Eight Judgments and Conclusions about Unicorns

Eight Assessments and Conclusions on the Existence of Unicorns

Author: Yan Deli, Senior Expert at Tencent Research Institute

The unicorn hesitated several times and its legs weakened when it crossed Erlang Mountain,

The Nine-headed Bird broke through the Eight Trigrams Formation and sacrificed everything.

The unicorn is a mythical creature that is beloved by teenagers; it is also an economic and technological standard. In November 2013, Chinese-American venture capitalist Aileen Lee chose the term “unicorn” to refer to those “start-up software companies founded after 2003 and valued at over $1 billion.” Since then, the unicorn has become an important indicator for measuring entrepreneurial innovation.

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The definition of unicorn:

“Two consensuses, three inconsistencies”

So far, there is no strict consensus on the definition of unicorn. The basic consensus is “start-up companies valued at $1 billion,” which means unicorns must meet two conditions:

(1) Valuation scale: Reaching $1 billion. The implicit premise is that the company has received venture capital.

(2) Company type: It is a start-up company, not a listed company.

These are the “two consensuses” about unicorns. In addition to these, there are different criteria for defining unicorns in terms of company age, industry, and independence, which can be called the “three inconsistencies”:

(3) Company age: There are mainly three situations: no specific requirements, setting the earliest deadline for company establishment, and requiring “establishment time not exceeding ten years,” which is more common in Chinese media and less noticed in foreign literature.

(4) Industry: Is the definition of unicorns limited to technology companies, or can companies like Genki Forest, a tea beverage company, be counted as well?

(5) Independence: Can subsidiaries spun off from large companies be considered unicorns? For example, Waymo, Ant Group, JD Industrial Products, BYD Semiconductor, etc. This criterion has a wider range of implications.

Significant differences in unicorn rankings

There are many unicorn research institutions at home and abroad, such as Sifted, Beauhurst, Venture Intelligence, and Great Wall Strategy Consulting, which focus on the European, British, Indian, and Chinese markets respectively; and CB Insights and Crunchbase, Dealroom in the Netherlands, IT Juzi and Hurun Research Institute in China, which track the global market.

However, there is a significant difference in the unicorn rankings published by these institutions, and there is no universally recognized (or perfect) list. For example, according to CB Insights, there are 1,226 unicorns globally, while Crunchbase lists 1,475 unicorns; Dealroom states that there are 239 unicorns in China, but Zeppelin macro research claims there are 514. The figure below shows this. This is not only due to inconsistent standards, but also because of different methods of information acquisition and varying speed of information updates.

Figure 1: Global and Chinese unicorn count, as reported by different institutions

Data Source: Tencent Research Institute, compiled in October 2023

The analysis below is based on data from CB Insights up to September 26th this year.

Distribution of Existing Unicorns:

China remains in second place, but the proportion is decreasing

Since the unicorn list was established, the United States has consistently been in first place, while China has held second place. For a long time, the United States accounted for 50% of the unicorn count, while China accounted for the remaining 25%. Currently, China still holds second place, but the gap with the United States is widening, and its advantage over third place is shrinking.

According to CB Insights data (as of September 26th), the United States is clearly in the lead, with over half of the world’s unicorns and valuation, with a total of 657 unicorns and a valuation of over $2 trillion.

China alone (excluding other regions) has 172 unicorns, ranking second and accounting for 14.0% of the world’s total; the total valuation is $640.5 billion, accounting for 16.7% of the world’s total. Compared to last year (based on data from June 13th), both the absolute quantity and proportion have decreased.

The European Union ranks third, with 104 unicorns; among them, Germany has 31 and France has 25. Including India, the United Kingdom, Israel, and Canada, these seven countries and regions account for 90% of the unicorn count and valuation, forming the “Unicorn G7.” As shown in the following figure.

Figure 2: Global distribution of unicorn companies

Data Source: Compiled based on CB Insights data (on September 26th, 2023)

Hectocorn (companies valued at $100 billion) is the king among unicorns. Last year, there was a rare phenomenon of three hectocorns coexisting, namely ByteDance, SLianGuaiceX, and SHEIN. Currently, they are still the top three unicorns, but their valuations have changed. ByteDance and SLianGuaiceX have both increased to $225 billion and $137 billion, respectively; SHEIN has dropped to $66 billion and is no longer in the hectocorn club. Ranking from fourth to tenth are Stripe (US), Databricks (US), Canva (Australia), Revolut (UK), Epic Games (US), Fanatics (US), and OpenAI (US), with valuations ranging from $29 billion to $50 billion.

Distribution by Cities:

San Francisco is the home of unicorns‍‍‍

San Francisco is the high-tech mecca and the gathering place for unicorns, with a total of 171, equivalent to the sum of unicorns in mainland China. The San Francisco Bay Area where it is located has as many as 291, and the state of California has 339. In recent years, there has been a joke: in terms of steel production rankings, China is first, Hebei Province is second, Tangshan is third, and the United States is fourth. Unicorns are similar, with the United States in first place, California second, the San Francisco Bay Area third, China fourth, and San Francisco fifth. San Francisco is to the United States’ unicorns as Tangshan is to China’s steel industry.

From the perspective of cities (metropolitan areas), the number of unicorns in the San Francisco Bay Area (291) and New York (120) ranks first and second respectively, taking the lead. Beijing (63), London (43), and Shanghai (41) rank third to fifth respectively. Shenzhen (19) also made it into the top ten. The top 11 cities (metropolitan areas) account for 58.6% of the global unicorn count. As shown in the figure below.

