and development
  • Go-to-market strategy and execution
  • Scaling and operations support
  • An ecosystem of investors and top talent


If your startup or prospective venture is displaying these characteristics, you’re well on your way to creating the next unicorn, and The Delta can help you get from zero to one. Get in touch here. 

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