What’s the Secret Behind Unicorns? New Findings Might Reveal Hidden Truths

What’s the Secret Behind Unicorns? New Findings Might Reveal Hidden Truths

Ilya Strebulaev, venture capitalist expert and Professor of Finance at Stanford University, examined data on billion-dollar startups.

Not only the mystical creatures, but also corporate unicorns are subject to myth, legend, and a certain sense of magic. Entrepreneurs and investors alike have been trying to unravel the secrets behind the hype. How can we really measure and assess what drives billion-dollar startups to become extraordinary?

It seems, Prof. Strebulaev tells, this continues to be a challenging quest, since comprehensive data on unicorn startups is sparse. He and his team have made it their mission to intervene. The researchers have been compiling data on every U.S. unicorn since 1995 – including formerly unheard tech firms like Tesla, Uber, and Facebook.

“Every single time a company becomes a unicorn, it gets into my data,” he says.

Strebulaev’s team has been tracking more than 530 unicorns (defined as privately held, venture-backed startups with a reported valuation of $1 billion or more). He first shared his data with his class on VC financing. When students seemed interested, he decided to share his findings to a broader audience.

Onto what we’ve all been waiting for – Strebulaev’s unicorn stats:

  • Just under half of all founders were under 40 when their companies became unicorns.
  • Almost nine out of ten unicorns have only male founders; Only 1.5% have all female founders.
  • 5% of unicorn founders have an MBA degree or equivalent. Fifty-six are college dropouts.
  • Nearly 60% of unicorns were headquartered in California when they became unicorns. A third of a typical unicorn’s employees are in California.

However, Strebulaev reminds us to take caution. The data is only descriptive and shouldn’t be used to draw correlations or conclusions. For example, he found that one in 20 unicorn founders went to Stanford, which actually doesn’t mean anything, as he explains. “Because if you take 10,000 venture capital-backed companies, you’ll find out that many of them have a Stanford co-founder.”

But Strebulaev’s research is only in its infancy. His team has gathered data on 150 variables for each company, including information about founders and investors. He plans to continue to release more numbers while he finishes a more detailed study that compares unicorns with other VC-backed firms. When they go up against more ordinary-seeming companies, will unicorns prove to be exceptional?

Some of the team’s previous research suggests a healthy dose of scepticism. In 2017, they showed that many unicorns were drastically overvalued. Some were even found to not be unicorns at all (the gap between some firms’ reported valuation and fair valuation was as much as 196%).

It seems, our fascination with the mythical creatures continues. Still, Strebulaev wants to get to the bottom of things. “I wouldn’t say that I’m really that interested in the unicorns for unicorns’ sake,” he says. “I’m more interested in defining success and factors behind venture capital-backed companies. Unicorns are really only the first step.”

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