- Unicorns bring with them an additional layer of credibility by recognising that the company has a globally viable and scalable model which creates investment momentum
- Unicorns have hyper-growth strategies to capture the biggest market share by using technological innovations that can reach the target audience more effectively than traditional companies.
Ever hear of Google? It is a verb these days. A household name that people use to signify using a search engine on the internet. Uber? A verb to hail a cab. These are examples of companies with valuations over US$1 Billion before they went public. Hence, their valuation is primarily based on their growth potential and not necessarily related to financial performance. Despite these high valuations, many companies have yet to generate any profits.
Venture capitalist Aileen Lee coined the term unicorns in 2013 to describe those companies that were as rare as the mystical beast. These days, however, there are a few more around with CB Insights putting the number at 728 as of June 2021 compared with 39 when the label was first introduced. The total valuation of these 728 companies is northwards of $US 2.3 trillion.
Of course, the benefits of achieving unicorn status seem obvious to most. The title instantly brings with it an additional layer of credibility to any proposition, by recognising that the company has a globally viable and scalable model which in turn creates investment momentum.
Valuing unicorns is a sophisticated process that involves the consideration of various factors and the development of long-term forecasts. Additional complications often arise due to the business models of such companies. Some companies become the first business of their kind in an industry, which makes the valuation process even more complicated.
Reasons For High Valuation in Unicorns
A start-up must grow at breakneck speeds to capture the biggest market share as soon as possible. Start-ups also must keep an eye out for the emergence of rivals and must always stay one step ahead, be it in providing the most cost-effective service, or ease of accessing the product offered. Hence, venture capitalists invest large amounts of money in every round to achieve the fastest growth.
Many promising start-ups do not always take the IPO route. Tech giants such as Apple, Facebook, and Google acquire these start-ups to diversify their business portfolios. This prevents a potential major competitor from arising in the marketplace and these tech giants also benefit from these deals as they can acquire developed, often proven technologies rather than develop something similar from scratch. Competition amongst these tech giants increases the valuation of the start-ups, creating unicorns.
Technological innovations are utilised in most start-ups to grow faster than traditional companies and they can reach their target audience faster and more effectively. This helps the start-up companies achieve mass production of their product sooner and achieve higher valuations.
With these potential upsides of investing in early-stage start-ups, the rewards for getting in on the investment early can be huge, potentially life-changing. A unicorn that is successfully brought to IPO has the potential to offer returns the likes of which an investor may never experience again. If chosen well, the unicorn may turn out to be the next big thing (Apple, Google, Facebook, Tesla).
Investing In Unicorns
Other than founders and their early employees, only those ultra-wealthy enough to invest in venture capital (or to act as angel investors) have had access to unicorns. The high minimum investments required to invest in a venture capital fund – which can often be up to a million dollars or more - have traditionally put them out of reach for the vast majority of individual investors.
ADDX, however, democratises venture capital investing by making potential unicorns available to investors for as little as S$10,000 to participate in primary offerings and as little as S$100 to trade.
To qualify as an ADDX investor, investors need to meet one or more of the following conditions:
•Yearly income of at least S$300,000 or
•Net financial assets of at least S$1,000,000 or
•Net total assets of at least S$2,000,000
ADDX is your entry to private market investing. It is a proprietary platform that lets you invest from USD 10,000 in unicorns, pre-IPO companies, hedge funds, and other opportunities that traditionally require millions or more to enter. ADDX is regulated by the Monetary Authority of Singapore (MAS) and is open to all non-US accredited and institutional investors.