Unicorn status is no longer the holy grail of success for start ups in the UK and Europe
By Annalise Dragic
After several record breaking years for the European startup ecosystem, 2022 marked a new, more volatile environment. While brilliant businesses are continuing to raise funding, this is happening against a backdrop of postponed IPOs and decreasing valuations.
As we navigate this new landscape and valuations fall (the most headline grabbing so far include Klarna, which saw an 85 per cent valuation drop), we are confronted by the question of whether we should rethink our evaluation of startup success. Should we still value “unicorn status” when measured against the current macroeconomic picture?
Since the term was first coined in 2013, unicorn status (reaching a $1bn valuation) has become a pinnacle of startup success. There are currently 194 privately held unicorns in Europe, many produced in 2021 when record levels of venture investment were flowing into the continent.
This growing crowd marked distinct individual and collective success; offering clear confirmation that UK and European tech is continuing to rapidly mature. However, the lustre of the unicorn status may be fading.
This can be attributed to two main, (potentially conflicting), drivers. Firstly, the last few years saw such a rush of capital into UK and European markets that the unicorn herd became a stampede. This pace meant we became accustomed to companies raising major VC rounds and hitting unicorn status quickly. Virtual events platform Hopin sprinted from launch to £1.37bn valuation in just 13 months.
This sparked what some might describe as unicorn complacency. No longer such a rare beast, buzzy startups were almost expected to reach billion dollar heights. Perhaps predictably, attention during the 2021 European tech boom turned to decacorns – those with a $10bn valuation – as the new marker of real success.
It feels like the “mainstreaming” of unicorn status did the title a disservice. Reaching a $1bn valuation is an incredible achievement only a small sliver of startups ever reach. Despite the outsized attention this small fraction of start-ups receive, they remain an elite club.
The second dent in unicorn prestige was made at the beginning of the current tech market cool down. Against the backdrop of new economic realities, valuations are being recalibrated. VCs and start-ups alike are watching closely as numbers settle. Some who once held unicorn status are falling out of the club.
This combination of intense acceleration in unicorn numbers, followed by a sharp market correction, has led some to champion other mythical beasts as the marker of “true” success. Proponents of the “centaur” label – which is bestowed when a business hits $100m in ARR – argue it’s a more accurate measure of success when cash is king and valuations are a moving target. And technology companies generating significant revenue may be in a much stronger position going into what looks likely to be a global recession.
As a tech community, we should do more to celebrate companies that reach $100M ARR and those that – gasp – also build profitability from day one. That said, we should continue to celebrate our unicorns too. Scaling a company from scratch to a valuation of $1bn should not be downplayed. It might even mean more in the current landscape of shifting valuations.
Now may be the time to add more nuance to our success benchmarks, but we don’t need to sweep away existing ones.