Figure 3: City Ranking of Unicorn Count

Data source: Compiled according to CB Insights data (September 26, 2023)

Age Structure:

China is facing the risk of aging

Media often use the stock of unicorns to measure the level of entrepreneurship and innovation. In fact, the age structure of unicorns is very important. The increment is at least equally important as the existing stock.

This year is a slow year. As of September 26, only 45 new unicorns were born worldwide, accounting for 3.7% of the total. Among them, the United States accounts for more than half with 23 unicorns; China ranks second with 5 unicorns – Huasheng New Energy, Maitian Energy, Xuzhou Bokang, Chabaidu, and Chipu AI; the European Union (all in Germany) and the United Kingdom each have 3 unicorns.

2022 was a big year, with 259 new unicorns born globally, accounting for 21.1% of the existing stock. 2021 was a super year, with 514 new unicorns born globally, accounting for 41.9% of the existing stock. As shown in the figure below.

Figure 4: Number and Proportion of New Unicorns in the Top Seven in the Past Three Years (Note: Excludes exited unicorns)

Data source: Compiled according to CB Insights data (September 26, 2023)

Among the G7 unicorns, Israel, the United Kingdom, and the European Union have relatively young unicorn populations, with the proportion of new unicorns since 2022 in the stock hovering around 30%; only China falls far below the average level (24.8%), with only 13 unicorns, accounting for 7.6%, facing the risk of aging. In terms of absolute value, the number of new unicorns in China ranked third with a slight disadvantage in 2021, slipped to fifth in 2022, and returned to second place this year; the number of new unicorns since 2021 is also third, and since 2022 it is also fifth.

Industry Structure:

Enterprise Technology is the largest industry,

Highlighting the enormous potential of industrial internet

CB Insights divides the industries in which unicorns operate into seven categories, from most to least: Enterprise Technology, Financial Services, Consumer & Retail, Industrial, Healthcare & Life Sciences, Media & Entertainment, Insurance.

Enterprise Technology is the largest industry for unicorns, with a total of 374, accounting for over 30%. Enterprise Technology is the top industry in the United States and the European Union, and the third in China. Enterprise Technology refers to technology solutions and services provided to enterprises to improve their productivity and capabilities. This is very similar to the popular concept of Industrial Internet in China, fully reflecting that industrial internet is a global trend and China still has enormous potential.

It is important to note that the translation of “Enterprise Tech” as “企业科技” is based on the Chinese habit, just like translating “Fintech (financial technology)” as “金融科技”. In fact, the accurate translation is “企业技术”. People often use the combination of science and technology, abbreviated as “科技”. The two are different. Science is the ability to discover and understand the world, while technology is the ability to invent and transform the world.

The financial services industry is the second largest sector for unicorns, with 216 companies, accounting for 17.6%. The most developed country in this field is the United Kingdom, with 38% of unicorns coming from the financial services industry. If insurance is included, it exceeds half, and London is known as the “financial technology capital of Europe”. In the United States, the financial services industry is the second largest sector, while in the European Union it is the fourth largest, and in China it is the sixth largest (with only 9 companies).

The number of unicorns in the consumer and retail sectors is only one less than the financial services sector, ranking third. In both China and the European Union, it is the second largest sector, while in the United States it is the fifth largest. As shown in the following figure:

Figure 5: Distribution of unicorns in the world, US, China, and Europe

Data source: Compiled based on CB Insights data (September 26, 2023)

The industry structure of the two unicorn powerhouses, China and the United States, has significant differences. The unicorns in the United States are mainly distributed in the fields of enterprise tech, financial services, and healthcare and life sciences, accounting for 38.8%, 16.1%, and 14.0% respectively. The three major industries in China are industry, consumer and retail, and enterprise tech, accounting for 32.0%, 29.1%, and 17.4% respectively, fully reflecting China’s advantages as a major industrial and consumer powerhouse. The industry distribution in the European Union is relatively balanced, with enterprise tech, consumer and retail, industry, and financial services accounting for similar proportions.

How are unicorns and innovation born?

From having a good idea, to deciding to start a company, to obtaining venture capital, and then becoming a unicorn by luck, and finally going public or being acquired, of course, there is always the risk of bankruptcy in between. This is a relatively complete process of enterprise entrepreneurship and growth. Each link is closely linked and influences each other. The unicorn is one achievable goal or stage in this process, and its development depends on the health of the entire chain. If there is no smooth exit, people will not start businesses; if there is no venture capital, there would be no talk of unicorns. Therefore, the growth of unicorns is the result of the economic and social environment and the innovation environment. The discussion on the causes of unicorns must be put into a broader perspective.

In a small garden, small flowers bloom; in a large garden, large flowers bloom. The environment and soil for innovation are very important. We must first understand how innovation is born. Ridley pointed out in “The Origins of Innovation”: “Innovation is the child of freedom and the mother of prosperity” and “Innovation happens where people meet and exchange goods, services, and ideas.” Morkeil mentioned in “Lever of Prosperity”: “Technological change can only be generated through the emergence of new ideas.”

Innovation is like “cross-pollination” of different flowers, it is crucial for species diversity. Examining the flow of talent is a simple and effective method of reflecting innovation capability. Only those talents who have ambition and survival skills are willing to take the risk of migration. They come from different places, bringing different lifestyles, different ideologies, and different technological approaches. When they intersect, it’s like various pollen floating in the air, making it easier to give birth to new things. If there is only one type of flower, there won’t be any innovation, it will always be that same flower. In the Qin State 2,400 years ago, the United States 150 years ago, the Northeast 120 years ago, and Shenzhen 40 years ago, a large influx of population and technological transformations coincided with each other, leading to economic prosperity. Today, immigrants support half of the United States’ technology industry, and it is the bigger half; Beijing, Shanghai, and Shenzhen gather talents from all over the country, with a large number of unicorns.

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