Entrepreneurship: How Unicorns Grow [HBR Jan - Feb 2016]

The Jan-Feb 2016 edition of HBR had an article about “unicorns” – defined as private, venture-backed companies valued at a billion dollars or more. I wonder when “unicorn” became a business term. As a child, a unicorn to me was a mythical creature usually silvery white with a pointed spiral horn protruding from its forehead.

Now, “unicorns” refer to start-ups such as Uber and Airbnb that are valued by venture capitalists at humongous amounts. Small businesses used to have to obtain loans from banks. Now start-ups, typically technical in nature, pitch to private warchests which then by some method, value these start-ups and provide them with through various rounds of funding, huge amounts of capital.

Jim Goetz, partner at Sequoia Capital, did not think that we are currently in a bubble, as in “many cases investors are protected from much of the downside by terms that make the deal look more like debt than equity”.

There were many new terms and concepts in the article to me, such as “unicorns”, value proposition, upsides. The fact that venture capital firms provide funds to start-ups with a view to “exit” – IPO or sale of the start-up to a larger company set me thinking: founders who sold their start-up to much larger firms cash in huge amounts and can go on to set up another start-up. Could this be a cycle where they are constantly in the start-up space and because they never had the opportunity to take their companies to the magnitude of large companies, they could never acquire the experience of managing such large organizations that they could have built up themselves, unlike family businesses where they might have started small and continued to grow while remaining in the family?