ByteDance, SpaceX, and Shein—what do these companies have in common? They’re all “unicorns,” which refers to privately-backed companies with billion-dollar valuations. A decade ago, those were rare and remarkable creatures—hence the name. But now, as billion-dollar companies become more common, the term doesn’t pack the punch that it used to.
The number of unicorn companies has surged from 87 to 1,381 over the past 10 years, according to a new report from Morningstar Unicorn Market Monitor. Part of what’s driving up outsized late-stage deals is investors’ fear of missing out on the next big company that would bring in significant returns. The total market value captured by unicorns has soared from $235 billion to $4.5 trillion, the report found.
Within the world of venture capital, it’s often the case that only a select few companies, as exemplified by unicorns, generate the majority of a fund’s return, Morningstar writes.
The US remains home to most unicorns, but China and India have experienced the fastest growth since 2020, by 63% and 200%, respectively, according to the Morningstar report.
The origins of a unicorn company
The term “unicorn” first surfaced a decade ago when Aileen Lee, the founder of Cowboy Ventures, a seed-stage fund that backs software companies, wrote a blog post for TechCrunch titled “Welcome To The Unicorn Club: Learning From Billion-Dollar Startups.” She identified 39 companies that belonged to the “Unicorn Club,” which the firm defined as US-based software companies started since 2003 and valued at over $1 billion by public or private market investors. At that time, Facebook was the “super-unicorn,” worth more than $100 billion.
Each major wave of technological innovation has given rise to a super-unicorn, Lee wrote. The 1970s marked the birth of the personal computer, giving rise to Apple, and the 2000s ushered in the dawn of social networks and Facebook. By that token, the 2020s super-unicorn will almost surely be powered by AI.
AI remains a bright spot for VC funding
In 2023, VC fundraising hit a six-year low in part due to the collapse of Silicon Valley Bank and Signature Bank. Last year, just 81 unicorns were created worldwide, a steep drop from the 330 that emerged in 2022, the report found.
Funding may still be down, but unicorn companies in the AI space are popular. Of the new unicorn companies in 2024, 44% were dedicated to AI and machine learning, according to the report. Thanks to demand for chatbots, AI startup OpenAI is reportedly worth $80 billion; its rival Anthropic is valued at more than $18 billion.
Unicorn companies are staying private for longer
Notably, unicorns are living longer than ever, with their average life span to exit increasing from 6.9 years to 10.7 years, Morningstar found, signaling that private companies have ample access to capital to sustain their growth.
While public companies have market caps that are easy to calculate, several factors go into informing the value of a startup, ranging from growth projections to a founder’s ego, as Quartz has written about previously. As a result, it’s possible that when unicorns finally decide to IPO, they end up going public at lower-than-expected valuations.