Nearly every tech giant that now inspires founders from around the world once started as a unicorn startup. Such companies are now technology visionaries and trend setters.
It once seemed impossible to build a billion dollar company. Today, there are 420 unicorns that are recognized as market leaders. But how can you become one of them?
The startup funding stages
As soon as you did an MVP launch it’s a perfect time to raise funds. The main reason to do so is the rapid growth on the market. It helps to ensure the predictable improvements of the features and business logic at each of the startup phases.
Pitched funds are usually used to continue product development and reinforce the marketing/sales activities. Let’s find out how startup funding works.
Let’s clarify the essence of the stages of startup funding:
- The pre-seed stage. In general, this phase isn’t about investment, rather about bootstrapping. At that time, founder usually has to rely on their own investment to get the project off the ground. As a rule, at this stage founders deal with idea validation. The startup valuation ranges from $10 000 to $100 000. Usually, the investors at this stage are:
- Founder and co-founders,
- Friends and family.
- Seed stage. At this stage, the startup valuation ranges from $3 000 000 to $6 000 000. Usually investments at this phase are used to build up scalable business processes and find out the product/market fit. In fact, founders exchange the startup equity for investments. That ones who do not follow this step join the 29% of failed startups because of lack of money. There are some sources that can provide financial help:
- Family and friends.
- Angel investors. In 2018 an average angel’s financing round was $149 000.
- Business incubators. Take a look at YCombinator or 500 Startups. These are specific mentoring, advising and investment programs for startups.
- Micro venture capitals funds. Check out the list of 135 micro VCs to invest in your startup.
- Series A. It’s the first stage of venture capital investments. Your startup should have a profitable and predictable business model with a stable customer base. This stage isn’t about innovative ideas. Focus on the strategy that will help you to conquer the market. The valuation of startups at Series A starts from $10 000 000 up to $30 000 000. Follow the 30-10-2 rule to make sure you’ll attract the successful investments. It says that you should find 30 investors, who are interested in your idea. 10 of them would like to invest and 2 of them will invest. These investors are:
- Venture Capital companies or capitalists.
- Super Angel Investors. It’s something like a typical angel investor but with larger amount of available cash to invest.
- Business Accelerators. These programs are like incubators, but for more mature startups.
- Series B. It is the next round of venture capital investments. The startup market valuation varies from $30 000 000 to $60 000 000. This round continues the ideology of round A. Which means that you should keep on conquering the market and focus on rapid growth. Outline the competitors or even consider acquisition – why not? At this stage, you can use some investments from such huge players as:
- Venture Capital
- Specific late-stage VCs.
- Series C and all rounds above. This round is about rapid market acquisition. Your startup should be substantial enough at this stage. Basically, these investments aim to speed up the market expansion for your project even more. At this stage you can rely on such investors as:
- Late stage VCs,
- Private equity companies,
- Hedge funds,
- IPO. In a nutshell, it’s a process of entering the market of corporate shares for the first time. You may hear about the fiasco of WeWork’s IPO. This startup failed to ensure this process well. Because this stage requires corporation-like attitude with a few teams of lawyers and public accountants on your side. The majority of the unicorn startups have already done IPO or considered this step.
List of unicorn startups
The unicorn startups are the best startups in terms of market valuation. They make a list of tier 1 companies, with an excellent implementation of their vision and scalable business development.
Let’s find out what unicorn landscape be in early 2020:
- Uber, a giant of taxi business and one of the most recognizable startup ever. Its market valuation is $62 billion.
- Xiaomi, the Chinese hardware company, that builds everything – from toothbrushes to backpacks. It has a market cost of $45 billion.
- Airbnb, another recognizable unicorn in rental market, with a valuation of $25,5 billion.
- Palantir, the big data analytics trend setter. On the market this company costs $20,5 billion.
- Didi Kuaidi, the Chinese-based taxi app, with a market price of $16 billion.
- Snapchat, the multimedia messenger allowing photo exchange and video streaming, with a market valuation of $16 billion.
- Meituan Dianping, another startup from China, that specializes in delivery of food and small goods. Its valuation is $15 billion.
- Flipkart is an Indian marketplace, something like an Amazon for a local Indian market. It costs $15 billion.
- SpaceX, another famous project founded by Elon Musk. It is a $12 billion aerospace manufacturer and space transportation services company.
- Pinterest, the world-famous visual design and inspiration platform that costs $11 billion.
Characteristics of unicorn startup
The key to achieving a unicorn level of idea is to create a valuable product. It should not only differentiate from the existing solutions, but be better.
