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Mercedes Barba is a seasoned editorial leader and video producer , with an Emmy nomination to her credit . Presently, she is the senior investing editor at Bankrate, leading the team’s coverage of all things investments and retirement. Prior to this, Mercedes served as a senior editor at NextAdvisor.
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Identifying so-called unicorn companies early can be highly rewarding for early investors, but what exactly does it mean to be a unicorn and how do investors profit from these companies? Here’s what you need to know about investing in unicorn companies.
A unicorn company is a private business that achieves a valuation of $1 billion or more. As their name suggests, unicorn companies are rare and often include companies in nascent industries that are seen as disruptive.
Unicorn companies can come from any industry, but have largely been concentrated in the tech sector in recent years. It’s not easy for a private company to grow to a $1 billion valuation, but the ones that do often share some common characteristics:
When companies are getting started, the founders often raise money initially from friends and family to help them get off the ground. After that, angel investors and venture capital firms step in to provide additional funding in return for a stake in the company. For example, in a unicorn company investment, a venture capital firm may take a 10 percent stake for a $100 million investment, which implies a total valuation of $1 billion.
For individual investors looking to invest in unicorn companies, the unfortunate reality is that these sorts of investments will be off limits until the companies go public through an initial public offering, or IPO. But that doesn’t necessarily mean you’ve missed out on a great investment. Many companies that came public as unicorns have rewarded shareholders handsomely in recent years.
There are many companies that were once unicorns that are now household names. There were over 1,200 unicorns in the world as of October 2023, according to CB Insights. Here are some of the largest unicorns today:
| Company | Valuation | Country | Industry |
|---|---|---|---|
| Source: CB Insights, October 2023 | |||
| ByteDance | $225 billion | China | Media & entertainment |
| SpaceX | $150 billion | U.S. | Industrials |
| SHEIN | $66 billion | Singapore | Consumer & retail |
| Stripe | $50 billion | U.S. | Financial services |
| Databricks | $43 billion | U.S. | Enterprise tech |
| Canva | $25.4 billion | Australia | Enterprise tech |
| Revolut | $33 billion | United Kingdom | Financial services |
| Epic Games | $31.5 billion | U.S. | Media & entertainment |
| Fanatics | $31 billion | U.S. | Consumer & retail |
| OpenAI | $29 billion | U.S. | Enterprise tech |
Unicorn companies are private companies worth $1 billion or more based on their most recent valuation. Companies that achieve unicorn status are often fast growing, disruptive companies with large market opportunities. Investing in private companies is typically reserved for institutional investors, so individual investors looking to get a piece of the action will have to wait until these companies go public.
Arrow Right Senior writer, investing and retirement
Brian Baker covers investing and retirement for Bankrate. He is a CFA Charterholder and previously worked in equity research at a buyside investment firm. Baker is passionate about helping people make sense of complicated financial topics so that they can better plan for their financial futures.
