What is a unicorn in venture capital?

By November 23, 2021For Angel Investors

Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice. 

Mythical creatures – like unicorns – fascinated ancient people. Today in finance, unicorns also capture investors’ imaginations. Not only do they hold the potential to transform societies with their technological innovations, but they also present exciting opportunities to generate returns for investors in the process. Below, our investment team at Bure Valley Group offers answers to commonly-asked questions about UK unicorns – outlining some case studies for investors. 

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What are UK unicorns?

A unicorn used to refer to a mythical, unique horse-like creature with great powers (particularly for healing), and which rarely showed itself to the human eye. In 2021, some of these ideas have carried into the modern, financial concept of a “unicorn” when describing certain rising companies. These businesses are typically privately-held (i.e. not publicly-listed), valued by venture capitalists at over $1bn and with a fast-growing strategy.

 

How many unicorns are there in the UK?

Figures vary for the number of UK unicorns – partly because venture capitalists differ on how they value companies. Forbes puts the number at 91 whilst another study estimates that 36 active unicorns currently operate in the UK – with 13 recently exiting the private market (e.g. to go public). The UK forms an important part of the worldwide unicorn total. In early 2021, there were about 500 with unicorn status around the world – with most located in the US and China. Examples include SpaceX, Stripe and Revolut.

 

Where are the UK’s unicorns found?

Most unicorns in the UK are located in London, naturally. The capital offers an easy transport hub, widespread talent and the offices of many venture capitalists and financial institutions to draw funding from. About 75% of the UK’s unicorns are located here, but other cities also offer an important base of operations – including Bristol, Oxford, Solihull and Edinburgh. London is still the dominant location for the UK’s fintech unicorns. Oxford and Cambridge also play an important role as research clusters – forming part of the UK’s “golden triangle”.

 

What are the dominant unicorn sectors?

The UK’s unicorns are not just focused on just one industry or sector – but spread across many. These include fintech, proptech (real estate), eHealth and gaming. Of course, the UK’s global position as a financial centre helps account for the current large number of UK fintech unicorns. Financial services remains the country’s top-performing industry when it comes to growth, and equity investment continues to pour into the sector since 2017 (after Funding Circle reached its $1bn valuation). 

 

What are the traits of UK unicorn CEOs?

Most founders of UK unicorns are born in the UK, with only 14% born overseas. Almost half of the UK’s fastest-growing startups have at least foreign founder, and this is similarly reflected in the unicorn landscape. Those unicorn founders who are foreign-born tend to come from either the USA or Israel. Founders are also typically quite young – averaging at 41 – and Ben Francis, founder of Gymshark, was just 19 at the time of incorporation. On the other end of the scale, Anne Boden was 61 when Starling Bank reached its $1bn valuation. She is one of the 5% of women comprising the UK’s total unicorn founder population.

 

How do unicorns get to $1bn?

It is not easy for businesses to rapidly achieve a $1bn valuation (otherwise, many more would be achieving it!). A range of strategies are employed by founders which get them to this goal. One common route, of course, is equity investment. This can encompass a range of funding types including venture capital, which can involve multiple rounds or “megadeals” worth tens of millions. This can help companies achieve a $1bn+ valuation in relatively short periods of time, compared to previous decades. 

Not all funding rounds are done publicly. Unannounced or “stealth” rounds are believed to form as much as 60% of unicorn equity deals in the UK. Moreover, funding rounds are taking more international investment via global funds. These can present sources of capital for UK unicorns which may not otherwise be available just from domestic investors. Finally, today there are more crowdfunding platforms around to help companies raise capital.

 

What are some unicorn examples in the UK?

The UK has several dozen unicorns which could be analysed. One example is Starling Bank; a fintech company thought to be worth over £1.372bn in 2021. This interesting unicorn is offering an online (or “digital”) version of banking, with no local branch offices. Another is Deliveroo. This Amazon-based food delivery company has recently selected London for its IPO after achieving 46,000 more restaurants joining the platform in 2020. 

 

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