Basically, there are multiple options to add the value. For example, take the product you use every day. Taxi app? Messenger? Management system? It can be anything.
Once you can spot anything that can be improved from user experience perspective, you are in the game.
When it comes to building a unicorn, there is no guaranteed formula that leads to success. But there are some tips that might help:
- Let product evolution happen. Change the strategic direction in response to new market conditions, if it’s necessary. There will always be the similar app or app with the same idea. I am not even talking about clone apps sweeping across the digital market. But having a bunch of killing features doesn’t mean having that one feature that changes the game. You should be unique in your own way and adapt to market challenges.
- Recognize your weaknesses. Sometimes a change of direction does not work as you planned. But if you understand your gaps and imperfections, you can always make away with them. This ability defines the successfulness of a startup.
- Be customer-centered. Before you actually reach a “one-size-fits-all” stage – focus on the particular customer portrait. Start with a specific target audience to ramp up customers base:
- There is a 60% probability to make an upsell to existing customer. Meanwhile, there is only the 15% likelihood to sell a product to a new-joined customer.
- 50% of your existing customers are ready to try new products you’ll make.
- 31% of the current customers would spend more, than new ones due to existing loyalty.
How to become a unicorn company?
The process of building a unicorn startup differs significantly from Fortune 500 companies.
There are only two requirements, that differentiate a unicorn:
- Your product has a high impact on a customer’s life. It changes customer behavior and can improve their lifestyle. Uber is a good example of such a product.
- Your product has a revenue-generated model from inception. It needs to reduce costs on the one hand and generate enough value on the other. In the case of Uber, it saves passenger time and allows driver to generate cash.
And these are the reasons why unicorns become what they are. Uber is more than just a taxi application. It is a phenomenon that changed our view about how a transport service should work.
Market requirements to build a unicorn model
It is believed that $1 billion is the ideal market value size to launch a startup. Such market ensures enough customers, but also provides some room a place for a new player.
Therefore, it’s important to ensure that your product has enough potential to be influential in a Unicorn marketplace.
The main point of market analysis is to make sure your product has market/product fit in a crowded market. As well as it is attractive enough to encourage customers to pay a premium price on a regular basis.
That’s why, there are specific empirical-based requirements to projects at unicorn level. It’s not a clear framework, but rather the combination of founder’s skills, that empower dynamic of startup growth:
- If company shows x10 times growth over 3 years, it signals a potential to reach a billion dollars valuation.
- Founder has to be obsessed with results. The trick is to do whatever it takes – write new rules and break the common ones, as every famous unicorns do.
- Continue doing unicorn stuff until it stops working. If customers like what you are doing, keep moving on. If your company grows, you don’t need to change your core activity. Do the same things for the larger target audience, taking into account the hypothesis that work well with your smaller audience.
To help you to find your unicorn idea and launch into that market we have prepared market research based on Capterra. There you can find 718 different industries and a number of these may be your potential competitors. Find your industry to become a game-changer!
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Market research based on Capterra - 718 your potential competitors!
How to start a billion dollar company?
The job of any startup is to find a solution to a problem that customers want to solve.
In case you want your company to get a $1 billion market valuation – try hard enough to find a unique solution to solve user problem. There is a good approach on how this can be done:
- Identify the problem. For example, let us say that the environment is deteriorating.
- Consider the problem. People drive the short distances via vehicles.
- Reverse the problem. Try to discourage people from using vehicles for these purposes.
- How do you achieve this? Help people to move over short distances in a more environmentally friendly way.
- Find the solution. Create a free rental service for electric bicycles.
- Add value. You can achieve that by providing cheap and eco-friendly rent stations with electric bicycles. The battery charges up whilst on the move, and subsequently can be used to charge street lights.
- Create a user journey. Visualize and note how the process will work. Include the answers to such questions as:
- Where would people find stations?
- How would this application look?
- How would the battery be charged?
- Would there be any ride limits?
- How would customers connect a battery to urban electricity?
- Validate your idea. Use Proof of Concept or prototypes to obtain feedback from your target audience. Ask bicycle riders and people who drive the short distances. Don’t forget to investigate legal requirements relevant to the town or city.
- How much is this likely to cost? Calculate your costs which should include the following factors:
- Building the bicycle rental station,
- Price of bicycles,
- Cost of replacing or recharging the batteries,
- Cost of app development and so on.
The rise of unicorn startups leads to the creation of a new startup-oriented economy.
Uber and Airbnb were the first players, who changed the market. As a startup founder, you have every opportunity to attain the same level of success by following their example.
You can build the Uber-like app and beat the original one on its field. The rapid growth is the key to your first billion.