Living in a world of unicorns

This is not your typical tech that takes 20 years to scale. Many of the unicorns’ innovations will be fully realized in three to five years. Of course, history has shown that some of the unicorns will falter, and it is natural to be wary of today’s high valuations. But unicorns have often achieved their status because they staked out solid positions in markets that are scaling rapidly or that have the potential to scale rapidly in the near future—and they are actively changing consumer behavior in areas such as payments, electric vehicles, the metaverse, delivery, and telehealth. Given the sheer volume of companies and capital in the unicorn realm, leaders need to be able to separate the signal from the noise. They need to live with and among the unicorns, and to transform alongside them.

Although they are spread around the world, unicorns are concentrated in the US and China, the world’s two largest economies, where roughly 80% are headquartered (and where 80% of the money raised during our study period flowed), and the remainder are based in 40 other countries and territories. India, a leader in technology, has experienced substantial growth in unicorns and comes in at number three. India was home to five unicorns at the start of 2016, and now has 31.

Whereas in the 1990s, nearly all venture capital was being poured into high-tech, internet, and telecommunications companies, today’s record-high funds are being invested in fintech (now the largest destination for pre-IPO capital), industrial tech, mobility tech, health tech, digital commerce, and entertainment and media. Tech is now influencing so many verticals that the investments and business processes in those verticals are evolving and beginning to blur industry lines.

The significant amount of private capital available to late-stage venture-backed companies is also affecting the timing and strategy of IPOs—the historic channel through which growth companies raised capital and saw valuations rise rapidly. Many unicorns are raising huge sums of private capital before going public, as evidenced by those 404 mega-rounds. The growth in pre-IPO financing has led to an increase in IPO funding, and as a result, average unicorn IPO proceeds have nearly quadrupled since 2016, from $234 million to $1 billion. Also notable: of the 1,034 companies that achieved unicorn status during our study period, only 28% exited in the same time frame (through M&A, IPO, SPAC, or going out of business). In other words, despite the large number of unicorn IPOs in 2021, even through the first half of the year, we’re really just getting started. And regardless of the near-term future of the IPO market, unicorns are sitting on hundreds of millions of dollars with which to innovate.

Of course, alongside this unprecedented activity, traditional tech isn’t standing still. During our study period, 106 enterprise tech unicorns emerged that are focused on artificial intelligence (AI), machine learning, data analytics, and robotic process automation. In the US, companies are mostly using AI to improve performance, gain greater insights from their data, or automate business operations. In China, AI companies are primarily focused on facial recognition and computer vision. Alarmingly, investment in cybersecurity hasn’t kept pace; of the $96 billion invested in enterprise and consumer tech unicorns during our study period, only $10 billion went to 41 cyber companies.

2. From electric vehicles to energy transformation

EV sales rose 40% in 2020, hitting 3 million, and have the potential for 98% year-on-year growth in 2021—fueled by rising consumer uptake, incentives, and, in many areas, government mandates to increase the size of the market. The EV market is expanding to meet this demand, with many major global automakers now offering electric models or committing to an electric transition. And lithium battery makers, energy storage companies, and charging network providers are supporting this growth by scaling up industrial tech.

For example, charging network unicorns such as ChargePoint in the US, and Teld New Energy, NewLink Group, and Star Charge in China, are rapidly expanding the presence of EV charging stations globally. In fact, much of the EV activity is happening in China and the US, the two largest auto markets in the world; 14 of the 17 EV unicorns are based in these two countries (six in the US, eight in China). China was an early mover in this space, and unicorns rapidly expanded its auto market.

The birth of electric vehicles was the first step in the creation of new ecosystems that will engage not only the automotive sector, but also energy, logistics, and financial services. The result will be transportation that is platform-based, offering services to consumers and enterprises. This evolution will occur over the current decade as the speed of charging technology accelerates.

Yet even as auto markets electrify rapidly, autonomous cars remain further out. To achieve maturity and scale, they will require both cultural and regulatory acceptance, and are unlikely to appear on the streets in large numbers until the 2030s. Still, there were 21 unicorns working in the autonomous space during our study period. Some companies, such as US-based Waymo, Faraday Future, and Rivian Automotive, and China-based BAIC BJEV, Xiaopeng Motors (which went public in 2020), and Nio (which went public in 2018), are working on the cars themselves and have each already raised more than $1.5 billion. The rest of the unicorns in this field are component providers—for example, companies scaling AI engines and sensors. 

3. Meeting Gen Z in the metaverse

Unicorns in edtech, gaming, and streaming were already attracting significant interest before 2020; they collectively raised $23.8 billion between 2016 and 2019. But it was during the pandemic (defined in our study as January 2020 through the end of our study period, which was June 30, 2021) that they took off, bringing in $29.9 billion. Members of Gen Z, the digital natives born between 1997 and 2012, found themselves uprooted during their formative years both socially and academically. Around the world, this cohort had to quickly make key parts of their lives fully virtual through learning remotely and playing games online to stay connected with friends.

This transformation has become a social phenomenon that is bringing the metaverse, a tech-enabled digital world, to life. Innovation often looks to the next generation, and much of Gen Z is now mature enough to start driving behaviors and usage of technology—with the rest of society following suit. And increasingly the tech world is going to cater to their needs and preferences. For example, demand for the products and services of edtech, gaming, and streaming unicorns has skyrocketed, as have their valuations. Thirty-three entertainment and media companies have achieved unicorn status since 2020. 

