Definition of a Unicorn:
Unicorn is the term used in the venture capital industry to describe a startup company with a value of over $1 billion.
In between saying that I would write this blog in my 21st anniversary LinkedIn post at the start of September and actually writing it two months later, I was beaten to it.
That in itself is perhaps a good illustration of one of the rules for running a successful tech company that I have seen – as soon as you have a great idea, you need to act on it quickly, before someone else beats you to it!
James Church from Robot Mascot is the author of a book that I have often recommended to our clients, “Investable Entrepreneur”, which is a guide to improving your chances of raising investment.
His LinkedIn post about the 6 Common Traits of Unicorns covers everything that I was going to say from my observations after 21 years of working with early stage tech companies about the attributes of our most successful clients.
Fortunately though,
(a) he has kindly given me permission to summarise what he said and
(b) his 6 traits fit nicely into the 3 observations that I made in my 21st anniversary post about what I considered the keys to success which are:
- Find Your Tribe
- Be Clear on Your Goal
- Persevere
Find Your Tribe
Common Trait 1 – Reputation of Early Stage Investors
Unicorns tend to have well known investors behind them who can give them advice, introduce relevant advisors and give them leads/contacts at potential customers and follow on investors in the next round, as well as having deep enough pockets to follow on themselves (see Trait 2).
Common Trait 2 – Size of Investment Raised
Unicorns raise twice as much as non-unicorns in their first round and three times as much as non-unicorns in their next round.
Be Clear on Your Goal
Common Trait 3 – Size of Market
Unicorns have their strategy right and target markets that are very large or potentially large and growing.
Common Trait 4 – Products that Save Time and Money
Unicorns usually have products that save their customers time and money rather than just being for convenience or entertainment.
Common Trait 5 – Painkillers
Unicorns’ products usually solve a problem for their customer and take their pain away.
However, 30% of unicorns are instead “vitamin pills” rather than “painkillers” and improve upon an existing product.
Perseverance
Common Trait 6 – Experienced Management Team
Unicorns usually have a management team who have experience of running a business in the sector – but that experience does not necessarily have to include only successes; good experience comes from failure too.
A Final Thought
Is the Problem as much about Funding Unicorns as Finding Unicorns?
Investors need an exit when they invest in tech companies.
In 2002, when I started my business, a stock market listing was much more of an option than it is now and without that option, selling the company becomes almost the only viable exit and it may happen before the company can grow to become a unicorn.
Perhaps this is why there were only 3 Scottish based Unicorns listed in Beauhurst’s latest report on Unicorns in September 2022.
Andrew Craig, author of the investment guide “How to Own the World” has written about this.
The London stock market has lost over 1,000 companies in the last 16 years, with the number of listed companies falling from 3,250 in Q1 2007 to 1,908 in Q2 2023. That’s a fall of over 40%. (See Note 1)
He cites several reasons for this:
Pension funds switched their holdings away from UK listed companies to long term government bonds, driven by changes in accounting rules in 2000 requiring companies to recognise pension fund deficits on their balance sheets. UK listed companies have fallen from about 50% of their portfolios to 4%. Fixed income holdings have increased from 17% in 2000 to 72% in 2022.
Banking regulation – MIFID II & RDR drove smaller investment banks that research and invest in smaller companies out of the market.
Investment in crypto has been unregulated and has partly replaced investment that might have occurred in “real” companies.
Passive investing – investment in passive funds has increased but investing based on following indexes just drives more investment into the existing larger companies rather than into new smaller companies.
There is not enough investment in the stock market by the general public. Only around 7% of the UK population paid into a stocks and shares ISA in 2021/22.
Note 1
Number of companies on the LSE 2007-2023 | Statista