Ten years after Cowboy Ventures’ founder Aileen Lee gave unicorns their nickname, she and her team are back with fresh analysis on private companies worth more than $1 billion.
So much has changed in unicorn land since 2013 that it deserves the kind of thorough recap that you can read here. But there’s a point that’s worth zooming on: the shift to enterprise, and what could happen next.
As the number of unicorns boomed from 39 to more than 532, Cowboy found that their very nature also changed. “The pendulum swung hard to enterprise, with 78% of unicorns today focused on B2B, the inverse of 2013,” Lee and her team member Allegra Simon wrote.
But spending more than a decade in tech teaches you something: to be ready for the pendulum to swing back. Hence Cowboy’s prediction that “given the hard shift to enterprise,” we can “hope and expect more exciting consumer unicorns will be born in coming years.”
This may well be true, but it could also be somewhat of an uphill battle. Not only have B2B startups enjoyed tailwinds in the past 10 years, but also several of these factors are still in place today.
Today’s enterprise unicorns
B2B startups weren’t absent from the Unicorn Club’s initial cohort. There were 15 of them, including Workday, ServiceNow, Splunk and Palantir. But as Lee and Simon recalled, they only accounted for 38% of the group.
Fast-forward to today, and enterprise startups are a majority among unicorns. Perhaps even more strikingly, Cowboy found them to be collectively worth $1.2 trillion and driving 80% of aggregate value, versus 20% in 2013.
What caused so much capital to flock to enterprise companies in the past decade? Here’s Cowboy’s answer to its question:
The attraction of historical capital efficiency, the predictability of SaaS business models (high gross margin and customer retention), and a growing number of highly valued potential acquirers were likely a big draw. Global adoption of cloud made it easier to adopt new software and opened a big window for a whole new ecosystem of application layer, infrastructure, data and analytics, and security companies.
To put a face to the numbers, quite a few of the highest-valued enterprise companies are fintech unicorns, such as Brex, Deel and Plaid. The second spot goes to Databricks, which we haven’t lost hope to see IPO before we retire.
Top of the class is OpenAI, which Cowboy expects will be the first superunicorn of the decade if it does indeed raise new funding at a valuation of more than $100 billion as rumored.
Sustained tailwinds for B2B
AI obviously played a major role in getting companies like Databricks and OpenAI where they are. That’s one point in the enterprise camp. While consumer interest is picking up, B2B is a much clearer route for AI monetization than B2C, at least in the near future.
Indeed, TechCrunch’s Ron Miller and Rebecca Szkutak reported that generative AI is the new IT budget darling. “Everyone seems to believe that this technology is worth looking at, and perhaps investing big in,” they wrote. Startups will still have to fight to get a share of that spend, but the good news is that IT budgets should increase in 2024 compared to 2023.
It’s not just AI, though. “The first unicorn in 2024 is likely to be a fintech,” TechCrunch’s Christine Hall and Mary Ann Azevedo predicted last month. Of course, fintechs can be B2B, B2C or both. But companies building tools, infrastructure and APIs for other companies seem better placed to weather a high-rate environment than their consumer-focused peers.
Fintech investors may have already come to this conclusion, but consumer tech investors, too, are shifting focus. Just a few days ago, Christine heard from Highlight CEO Dana Kim that several investors that typically invested in consumer packaged goods are now looking to diversify their portfolio and move into adjacent spaces such as enablement, e-commerce software, data and analytics. In other words, B2B within consumer tech.
Does that mean there’s no money to be made from B2C? Clearly not. It may not become obvious in 2024, but the pendulum rule still holds. Amid all the pre-seed and seed-stage startups that keep getting founded and funded, a bunch are bound to be focused on selling to consumers.
Whether they can turn into a significant number of unicorns will depend on many factors, including their ability to acquire users in a more competitive advertising landscape. But as Cowboy noted, from eBay to Expedia and OpenTable to Yelp, “many of today’s leading consumer internet experiences are about two decades old.” Maybe it’s time for a new generation to emerge.