“Unicorns.” They’re not just for 8-year-old girls anymore. In fact, it turns out that unicorns are becoming big business.
Unicorns, rainbows, and … profits? Image source: Getty Images.
According to venture capitalist Aileen Lee, who coined the term, a “unicorn” investment is a start-up company — whether publicly traded or privately owned — worth at least $1 billion in market capitalization. They may sound like rare beasts, but lately, unicorn investments are popping up all over.
Earlier this month, Amazon.com‘s (NASDAQ:AMZN) Alexa subsidiary, which offers “competitive intelligence tools” for businesses, published a survey of 197 unicorn investments in the U.S., and around the globe. Among its findings: 70% of all unicorn investments are corralled right here in the U.S. of A., a population three times as great as that found in the second-place unicorn habitat, China.
But that’s not all Amazon’s research uncovered.
Here be unicorns
According to Amazon’s Alexa, roughly one unicorn in four today is an e-commerce company. Notably, the fastest growing of these is jet.com — a rival to Amazon.com itself. Other sorts of Internet software and services businesses gave rise to 18% of unicorn investments, or about one in five, while financial technology sector spawned 11% — more than one in 10.
Meanwhile, at the extreme other end of the scale, there is only one aerospace company in the entire world today carrying a unicornian valuation of more than $1 billion: Elon Musk’s SpaceX.
Unicorns — super-sized
SpaceX is probably the biggest unicorn investment in the world today, valued by some measures in excess of $10 billion. Alexa adds that SpaceX’s website has seen the fastest growth in “unique visitors” this year of any unicorn company surveyed, indicating massive interest in its business, including its efforts to cut the cost of space travel and its plan to colonize Mars.
More commonly, though, the unicorn investments that interest investors most are the ones believed to have the best chance of proceeding to IPO — something Musk says he has no immediate plans for. Cancer research firm Adaptive Biotech and virtual-reality hardware maker Magic Leap, for example, rank Nos. 2 and 3 in Alexa’s research on online viewer interest. And overall, interest has been very high in the spheres of cybersecurity, Big Data, and real estate, with respective unicorn investments such as Palo Alto Networks (NYSE:PANW), Mobileye (NYSE:MBLY), and Auction.com.
Unicorns you can believe in
For investors, that’s really the name of the game: the IPO.
Why? In fiction as in The Wall Street Journal, unicorns are fun to read about. But until a privately owned company IPOs and becomes something we can invest in, the fact that a unicorn investment is worth $1 billion to somebody else is of little relevance to us. Unless a unicorn company has a reasonable chance of going public, it might as well be fiction.
And in fact, currently, most unicorn investments remain privately owned. But there are a few exceptions.
Palo Alto Networks, for example — a company we have recommended here at The Motley Fool — was founded in 2005 and only became a true unicorn investment upon its IPO in 2012. Big data start-up Mobileye took 15 years to move from start-up to unicorn status in 2013 — and then had its IPO a year later. On the other hand, Auction.com, which S&P Global Market Intelligence indicates was founded in 1990 and which was expected to IPO back in 2015, still has not done so.
But that doesn’t mean that other unicorn investments won’t soon become investments you can own. For a closer look at some of the companies that Alexa dug up, click here.
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Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating on unicorns, rainbows, and other fantastic investments under the handle TMFDitty, where he’s currently ranked No. 292 out of more than 75,000 rated members.
The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool recommends Palo Alto Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
