Unicorns. No, not the magical horses with horns on their heads that gallop through the fantastical children’s fairy tales of old. I’m speaking about a different type of unicorn. This is a term that some of you may have heard before to describe a certain kind of company. Companies that seem to come out of nowhere, drawing loads of attention in the process and producing major windfalls for their investors. We’ve all seen these companies before, but are they really as enchanted as their namesake would suggest?
I’ve studied this phenomenon in the past and what I can say is that people read headlines about ‘unicorns’ and the billions of dollars in profit that they generate and of course, they immediately want in. The problem here is that it’s really not that simple. Those impressive numbers aren’t always an accurate representation of reality, in much the same way that ‘make-believe’ unicorns are just that…imaginary.
What are unicorns?
Perhaps we can gain a little more clarity on this phenomenon if we look at the origins of the term. Cowboy Ventures, founded by Aileen Lee, sought to determine just how often a venture capital investor could find a start-up that carried a valuation of $1 billion or more.
In 2013, they represented roughly 0.07% of all the venture-backed software businesses. She coined the term “unicorns” on account of the fact that they were so rare, with the average number of ‘unicorns’ being about four per year during the decade she was researching the trend. The name stuck, however, and now it refers more to the value of a company than to its rarity. There have been over 100 identified ‘unicorns’ every year since 2018 (the 2020 numbers were extrapolated, but nonetheless, very likely to break 100).
Is being a unicorn a sign of success?
The number of unicorns continues to rise each year and it raises questions as to what that all means. How would a company get valued at such an extraordinary number? The fact of the matter is that it is primarily estimations, but don’t you dare let the financial magicians hear that. Instead of calling it estimation, let us rather call it modeling. Experts will generally look at what they expect a company’s future performance will look like, typically when it has finally reached a status where it can be called a “stable” company (as opposed to a start-up) and then they apply those projections to the current operations of a company and its financials.
If you extend that to future projections and expectations for future returns, you come up with a valuation. This valuation is generally reached by the start-ups themselves, or sometimes by venture capitalists who may be interested in investing in said companies, or by the banks. As such, you can understand how these figures are sometimes overly optimistic in their projection.
However, in a sense, this is necessary since a lot of start-ups are still working on deciphering just how to monetize and capitalize on the product or service they’re offering (think Facebook or Google, for example). Sometimes these start-ups ultimately turn out to be resounding successes. Of course, there are “less-than-success” stories too, like Groupon or WeWork, as discussed below.
How can I invest in unicorns?
Generally, investments in these so-called unicorns tends to be done in the sphere of individuals with a high net worth, private equity, and venture capital. Seperate investors outside that sphere will typically have to wait until the ‘unicorn’ company in question is acquired or merges with another company that they can invest in. Either that or wait hopefully until the unicorn eventually goes public in an IPO.
The difficulty with an IPO in this situation, however, is that ultimately the valuation we touched upon earlier in this article will inevitably receive a greater degree of scrutiny. WeWork (as mentioned before) failed to even make it to IPO due to the fact that it was so hard to sell a company at a worth of $10 billion that essentially leased office space to sublet at monthly subscriptions. Groupon (also mentioned before) did manage to make it to IPO, the biggest tech firm since Google to do so at the time, but then ultimately lost over 80% of its value within the first year because of suspicious accounting practices, among a number of other missteps and slips.
Learn more about unicorns from an expert
Perhaps our unicorns should remain exactly where we first discovered them- in fairy-book childhood fantasies.
Nonetheless, there is nothing wrong or unreasonable in wanting a stellar return on your investment.
To ensure that you are setting your money towards the best opportunities available to you, it is always prudent to check first with a trusted financial consultant. I’m Richard Cayne of Meyer International in Bangkok Thailand and Asia Wealth Group Holdings listed in London UK, and this is just one of the many areas in which I help to advise my clients on the best possible investment strategy for making their dreams become reality. I have years of experience to my name and a range of successful investment strategies at my disposal so that you don’t have to worry about chasing unicorns.
Richard Meyer Cayne a native of Montreal, Quebec Canada has been in Asia for over 25 years. Having relocated to Tokyo Japan in the mid 90’s and working in the Wealth Management space. In the year 2000 Richard started Meyer Asset Management Ltd in Tokyo Japan which had a Japanese High Net Worth Client focus.
Richard Meyer Cayne has helped many High Net Worth Families with issues such as wealth accumulation, succession planning as well as overall portfolio construction and management using modern portfolio theory. Richard Cayne has helped from both very basic beginner portfolios to advanced extensive portfolios and has assisted thousands of Japanese accomplish their financial planning goals and objectives. Richard continues to try and make a difference in his client’s lives and always encourages his clients to discuss their family’s finances with their children in the hopes of getting them involved in understanding how the family can preserve and grow its wealth and contribute new ideas towards the common goals of the family.