What is a Unicorn Company and Why Investors Are Attracted to Such Businesses

A unicorn company is a private company valued at $1 billion or more, usually on the price of its latest funding round. Investors are drawn to unicorns because few startups reach that size and the label suggests a market leader, but it measures a negotiated valuation, not profits, liquidity or the price at which an investor can sell.

Where does the term "unicorn" come from?

From venture investor Aileen Lee, who used it in 2013 to show how rare billion-dollar startups were.

In her TechCrunch article of 2 November 2013, Lee, founder of the seed fund Cowboy Ventures, counted 39 US software companies started since 2003 and valued at over $1 billion by public or private market investors: about 0.07% of venture-backed consumer and enterprise software startups. She chose the word for something "extremely rare, and magical". Her count included companies that had already gone public; trackers today use the word only for private ones.

Larger companies have their own names. CB Insights calls a private company valued at over $10 billion a decacorn and one valued at over $100 billion a hectocorn.

How many unicorn companies are there?

Between about 1,400 and 1,900 worldwide, depending on who counts. Trackers use their own data and rules, so their totals differ.

New unicorns arrive in waves. Crunchbase counted 311 companies joining its board in 2026 through September, 38 of them in September alone, and says 2026 is on track to be the second-highest year after 2021, when more than 600 joined. The largest names are AI companies: CB Insights lists Anthropic at $965 billion and OpenAI at $840 billion.

How is a unicorn's valuation calculated?

Usually as a post-money valuation: the price paid for the newest shares in the latest round, applied to all of the company's shares. It is the price of one share class on one date, not a market quote.

Will Gornall and Ilya Strebulaev showed why this overstates value. Reported valuations assume that all shares are worth as much as the most recently issued preferred shares, but recent investors often get protections that other holders lack: IPO return guarantees (15% of the 135 unicorns studied), vetoes over IPOs at a lower price (24%) or seniority to all other investors (30%). Valuing each share class separately, the authors found reported valuations 48% above fair value on average, common shares 56% overvalued, and 65 of the 135 companies below $1 billion after the adjustment.

Trackers also lag behind events. The Crunchbase board keeps a company's last priced round until a new one is announced and does not adjust for investor writedowns. It also ignores internal 409A valuations used for employee stock options, which Crunchbase says are more likely to be lower than a priced round.

Why do investors want to own unicorns?

Because a unicorn has already passed tests that most startups fail, and it may be closer to an IPO or a sale than a young company.

• Rarity. In Lee's 2013 count, only about 0.07% of venture-backed software startups reached the mark.
• A track record. A late-stage company has more history to study: revenue, customers and several funding rounds; what each round says is explained in Series A, B, C and D rounds.
• Closer to an exit. Later-stage companies are the usual candidates for an IPO or an acquisition, although the timing is never certain.
• Demand from other buyers. Secondary trading is concentrated in the best-known names, which can make their shares easier to sell than those of smaller startups; see what the secondary market is.

What should an investor check beyond the $1 billion label?

What the valuation rests on, which shares you are buying and how you could exit.

1. The date and terms of the last round. Who led it, when, and whether the price rose or fell against the previous round.
2. The share class. Common or preferred, and which liquidation preferences and other protections rank ahead of yours.
3. The business. Revenue growth, retention, margins, cash burn and runway; the metrics are covered in how to evaluate a pre-IPO company.
4. Your price against the headline. A secondary price is negotiated and can be well above or below the last round.
5. The exit path. An IPO, a sale or a tender offer, none of which the investor controls; see how to exit a pre-IPO deal.

Do unicorns keep their valuations?

Not always. A private valuation is reset when the company raises again, is sold or goes public, and the new price can be much lower.

Chime is one example. SoftBank, Tiger Global and Sequoia invested in its 2021 round at a $25 billion valuation; in June 2025 Chime priced its IPO at $27 a share, valuing the company at $11.6 billion, CNBC reported. At the extreme, Crunchbase removes companies that investors deem essentially worthless, such as the crypto exchange FTX after it filed for bankruptcy.

What are the risks of investing in unicorns?

The main risk is paying for the label rather than for the business and the specific shares. Unicorn status guarantees neither a profit nor an exit.

• Overstated value. The headline valuation can be well above the fair value of the shares you buy, especially common shares.
• Stale prices. The last priced round may be years old, and trackers do not mark it down between rounds.
• Lower exits. An IPO or a sale can come below the last private valuation, as Chime's did.
• Illiquidity. Private shares need a buyer and usually the company's consent to transfer, and even after an IPO insiders typically wait out a lock-up.
• Hype and fraud. The SEC warns that pre-IPO scams often pitch companies in trending fields such as AI or crypto, that sellers may not own the shares they offer, and that investors can lose their entire investment.