Welcome To The Unicorn Club, updated for 2015: Learning From Billion Dollar Companies, by Aileen Lee
I enjoyed this article. Only 1 in 714 funded companies becomes a unicorn.
And I still believe that unicorns as a group need more women on their boards of directors:
I especially liked the paragraph around that 1 in 714 number, too:
Despite the doubling, building one of these companies is still ridiculously difficult and rare. If 60,000 software and Internet companies were funded in the past decade, that means only .14% have become unicorns– or one in every 714. The odds of building, working for or backing one are worse than catching a ball at a major league game; but, better than the chance of dying by shark attack – so we’ve got that going for us, which is nice.
3) Consumer-oriented unicorns continue to drive the majority of value in our set: more companies, and higher average value per company. They also raise a lot of private capital.
- Consumer-oriented companies (companies where the primary customer is a consumer) contribute 72% of the aggregate value on our list (vs 60% last time), and comprise 55% of the companies on our list. They are worth $5.1Bn on average.
- 8 of the top 10 most valuable companies are consumer–oriented; consumer companies seem to reach higher peaks than enterprise companies.
- They are currently worth about 11x the private capital raised on average (excluding >100x outliers WhatsApp, FitBit and YouTube; also 11x on average in our last analysis. 9x is the current median)
- When founders start a company aiming to be super successful, they may not realize how many rounds of dilution may be ahead; or how many dollars of liquidation preference might be added (Heidi Roizen wrote an excellent post on this here).
- Cases in point – the consumer companies on our list have raised on average $535 million in six private rounds (that’s series E or beyond) versus $348 million in our last analysis, a whopping 54% increase. Seven consumer companies on our list have raised over $1 billion in private capital each.
- Some amazing exits have been driven from consumer-oriented companies relative to private capital raised (and more than half through acquisition): WhatsApp (325x!), YouTube (144x), Fitbit (132x), Zillow (48x), and Nest (40x)
- Conversely, 20% of our consumer-oriented companies are valued at <4x the private capital raised: Evernote, FanDuel, Gilt Groupe, Groupon, JustFab, Lyft, SoFi, Tango, and Zynga
7) Take heart, ‘old people’ of Silicon Valley – companies with clear product visions, and well-educated, tech-savvy teams of thirty-somethings with history together have built the most successes; 20-something founders, changing CEOs, and “big pivots” are a minority.
- The companies in our set were generally not founded by inexperienced, high-school dropouts. The average age at founding was 34 years old (same as our last post). Audience-based company founders were 30 at founding; e-commerce founders were 32; SaaS founders were 35; CE/IoT founders were 36; and enterprise founders were 39.
- To note, the founders of our 10 most valuable consumer companies were 29 on average when they founded their companies; and there are a number of young founders (< 25 years old at founding) in our set: Airbnb, Automattic, Box, DropBox, Lyft, Snapchat, Tumblr. But the founders of the two most valuable enterprise companies were 45 years old on average.
- Teams win: a supermajority of companies (86%) has co-founders: 2.6 on average. 85% of co-founders had history together – from school, work or being roommates, the majority having worked together previously.
- If at first you don’t succeed…76% of companies have founders with entrepreneurial history and a track record of founding something else previously.
- Only 12 companies have a sole founder, and none in the top 15 on our list. Unlike in our last analysis where all four sole-founded companies had liquidity events, only two of these companies (New Relic and Tumblr) have had exits.
- The overwhelming majority of companies (92%) start with a technical cofounder, and 90% have a founder with experience working in a tech company. It’s extremely rare for one of these companies to be started by someone who hasn’t worked in tech before. The few companies whose founders had no prior experience working in a tech are largely consumer-oriented companies, like Beats Electronics and Warby Parker.
- Education seems kind of important. About half our list has extremely well educated co-founders who are graduates of a “top 10” U.S. school3; but 19% also have a co-founder who dropped out of college.
- Most founding CEOs are scaling through the journey: 74% of companies are still led by their founding CEO, or were led by the CEO through a liquidity event. This says a LOT about the talent of these founding CEOs to scale from seed stage through multiple financings, leadership team changes, hundreds or thousands of team members, and in many cases global expansion, to build the most successful companies of the past decade.
- 26% of companies have made a CEO change along the way (versus 31% in our last post). Enterprise companies have a higher rate of changing CEO: 32% of enterprise, versus 22% of consumer companies.
- 83% of companies are working on their original product vision; only 17% significantly changed product focus in a big pivot.
- Consumer pivots are more prevalent than in enterprise. In our last analysis, there were just four (or 10%) companies who ‘pivoted’ from their original product vision; and all were consumer companies. The “pivot club” now includes enterprise companies like Slack and MongoDB; and consumer companies like FanDuel, Lyft, Nextdoor, Wish and Twitch.
10) There’s still too little diversity at the top in 2015, but there is movement in a positive direction on gender.
- On our last list, there were no female CEOs. So we welcome the two companies on our list with female CEOs: Houzz and Gilt Groupe. And the 10% of companies with female co-founders (up from 5%): CloudFlare, EventBrite, FanDuel, Gilt Groupe, Houzz, NextDoor, Kabam, and The Honest Company. So while 2.4% of CEOs is little to celebrate, this is an improvement from zero.
- It is not easy to figure out from publicly available information, but we estimate about 30% of companies in our set have no females on the leadership team. The majority of female senior leaders we could identify are in CFO, VP HR, GC, Sales and CMO roles; we could only find a few companies with female leaders in product or engineering, which seems like a great opportunity for progress. And Kudos to Gilt Groupe, Lending Club, New Relic, and ZenDesk who seem to have among the most gender diverse teams in our set.
- From what we can tell, ~70% of companies in our set have no gender diversity at the board level. This also seems a huge opportunity to improve outcomes and send an important message from the top. We won’t call out the companies with no diversity on their leadership teams or boards – but they exist, and we hope they are paying attention to this important driver of outcomes and culture. Efforts like Sukhinder Singh Cassidy’s BoardList will help identify great candidates for these boards.