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What Old Unicorns Have Taught Us About Investing in New Ones

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Author photo: Suzanne Scacca

Suzanne Scacca


Finding the next unicorn can sometimes feel like trying to find the next big movie star.

There’s a huge payoff if you find one that can build upon and sustain its successes over the long term. But there’s always that fear you could end up with the next Shia Labeouf or Lindsay Lohan of investments.

So, how do you find a unicorn that can live up to its hype and has true staying power?

Ever since we were introduced to the idea of “unicorns” in 2013 by venture capital investor Aileen Lee, this is a question investors have been obsessed with answering.

The fact of the matter is, the best way to find the next unicorn is to look to the past.

Here’s what to look for when you’re searching for new unicorns.

Aileen Lee, the founder of Cowboy Ventures, originally coined the name “unicorns” in an article written for TechCrunch in 2013. At the time, they were:

“U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors.”

A lot has changed in the interim with the term now describing a much broader set of businesses all around the world. According to Wikipedia:

“A unicorn is a privately held startup company valued at over $1 billion.”

Despite the grander playing field, the rate of new unicorn formation has greatly slowed in the last few years, according to the 2018 VC Unicorn Report from PitchBook:

This doesn’t necessarily mean your search for a new unicorn will be as difficult as it was, say, in 2006 when the idea of a business valued at a billion dollars was rare.

It just means that VCs are taking a step back in an attempt to be savvier with their investments… and you should be too.

That’s why we’re going to talk about what you need to look for when on the hunt for new unicorns.

1. Location

When Aileen Lee first addressed the topic of unicorns and their geographic residence in the United States, she was referring to the tech behemoths from Silicon Valley.

As the years have rolled on and more tech companies have flocked to the region hoping for equitable success and funding, the cost of living in the area has gone up.

As you can imagine, this has led many a startup founder to wonder if it makes sense to set up shop elsewhere.

As Tory Green explained, other tech-friendly but more affordable cities like Austin, Boulder, and Miami have entered the discussion:

“But try as they might, these ‘hubs’ won't ever beat Northern California at its own game - the area will continue to dominate information technology because of its unique arbitrage of thought, culture and research.”

This is why VCs need to strongly consider how location factors into the viability of a potential investment. Take a look at PitchBook’s Unicorn Class of 2018. This is a collection of all companies that reached unicorn status between January 1 and December 31.

Here’s the top of the heap:

There’s only a small handful of unicorns that came from the Bay Area last year.

As you search for new unicorns, don’t be afraid to look back at the businesses that attained unicorn status over the last few years. Just this data alone demonstrates how China and India are starting to make a greater impact on the space.

This data from Crunchbase also demonstrates that there are other areas that are ripe for opportunity -- all around the world.

In other words, don’t limit yourself to the potential titans coming out of Silicon Valley.
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2. Industry

On a related note, industry and niche specialties must be considered in your search for new unicorns. Not only are they helpful as they provide a more narrow focus for your search, but they’ll enable you to look past the kinds of unicorns that dominated for so long.

Green gave a good example of this in the aforementioned Business Insider article. He uses Detroit to explain how both the geography and native industry can help you locate the next big unicorn.

The logic goes like this:

While Detroit might not be a hub for SaaS and apps the way Silicon Valley has been for years, think about what its major export is: automobiles.

This is an industry that will never go away. Whether it be a new ride-share service, AI-powered technology, or self-driving cars, there’s always something innovative coming down the line.

Add to that the significantly lower cost of living compared to Silicon Valley, and the fact that young professionals are flocking to the city because of its strong foundation, and you can see why there’s so much potential.

You just have to take some time to study different geographic areas and get a sense for their strengths. That’s the key to getting in at the right place and time.

3. Company age

The 2018 VC Unicorn Report revealed the following trend in the average age of a unicorn:

Typically, the first unicorn round of funding comes about six years after a business is founded.

Of course, that won’t always be the case with every unicorn, but the statistics don’t lie. If you’re attempting to identify a new unicorn, be careful about spending too much time on businesses under four years old or older than eight.

Six years is likely the Goldilocks spot as it allows businesses time to find their footing, refine their singular product or focus, and drum up steady interest from target consumers and investors alike.

4. The founders

This is going to seem like an odd one to add to your list of unicorn research techniques, but history would tell us it’s quite valuable to look closely at the founders.

To be more specific, there are four characteristics you should look for in a new unicorn:

  1. The age of the founders.
  2. The startup history of the founders.
  3. The number of co-founders.
  4. The relationship the founders have with one another.

Here’s why these four characteristics are so critical:


In Lee’s research of unicorns, she found that there was a sweet spot for age.

“Inexperienced, twentysomething founders were an outlier. Companies with well-educated, thirtysomething co-founders who have history together have built the most successes.”


Lee found that 80% of unicorns had a history of starting businesses; some were successful, others not so much. But the point is: unicorns have a history of ingenuity and entrepreneurship.


Lee’s research also showed how incredibly rare it is for a unicorn to be founded by one person.

Two or three co-founders seems to be the most common scenario.

We have to imagine that with just the right amount of co-founders, a business is able to more effectively and quickly flourish as it has the benefit of different people bringing different strengths to the equation.


It also seems that the relationship co-founders have with one another can strengthen the business.

Lee’s research revealed that:

  • 90% of co-founders had a lengthy history with one another, professionally or academically.
  • 60% were previous coworkers.
  • 46% attended the same school.

It seems, though, that the professional bond is more influential on a unicorn’s success than the educational one.

“Teams that worked together have driven more value per company than those who went to school together.”

Bottom line: when you’re looking for a new unicorn to invest in, take a close look at the people behind it:

  • Are they mature enough to be able to stand the high pressures of being a unicorn?
  • Do they have enough experience and confidence to become a public figure?
  • Have the launched a business before?
  • Are there multiple co-founders that can contribute a great variety of strengths?
  • Do the co-founders balance each other out as well as provide much-needed support?
  • Do the co-founders have a shared professional history that relates to the business they’ve created?

5. Customer relationship

When you think about unicorns that have paved the way, how do you see their relationship to the customer? Is there even one there? Or are they some detached behemoth that can’t be bothered?

As we recently explained inThe Rise of the Relationship Era:

“[T]oday's breakout companies have taken relationship building to a new level. Instead of connecting with their customers through the broad brushstrokes of brand marketing, companies like Box, Zendesk and Nest are using technology to build intimate, personal relationships with every customer. These relationships have fueled each company to new heights, disrupting entire industries virtually overnight.”

As you take a look around at the landscape of potential unicorns, don’t forget this very important fact.

Millennial and Gen Z consumers aren’t going to give a business their loyalty simply because they liked one product. They expect there to be more to the relationship, so you’d be smart to look at businesses that prioritize this.

6. Locate lookalikes in the real world

One final thing we’d suggest is to study unicorns from the past. They can be your clients or someone else’s that happen to cross into your niche.

The first place to start is inside your CRM. There’s a lot of rich data in there waiting for you to tap into.

What you want to look for is a persona, similar to how Lee broke down the common characteristics of unicorn founders. Well-educated thirtysomething co-founders living in San Mateo might not be your typical unicorn, so make sure to do your research first.

Your goal then is to identify the kinds of traits that successful unicorns share and then use that data to locate lookalikes. And you’re going to do this in person.

There are a number of places you might encounter new unicorns:

  • Industry events and conferences
  • Cowork spaces
  • