Growth and instability of global unicorns

Private companies valued at over $1 billion and called unicorns flourished in 2021, doubling in number globally. The U.S. is home to most of those companies, but China has some of the most highly valued. In 2021, 519 new unicorns emerged, bringing the total number worldwide to over 1,000 at the beginning of 2022.

Unicorns were rare until eight years ago. Before that, startups would take their companies public to raise capital to grow after two or three rounds of venture capital funding.

Now more sources of funding are available. Private equity firms have historically invested in mature companies but lately are willing to fund early-stage startups. Today it is not uncommon for companies to have five or six private funding rounds, permitting them to reach billion-dollar valuations without going public.

According to CB Insights, there are more than 1,150 unicorns worldwide, as of June 2022. Forty-seven countries have at least one unicorn. The U.S., China, and India are leading with 612, 174, and 65, respectively. In Europe, the U.K., Germany, and France lead with 43, 29, and 24. The four cities with the most unicorns are in the U.S. and China.

The most valuable global unicorn at the beginning of 2022 was ByteDance, the Chinese tech company that owns TikTok and several other platforms in various industries. Its valuation then was $140 billion.

The top 10 unicorns have a combined valuation total of $698 billion at the end of last year.

At the end of 2021, there were 157 fintech unicorns, with 81 located in the U.S., according to Statista. China came in second with 11. CB Insights reports that fintech unicorns lead in valuations with a combined value of $926 billion.

In 2021, unicorn companies in the U.S. took in $142.3 billion in new funding, more than double the previous allotment. In the first quarter of 2022, 75 companies achieved unicorn status, according to PitchBook.

Unicorns in the U.S. raised $27 billion in 134 deals in Q1 2022. Of the top 10 new American unicorns in that quarter, 60% were fintech, and five of those six were associated with blockchain or cryptocurrency.

The public market determines the valuations of publicly traded companies. Conversely, the valuations of private firms are dictated mainly by investors interested in creating a high value, often without compelling data to back it up.

Private companies do not have to disclose detailed financial and operational information, that’s why their status is often opaque. Unicorns attract media attention, which can inflate or deflate valuations, depending on the publicity.

For example, the blood-testing company Theranos, valued at over $9 billion at its peak around 2013, plunged to $800 million a few days after published reports revealed the product did not work and revenue was relatively modest. The company shut down at the end of 2018, and founder Elizabeth Holmes’ net worth reportedly dropped from $4.5 billion to nothing. The company eventually sold its patents and intellectual property for only $65 million. Investors lost all their money.

So the tendency is that unicorns will likely continue making spectacular entrances, but valuations can be fleeting.