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Welcome To The Unicorn Club: Learning From Billion-Dollar Startups, by Aileen Lee, TechCrunch

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Aileen Lee's Learnings to date about the “Unicorn Club”:

  1. We found 39 companies belong to what we call the “Unicorn Club” (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors). That’s about .07 percent of venture-backed consumer and enterprise software startups.

  2. On average, four unicorns were born per year in the past decade, with Facebook being the breakout “super-unicorn” (worth >$100 billion). In each recent decade, 1-3 super unicorns have been born.

  3. Consumer-oriented unicorns have been more plentiful and created more value in aggregate, even excluding Facebook.

  4. But enterprise-oriented unicorns have become worth more on average, and raised much less private capital, delivering a higher return on private investment.

  5. Companies fall somewhat evenly into four major business models: consumer e-commerce, consumer audience, software-as-a-service, and enterprise software.

  6. It has taken seven-plus years on average before a “liquidity event” for companies, not including the third of our list that is still private. It’s a long journey beyond vesting periods.

  7. Inexperienced, twentysomething founders were an outlier. Companies with well-educated, thirtysomething co-founders who have history together have built the most successes

  8. The “big pivot” after starting with a different initial product is an outlier.

  9. San Francisco (not the Valley) now reigns as the home of unicorns.

  10. There is very little diversity among founders in the Unicorn Club.

*  Many thanks to the Cowboy crew who helped with this, including Noah LichtensteinMeg HeLauren KolodnyKim Stromberg and Jennifer Gee.

39 unicorns in the last decade are by far the exception: 0.07%

  • Figuring out the denominator to unicorn probability is hard. The NVCA says over 16,000 internet-related companies were funded since 2003; Mattermark says 12,291 in the past 2 years; and the CVR says 10-15,000 software companies are seeded each year. So let’s say 60,000 software and internet companies were funded in the past decade. That would mean .07 percent have become unicorns. Or, 1 in every 1,538.

  • Takeaway: it’s really hard, and highly unlikely, to build or invest in a billion dollar company. The tech news may make it seem like there’s a winner being born every minute — but the reality is, the odds are somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime. Or, more than 100x harder than getting into Stanford.

So you're saying there's a chance...

What do super-unicorns have in common? A huge technology wave. The 1960s marked the era of the semiconductor; the 1970s, the birth of the personal computer; the 1980s, a new networked world; the 1990s, the dawn of the modern Internet; and in the 2000s, new social networks were built. 

Each major wave of technology innovation has given rise to one or more super-unicorns .

What is the fundamental technology change of the next decade? MOBILE SMARTPHONES / TABLETS.

Facebook is an outlier.

  • Facebook is what we call a super-unicorn: it accounts for almost half of the $260 billion aggregate value of the companies on our list. (As such, we excluded them from analysis related to valuations or capital raised)

  • Only 4 unicorns are born per year on average. But not all years have been as fertile:
    • The 38 companies on our list outside of Facebook are worth about $3.6 billion on average. This might feel like a letdown after reading about super-unicorns, but remember, startups generally start as ideas that most people think are crazy, dumb, or not that important (remember when people ridiculed Twitter as the place to share that you were eating a ham sandwich?). Only after many years and extraordinary good fortune, a few grow into unicorns, which is extremely rare and pretty awesome.

    • Unicorn founding was not front-end-loaded in the past decade. The best year was 2007 (8 of 36); the fewest were born in 2003, 2005 and 2008 (as far as we know today; there are none yet founded in 2011 to today). From this snapshot in time, it’s not clear whether the number of unicorns per year is changing over time.

The most likely first unicorn founded since 2011 is Snapchat.

The biggest companies are consumer-oriented.

  • Three consumer companies — Facebook, Google and Amazon — have been the super-unicorns of the past two decades.

  • There are more consumer-oriented than enterprise unicorns, and they have generated more than 60 percent of the aggregate value on our list outside of Facebook.

  • Our list likely seriously underestimates the value of consumer tech. Of the 14 still-private companies on our list, 85 percent are consumer-oriented (e.g. TwitterPinterestZulily). They should see a significant step up in value if/when a liquidity event occurs, increasing the aggregate value of the consumer unicorns.

