It has been 10 years since Cowboy Ventures’ founder Aileen Lee coined an incredibly catchy nickname for what were very rare startups at the time: Unicorns.
She was referring to U.S.-based companies valued at over $1 billion despite being less than a decade old, but the term soon took a slightly broader meaning and grew to encompass startups everywhere. By 2018, though, unicorns became less of an exception, with investors seemingly happy to hand out billion-dollar valuations relatively freely.
That lasted for a while, until the market turned and the 2021 hype subsided. Still, unicorns remain very much a necessity for larger funds to deliver the kind of returns their limited partners are expecting.
We’ve spent a bit of time contemplating and charting the almost full circle that unicorns have come in the past decade. But we also wanted to hear from Lee how she feels about the term 10 years later, now that her venture firm is also a decade old.
“We wanted the term to feel special; because it’s rare, almost magical to build a unicorn company,” Lee told TechCrunch+.
We were also curious what Lee thinks about other analogies that draw from mythology to categorize startups, such as centaurs (companies with more than $100 million in annual recurring revenue). She pointed out that while unicorns are defined by their valuation, that same number also helps calculate their capital efficiency, “which is an important, recently underemphasized metric.”
From which metrics she thinks it’s a good idea to focus on, to her favorite memorabilia, Lee reflects on how things have changed in the 10 years since she coined the term.
(The following interview has been edited for length and clarity.)
In dozens of languages, the word “unicorn” is now an analogy for private startups valued at over $1 billion. How do you feel about coining a moniker that became so ubiquitous?
It has been a big surprise! I hope it has created more interest in learning about, working in or starting a tech company, especially for folks who might otherwise be intimidated by the tech industry.
We used “unicorn” instead of “home-run company” or “monster hit” because we wanted the term to feel special; because it’s rare, almost magical to build a unicorn company. During peak valuations, there were some comments like, “We need a new term, it’s too easy to be a unicorn.” I have never felt that’s the case. I have so much respect for folks who build these companies; it’s really hard. The market adjustments of recent year(s) have hopefully brought that misconception back to earth.
When you wrote that column 10 years ago, the “unicorn club” only had 39 members. More than 2,700 companies from all over the world would subsequently achieve unicorn status. When did you realize that this was happening, and how?
The original analysis focused on U.S.-based companies, and companies younger than 10 years valued at more than $1 billion, so comparisons with most global lists aren’t apples-to-apples.
That said, Crunchbase currently lists 1,484 unicorns around the world, around 50% of which (726) are based in the U.S. If you take out some companies on the list that were born more than 10 years ago, maybe the list shrinks to 500. That’s still more than 12x growth in a decade, which is massive.
In retrospect, I wonder if we should have been able to better predict the incredible growth. Per Moore’s law, the idea is that with more experience, the semiconductor industry would get better and better at cramming more circuits onto a chip and that customers would come to expect increasing performance/cost.
As Moore’s law has delivered improvements in faster, cheaper chips, there has been a domino effect: faster, more powerful software. Continued hardware performance/cost improvements are also enabling the new generation of AI software.
As experience, talent and money in tech have grown (zero interest rates also a big kicker), we’ve seen a Moore’s law–like growth rate in software and internet companies that become unicorns (~30% year-on-year). Despite current public market multiples, as capabilities/costs continue to improve, we should expect software to do the same, which will grow the number of software unicorns around the world.
Billion-dollar exits used to be the goal, because traditional venture funds require large returns for the math to work out. But as you mentioned at the time, a fund like Cowboy Ventures doesn’t need that. Why were you interested in learning more from what were fairly rare cases at the time?
The investor Fred Wilson is known for pointing out that your fund size is your strategy. We agree! We keep our fund sizes relatively small, so we don’t need to invest in multiple companies worth $10 billion or more to generate great returns (although we would be thrilled to do so!).
We are on a mission to deliver top-quartile returns, fund after fund, while having a positive impact on the communities around us. To do this, it’s helpful to be students of the tech industry, to be “learning animals” when it comes to lessons learned, people, ideas and companies.
Learning from the past helps us have a growth mindset around new ideas and seed-stage founders, and it gives us insights to share with founders on building companies for long-term resilience and success.
In retrospect, do you wish the definition focused more on billion-dollar exits instead of valuations? Is there anything else you would frame differently, or wish that others understood better?
We’re working on an updated unicorn analysis that we hope to share on TechCrunch soon. We’ll look again at multiple cuts on the data, including aspects like geography, founder age and background, industry and business model mix, as well as capital efficiency, which is an important, recently underemphasized metric.
Capital efficiency is the valuation of a company divided by how much they’ve raised. It tanked after the 2020–21 peak. We hope to see a return to higher capital efficiency in the coming years. Companies like Veeva and Klaviyo are great examples of this.
Do you think unicorn status should be celebrated as much as revenue or other milestones? What are your thoughts on other mythical analogies, such as centaurs (companies with more than $100 million in annual recurring revenue)?
Revenue and gross/operating/profit margins are really important metrics — I wish we had access to that data. The analysis would be so interesting!
Other metrics we’d love to look at are burn multiple, CAC/LTV, NDR, year-on-year growth, Rule of 40, months of runway, liquidation preference stack . . . I could go on! But that information unfortunately isn’t available for private companies. So valuation it is — with the knowledge that valuation reflects only one point in time along a company’s long journey.
Are you worried about the broader implications of counting unicorns? Do you think the spotlight on unicorns and valuations is making things harder for bootstrapped startups and/or for founders with less access to capital?
I’m a big fan of the adage “what gets measured gets managed.” When we track and analyze unicorns, we learn lots about founders’ educational and professional backgrounds, investor networks, gender diversity and more. We also find lots of opportunities for improvement at every turn.
I hope when folks see numerically how little diversity there has been in tech, especially in the C-suite, on boards, and in VC firms, and for so long, they’ll see that it hasn’t been an even playing field. That’s a big opportunity to improve for the future.
I am sitting next to a large unicorn plush, and I don’t think I’m the only one. Do you own some cool unicorn memorabilia?
Ha! We do have some unicorn-themed stuff around the office and at home, including a small sparkly papier-mâché unicorn head wearing a sparkly tiny cowboy hat on the Cowboy office dining room wall. Friends have sent unicorn-themed gifts over the years — a favorite might be a tin of stuffed unicorn parts called Unicorn SPAM.