Since 2013, the world of venture capital investing has been invaded by unicorns, those startup companies that quickly achieve a billion-dollar valuation based on the private equity financing they are able to secure before going public. At the time we started to refer to these companies as unicorns, market analysts identified nearly 40 of them, and most of them were headquartered in San Francisco. Eight years after this new piece of jargon entered the news media lexicon, San Francisco and the Bay Area still hold the distinction of having the most unicorns per capita.
To better classify this financial trend, we now have quantitative prefixes to refer to unicorns. A “decacorn,” for example, is a startup valued at $10 billion. A “hectocorn” would be a company such as Airbnb, which reached a valuation greater than $100 billion prior to its spectacular initial public offering on Wall Street.
Some market analysts believe that unicorn funding has become trendier than it should be. The rationale for this belief is based on recent history; we all remember what happened in the late 20th century with the Dot-Com Bubble, and none of us would like to relive that kind of market crash. The cautionary tales of the unicorn economy have already been told by companies such as Theranos and WeWork; nonetheless, VC firms show no signs of slowing down, thus enabling unicorns to multiply. Another sign that points towards a potential unicorn bubble is that most of these companies are heavily concentrated in the Bay Area.
The northern expansion of Silicon Valley in recent decades has made San Francisco the new land of unicorns. According to PitchBook Data, 61 unicorns have been born in the City by the Bay since early 2020, which means that VC funding activity was not slowed down by the coronavirus pandemic. Each of these unicorns gets a comprehensive company page on PitchBook, a market intelligence service that has become essential reading for VC firms. If we look at the unicorns breeding all around the world, we will see that the Bay Area is home to nearly a third of these companies.
As for how many of these unicorns will eventually mature into Wall Street giants, history shows that only about half of them will prevail. This rate of success shows better odds that those faced by small business owners in the United States. Thus far, unicorns born in San Francisco have a pretty good track record. Stripe, for example, has grown into an electronic payments giant and a worthy rival to PayPal. As previously mentioned, Airbnb is a textbook example of what startup companies dream of achieving. When trends develop on a regional level, they tend to have lasting potential, which is why we are seeing new unicorns such as Zapier, Sila, and Webflow that have chosen to make San Francisco their headquarters.
Will San Francisco be able to retain its status as unicorn magnet? This trend is likely to continue for a few more years, but tech industry observers believe that Austin and Miami are two cities where startups could attract VC firms in the near future. Miami has the upper hand because it is already considered to be the financial center of Latin America, which means that unicorns based south of the border could relocate to the Magic City in order to attract more attention from prospective private equity investors.