Understanding economic unicorns
Growing up, many are made aware of the mythical creature known as the one-horned horse: the unicorn. It is an elegant creature, in fact, as far as we know, nonexistent. Similarly, in the world of business, very large companies valued at $1 billion or more are labeled “unicorns.” They are few and rare (at least once upon a time) and last year was predicted to be the biggest year of unicorn discovery in United States history. What was once deemed a mythical creature has been brought to life.
According to Crunchbase, a platform for finding business information for both private and public companies, by August of last year, 65 companies had reached the “unicorn” status, with their valuation sitting at $1 billion billion or more by this year’s mid-point mark.
Private investors were said to have invested more than $73 billion into these “unicorns” in just the very first few months of 2018. In 2017, $98 billion were invested in the year’s total, from the same private investors, into similar unicorn companies. That puts 2018 at a startling boost to its preceding year. Some of the new “unicorns” are Juul, the dominant, apex predator of the e-cigarette market, and music streaming giant Spotify. Others include names such as Bitmain, Lime and Circle.
With regards to the U.S.-Sino Trade War, now at a ceasefire following the G-20 dinner, both the U.S. and China have seen 26 companies reach the value of $1 billion or more this year. It is understood globally that China is slower to release company valuations publicly, which leaves an open question: does China have a larger startup incubator than the U.S.? Public sentiment believes this to be the case, but of course only time will tell with the impeding recession headed in China’s direction.
A bigger issue with these “unicorns” is how they are assigned a monetary value in the first place. Does valuing a company at $1 billion or more really consider most parts of the company and, if so, would it be better to keep it undervalued rather than overvalued for the sake of growth and yield for investors? This question has been asked to top investors in corporate America, and their opinions have been mixed. For some companies and services, such as cryptocurrencies, the product cannot be looked at the way it is now. The entirety of the “blockchain technology” system is banking on the assumption that it will eventually be implemented. Some central banks have even started talking about implementing cryptocurrency to prevent money laundering and ease the currency-issuing system. One such central bank is the Bank of Israel, which obviously raises bigger questions in its proposed implementation process. Other companies have looked into adding big delta to industries like data analysis and transportation.
Farming, an issue as a recent Goldman Sachs briefing shows, food supply and agricultural output will have to increase by 70 percent to maintain its pace with population growth. This issue is one constrained by the limits of natural resources today, which relies on technology being able to offer something different. Ideas like precision farming have done exactly that and are working to create more for the globe while implementing new sustainable measures for the environment.
Even companies like Mecai, in China, have used technology to bring business from rural farms to cities by connecting the Chinese farmers to restaurant owners. There is seemingly no boundary to the development of economies as inter-industry connections increase through technological efficiency.
As Warren Buffet might point out, the growth investor will look for the growth in the long run and not be enticed by the whims of the current market fluctuation. If this is the case for unicorn investment, one might be forced to consider the globe itself as a long-term investment. Technology seems to be “one of those things” that will enhance globalization and be that single salvation to finally bring emerging markets up to speed. The only thing lacking is the skills of people in those markets, which creates a geographical divide based off of career expectation and growth opportunities that simply cannot be offered. Whether it be in the environment of electric cars or data analytics tools, which are helping back up companies to the cloud, there is much to be done, and it challenges the minds of children today to achieve higher goals and higher successes.
The business model described above is way beyond anything people have seen in the last century. From here on out, the globe is moving at hyperspeed. During this transition phase, as an investor in venture capital, do not be distracted by the dollar signs; instead, be focused on the innovation and potential for development. Just remember that you will be given the choice to read your story to your children one day in the future when they are going to sleep at night. When the time comes to read about unicorns, what will you tell them?