Twitter's liquidity event happens this month. It is now the fourth biggest unicorn.

Four primary business models drive the value and network effects help:

  • Four business models share fairly equally in driving value in aggregate:

    1) E-commerce: the consumer pays for goods or services (11 companies); 

    2) Audience: free for consumers, monetization through ads or leads (11 companies); 

    3) SaaS:Users pay (often via a “freemium” model) for cloud-based software (7 companies); and 

    4) Enterprise: Companies pay for larger scale software (10 companies).

  • Only four of the 38 companies are mobile-first. Not surprising, the iPhone was only launched in 2007 and the first Android device in 2008.

  • Another characteristic almost half of the companies on our list share: network effects. Network effects in the social age can help companies scale users dramatically, seriously reducing capital requirements (YouTube and Instagram) and/or increasing valuations quickly (Facebook).

Network effects not only help a business grow quickly; the network also sustains value.

It takes a long time to build a billion dollar company:

  • It took seven years on average for 24 companies on our list to go public or be acquired, excluding extreme outliers YouTube and Instagram, both of which were acquired for over $1 billion in about two years since founding.

  • Of the nine companies that have been acquired, the average valuation was $1.3 billion; likely a valuation sweet spot for acquirers to take them off the market before they become less affordable

Once a unicorn passes the $1.3 billion valuation mark it is very hard for it to be acquired.

The twentysomething inexperienced founder is an outlier, not the norm:

The companies on our list were generally not founded by inexperienced, first-time entrepreneurs. The average age on our list of founders at founding is 34. Yes, the founders of Facebook were on average 20 when it was founded; but the founders of LinkedIn, the second-most valuable company on our list, were 36 on average; and the founders of Workday, the third-most valuable, were 52 years old on average.

Co-founders with years of history together have driven the most successes:

  • A supermajority (35) of the unicorns on our list have chosen to blaze trails with more than one founder — with three co-founders on average. The role of co-founders varies from Co-CEOs (Workday) to technical co-founders who live in a different country ( Looking at co-founder equity stakes at liquidity might be another interesting way to look at founder status, which we have not done.

  • Ninety percent of co-founding teams comprise people who have years of history together, either from school or work; 60 percent have co-founders who worked together; and 46 percent who went to school together.

An impressive 76 percent of founding CEOs led their companies to a liquidity event, and 69 percent are still CEO of their company, many as public company CEOs. This says a lot about these founders in terms of their long-term vision, commitment and their capability to scale from almost nothing in terms of money, product, and people, to their current unicorn company status.

Only half of the unicorns have all original founders still working in the company. 

On average, 2 of 3 co-founders remain.

The “big pivot” is also an outlier:

Few companies are the result of a successful pivot. 

Nearly 90 percent of companies are working on their original product vision.

You do not pivot a unicorn. It's to the moon or bust.

Btw is it me or is their list missing Tesla? (Salesforce and Netflix started more than 10 years ago.)

Only two companies have female co-founders: Gilt Groupe and Fab, both consumer e-commerce. 

And no unicorns have female founding CEOs.

Unicorn founders are oddly uniform:

- White, Male, over 30, 

- Engineering degree

- Top 10 University

- Founded a startup before

- Founders worked with each other before

- Consumer-oriented 

- Mobile

- Based in San Francisco, not Silicon Valley / Peninsula

Very interesting and cool.  And so my takeaway is:

1. be nimble and get to San Fran; and then, if not one yourself, 

2. cuddle up to white male engineering students with a previous startup and a soft spot for letting a generalist talk them into co-founding a new venture

3. wash, rinse, repeat 1,538 plus one times (don't be a quitter)

1538 times is the key. It shows what a small chance there is even with all the right circumstances.

I'm not sure about what are the "right circumstances" here... we've only been told the survivorship bias demographics... but who's failing?  Is it the same demographic of white male engineers with a previous startup under their belts?  

Finding out might not be as simple as we'd like to think: we'd have to look at the demographics of all 1537 that failed to be sure if their circumstances were the same as those who succeeded and that it's just a random reason among a network of equals... as opposed to the possibility that there are 1500 wanna-be's without the right circumstance trying to get in the game with the several or so teams that actually have the right circumstances and are duking it out... do we know?

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