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In search of the unicorn


by Prof. Nikolaus Franke

A "unicorn" is a start-up with a market value of over one billion dollars, such as Airbnb, Pinterest or Uber. And just as the mythical creature aroused longings in the Middle Ages thanks to its supposedly mystical powers, investors, founders and politicians are still wondering how such miracle foundations can be identified early on or even proactively brought about.


Prof. Nikolaus Franke, Academic Director of the Professional MBA Entrepreneurship & Innovation at WU Executive Academy, will examine the question of whether there is a magic formula for unicorns and how more of these extraordinary start-ups can be produced.

A man in a suit wearing a unicorn mask is jumping on a beach
Is there a magic formula for unicorns? Is it possible to discover them early on or actively produce them?

The magic of unicorns

The term unicorn was coined in 2013 by venture capitalist Aileen Lee. It describes a company formation with an extraordinarily high market valuation. Various institutions list around 300 cases in which the value of start-ups has exploded to over a billion dollars within a short period of time. For example, the valuation of Uber is around 70 billion dollars and that of Airbnb is 30 billion dollars. For comparison: The market capitalization of the three most valuable Austrian companies, OMV, Verbund and Erste Bank Group, amounts to around EUR 15 billion each. Of course, the high valuations of start-ups are based on expectations of future sales and profits that are by no means certain. Nevertheless, it is amazing how quickly value can be created in the digital economy. It usually results from the disruptive nature of their business. As creative destroyers, they can create new markets and make lasting changes to existing ones.

Two smartphones showing the Airbnb and Uber app
Airbnb and Uber are well known unicorns - both with an incredible market value. Photos © CC0 Licence

Can unicorns be identified at birth?

Every politician would like to see the strengthening power of such entrepreneurial growth drivers for the domestic economy. Every investor and start-up promoter hopes that the investment portfolio will contain as many Unicorns as possible. And of course, every founder dreams of such success. What is the secret of their success? Looking at existing unicorns, it is noticeable that they often create markets with innovative new combinations that the established players have overlooked. There they grow rapidly and often secure their market position via network effects. Unicorns' success factors are the recognition of newly emerging markets with initially little competition, an intelligent innovation (technology, product and/or business model) with an at least temporary unique selling proposition and a management team that pursues a determined strategy and copes with the dizzying dynamics of growth. This leads to the conclusion that it is possible to assess to some extent which new companies have at least the fundamental potential to become a unicorn.


Most promising unicorns turn out to be cows or goats, some die.

However, Aileen Lee chose the term unicorn for the rapidly growing companies for good reasons: it was intended to illustrate the statistical rarity of the phenomenon. And so it is not surprising that the accuracy in the early evaluation is low. Venture capitalists are professionals in the valuation of start-ups. In multi-stage and complex processes, they examine the potential of young companies and finance less than every hundredth start-up that applies for an investment. But despite this rigor and thoroughness: not even one per thousand of all venture capital-financed start-ups worldwide actually become unicorns. The possibilities to identify unicorns early are obviously limited. It is possible to make a negative selection - one can certainly see which foundations have no chance of becoming a unicorn. But a reliable positive selection is hardly possible, simply because disruptive innovations are by definition new and associated with risks. One will have to live with the fact that mistakes are inevitable even with the most promising start-ups. Many will have only limited success and some will fail. In a figurative sense: even the sweetest unicorn babies can unfortunately grow a second horn - and they can die.

A cattle with horns pointing into different directions
Many of the alleged unicorns grow another horn - they become a cow and only have limited succes, if at all. Photo © CC0 Licence

The solution: make many unicorn babies and promote their development

At first glance it sounds desperate: Unicorns are not only extremely rare, there is also no recipe with guaranteed success, no fixed "construction plan", not even a reliable forecast as to which start-up will ultimately be really successful. So what should we do if we as a society want more and greater success with start-ups? How can we achieve the positive impact on innovation, employment and prosperity?


The answer is: We must create more start-ups that have a fundamental chance of great success. Every start-up of this kind - innovative, in new and fast-growing markets, with a powerful and determined team of founders - is an experiment. Some will fail, some will stagnate. But some will succeed. And if we, as a society, dare enough of these experiments, then in the long run we will also have the Unicorns we have longed for.


These experiments do not happen by themselves and we should not leave them to themselves. As a society, therefore, we must first create conditions that lead to as many start-ups as possible with the best possible prospects. Important keywords here are a playful approach to entrepreneurship as a career option already at school, a broad knowledge of the methods and techniques for setting up a business and interdisciplinarity, especially networking of key technologies (such as healthcare, Internet of Things and artificial intelligence) with economic entrepreneurial thinking and acting. In a second step, we need to ensure that start-ups find conditions that are so good that they can develop according to their true potential - and neither starve nor migrate to areas where the entrepreneurship ecosystem is more conducive.


To get more information about Entrepreneurship and the Professional MBA Entrepreneurship & Innovation click here.

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