Why does venture capital investors seek unicorns?

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The emergence of unicorns in the world has caused disturbance since ancient times. The interest in finding one of these magical creatures was associated with the characteristics that made it unique. Currently,venture capital investors focus their attention on discovering these mythological beings in the entrepreneurial ecosystem.

In theentrepreneurial ecosystem, when an emerging company archives a valuation of one billion dollars, it's called a unicorn.For investors these companies are synonyms of value to their portfolios.

Venture capital investors allocate their capital in these companies for their growth potentials and the promise of greater profitability. This situation generates that 56% of investors chose to invest in companies with the denomination of unicorns, according to an analysis by CB Insights.

The dynamism has led more than 1,000 unicorns globally, of which 554 are in the United States, a country that remains as the principal of the market for companies valued in more than one billion dollars. China also stands out with 190, and India with 64 unicorns.

What are the unicorn companies?

When a venture archives a valuation for one billion dollars without being listed on the stock exchange, it's called unicorn as a reference to the mythological benign impossible to find.

Condition of new companies and startups since the pandemic caused more interest for adopting technological solutions as innovative solutions to adapt to the new normality.

This technological and innovative dynamism among the entrepreneurial ecosystem achieved the emergence of unicorns raised 3 times during 202 as result of the transformation of different sectors such as e-commerce, fintech, hardware, software, cybersecurity, consumption, among others.

However, for a company in its early stage it is difficult to achieve this denomination in the venture capital market, so when it wins it, it becomes one of the most valued organizations in the market. Only 10% of emerging companies are recognized as unicorns, according to IEBS Business School.

Hasta ahora la mayor concentración de empresas unicornio se concentra en los Estados Unidos. Aunque la región de América Latina representa un mercado potencial, en particular, países como Colombia, México y Brasil.

Invest or not in unicorns?

Like the first technological projects and the evolution that it represents for different sectors, the integration of a company with the unicorn recognition turns out into a profitability guarantee and the most wanted projects among venture capital investors to achieve those benefits.

The road for these unicorn companies to achieve this valuation is not easy. Companies with the potential to achieve the growth and profitability would take years and large amounts of capital with traditional alternatives. 

However, through investment rounds in venture capital achieved this expansion in a shorter period of time. Which for some investors could be translated into uncertainty about the possibility of not being able to maintain that level of growth and profitability.

The IEBS Business School share this principal obstacles for a company to achieve the unicorn valuation: 

  • The startup or venture must have at least ten years operating.
  • The company must not be listed on the stock exchange or have been purchased by another company.
  • For a unicron to get the recognition it must be a venture with high growth potential.
  • This possible unicorn company represents high risk which makes the investment profitable in venture capital.

Generally, investors prefer to get involved from the beginning with the intentions of seeking more equity, greater control and higher returns. To detect an opportunity for a unicorn, venture capital investors evaluate the number of capital injections since the initial stage and its evolution.

Venture Capital investors

In the venture capital community,are the investors bets with the greatest profit potential. However, international investors keep their attention in companies with high growth and innovation potential, no matter if they have or not the unicorn recognition.

Within the entrepreneurial ecosystem other types of companies with denominations such as zebra, camel or gazelle are promising alternatives to the industry. This is due its innovative proposal to the market and its potential for sustainable growth. 

These types of companies are emerging as the new pillars of the ecosystem, due to the decrease of unicorns globally. In an analysis of IEBS Business School , it is pointed that the interest to invest in unicorns for its profitability continues and also, more and more investors choose other types of company with a profitable growth projection.

In the venture capital industry, international funds are still interested in unicorn companies, but also for other types of valued companies for their portfolios. Here we list the top 10 venture capital funds that invest in unicorns.

  1. Gestión Global de Tiger
  2. Grupo SoftBank
  3. Tencent Holdings
  4. Sequoia Capital China
  5. Manejo de Coatue
  6. Sequoia Capital
  7. DST Global
  8. Acelerar
  9. Andreessen Horowitz
  10. Goldman Sachs

For venture capital investors, emerging companies that generate value on their portfolios will be those that propose an innovative business model and, with a positive social and economic impact.

At WORTEV CAPITAL we are a venture capital fund, whose main objective is to generate an ecosystem for investors and entrepreneurs that positively impacts everyone. A través de nuestro modelo estimulamos el crecimiento de empresas mexicanas en etapas tempranas en los sectores de innovación y tradicional. Conoce todo sobre nosotros en este ebook.

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Estos inversionistas apuestan por más emprendimientos con el potencial de ser una empresa unicornio.

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