• Edtech scaled rapidly when many school buildings shuttered and students were forced to quarantine for prolonged periods, and when employees sought virtual options for professional and personal skill development. During the pandemic, edtech unicorns raised (on an annualized basis) eight times the annual amount raised from 2016 through 2019. Tutoring platforms Byju (based in India) and Yuanfudao and Zuoyebang (based in China) received massive investment (each attracted $3 billion to $4 billion in funding between 2016 and 2021). The Business Standard reported that Byju had 100 million registered students and 6.5 million paid subscribers as of September 2021.
• Gaming unicorns raised (on an annualized basis) more than double the amount of capital during the pandemic that they raised during the previous four years. This reflects gaming’s transformation into an environment for social connectivity, and, in the near future, marketplaces. Gaming industry analytics firm Newzoo reported that the global gaming market generated $177.8 billion in 2020, a year-on-year increase of 23%. Growth in gaming unicorns has been driven by US-based pre-pandemic unicorns Epic Games and Magic Leap.
• Similar to gaming unicorns, streaming unicorns more than doubled the annual billions raised during the pandemic compared to 2016–19. Streaming has become omnipresent. For example, Sweden-based music streaming company Spotify, which was a unicorn until it went public in 2018, grew its user base from 77 million in 2015 to 365 million in 2021. TikTok (founded in 2016) and its competitor Kuaishou (founded in 2011) have each grown to a staggering 1 billion monthly active users during the pandemic. 

This trend is just getting started—the convergence of the metaverse, crypto, and 5G has the potential to create a web 3.0 economy that we can’t yet fully envision, and that will evolve over the course of the decade.

4. Mobility companies make an epic pivot

Prior to the pandemic, unicorns created the mobility industry. At first, this meant moving people around through ride-sharing. Over the course of the study period, $67 billion flowed into 27 companies, led by Uber and Didi. But the pandemic fundamentally changed people’s mobile behavior overnight. In 2018, mobility companies raised $23.6 billion; in 2020, they raised $7.2 billion. Mobile ridership dropped off rapidly, and this still-new industry was forced to make a significant pivot to delivering food and other products.

At the same time, food, grocery, and meal-kit delivery companies ramped up to respond to consumers’ new needs—13 of the 32 companies in our study achieved unicorn status during the pandemic. Investments in digital commerce, which had tailed off before the pandemic, accelerated. Having raised $12 billion between 2016 and 2019, delivery unicorns then raised $16 billion in the pandemic. Established mobility outlets like Uber Eats, which started in 2014, saw a sudden spike in users as well as in usage (average sales) per user. With Uber trip bookings down 75% between April and June 2020, orders to Uber Eats more than doubled. US unicorn DoorDash grew from 4 million users in 2018 to 20 million users in 2020.

This shifting concept of where and how we buy, and the impact of the mobility players, is resulting in new ecosystems that are based on services traditionally provided by retailers, digital commerce companies, and logistics providers. For example, the growth of digital commerce combined with payments innovations is creating huge opportunities for companies that pick up delivery items from retail stores (such as Instacart and Gopuff, both US unicorns) or restaurants (such as DoorDash and China-based Ele.me). There are also opportunities for logistics unicorns, such as Indonesia-based J&T Express and China-based Lalamove, with which the seller contracts to deliver goods that the customer buys on the seller’s e-commerce platform. 

5. Health and wellness go virtual

The pandemic has also profoundly changed how people access healthcare. Consumers and providers rapidly adopted telehealth and telemedicine services, enabling people to monitor medical conditions, meet virtually with their care providers, and manage prescriptions remotely. In the US, the CDC reported that telehealth visits rose 154% in the last week of March 2020 from the same week in 2019. Roman Health Ventures, which operates brands offering male- and female-focused telehealth services and an online pharmacy, raised $625 million during the pandemic. Moreover, since the pandemic started, there have been 13 new telehealth unicorns—nine of which became unicorns during the first half of 2021.

But it’s not just about the delivery of prescriptions and medical treatment. We’ve also seen wellness unicorns such as US-based fitness companies Peloton and Tonal burst onto the scene, as well as mental health unicorns such as Calm, a meditation app, and Lyra, Cerebral, and Modern Health (all of which are based in the US), which connect patients virtually with therapists. The increase in this platform approach for delivery of health and wellness services is paving the path for data and analytics opportunities. Fourteen health analytics platform unicorns have raised $3.4 billion during our study period, $2.4 billion of which flowed in during the pandemic. For example, US unicorn VillageMD, which reports having 1.6 million users, achieved unicorn status in 2021.

Looking ahead, there is great promise in biotech—for example, in drug and vaccine development that uses mRNA and other technologies. A case in point: US unicorn Moderna’s success in developing a COVID-19 vaccine. During the first half of 2021, there were eight new biotech unicorns that raised a total of $1.9 billion, including three that are publicly highlighting their use of AI and machine learning in their drug development process. Of course, the regulatory market must adapt to these new innovation techniques—which means we are unlikely to see their full impact in the health market until the 2030s. 

Competing in the digital economy

Today’s unicorns aren’t just shaping capital markets and investment strategies, they are shaping and redefining the industries in which they operate—by developing new products and services, expanding rapidly into new geographic markets, and using their cash (and valuable stock) to attract talent. Of course, there are elements of froth. Not every unicorn will become a decacorn, and the market may experience corrections.

Still, many unicorns will keep raising significant sums, and investors and traditional companies need to think about how to compete with a growing number of well-funded digital native companies. They may find that if valuations drop, new acquisitions become possible. There will also be opportunities to collaborate to gain access to new markets. Consider how McDonald’s innovates with unicorns: in recent years, it has partnered with Uber Eats and DoorDash for delivery, WeChat for mobile payments, and Beyond Meat to roll out plant-based menu options. The message is clear: as new innovations are scaled and complete our transformation into a digital economy, incumbent companies will increasingly be operating in the unicorns’ world.