Unicorns are still mythical creatures: the unmaking of A myth!



Over the last decade we have seen a variety of investors, governments and businesses laud the virtues of unicorns as the key to growth and commercial success.


If you believe this mantra, then the key to national economic success depends on the creation of unicorns, which befitting their name, are endowed with magical powers: countries can judge their relative success by the number of unicorns they can spawn.


So what exactly is a Unicorn?

In the original incarnation, a unicorn was of course defined as a mythical animal typically represented as a horse with a single straight horn projecting from its forehead.


This was then generalised into the notion of something that is highly desirable but difficult to find or obtain.


In the simplest terms a tech unicorn is a company that has been valued by investors at more than one billion dollars but it is important to understand the origins of this definition.


The use of the term in relation to business has become part of the lexicon for public and private investors, entrepreneurs and anyone working in the technology industry. See this article on Tech Advisor.


Enter Aileen Lee the venture capitalist, who in 2013 decided (in quite an arbitrary move) to define a Unicorn as a start-up company valued at more than a billion dollars, typically in the software or technology sector.


Over the last decade, many have argued that this arbitrary number should be increased to allow for inflation so that these companies should be valued at more than a billion dollars.


What is missing is any caveat about how this valuation is arrived at, so that many of these unicorns may have private (i.e. untested) market valuations of this size even if they have negligible revenues.


While we may argue about the precise thresholds used for this definition, the truly pernicious effects of this mind-set are felt in 3 critical ways:


  • The assumption that the true metric of success is the number of unicorns in an economy (which enables politicians and leaders to talk enthusiastically about the need for more unicorns!)

  • The escalation of this attitude which measures national success by the number of these outsize businesses (notwithstanding the negative economic impact of monopolies) and leads to the gutting of the‘'mittelstand‘ space with less support for mid-size companies.

  • The distortion of investment and funding strategies where most of the capital goes to these big guys leaving a desert for the others; regulation favours these outcomes, dwarfing nation states. Some countries are beginning to understand this - the Chinese action on the Ant IPO in 2021 was not a response to the hubris of Jack Ma, but a well-thought through reaction by the strategists in Xi Jinping's leadership team.

As our detailed data-driven research on this subject conducted from 2010 to 2016 showed(1) , the strength of any eco-system depends crucially on a mix of a large volume of innovative companies patiently building their products and services ( what we call Camels), companies with accelerated market entry strategies (which we call Tigers) and the few very large success stories (preferably real and not contrived, so not quite Unicorns) – this is what we should focus on to build sustainable economies, not merely short term gains for speculative investors.


Let’s challenge this over-exuberant desire for more Unicorns!


(1) Phadke & Vyakarnam (2017), Camels, Tigers & Unicorns: Re-thinking science and technology-enabled innovation, World Scientific Press, London.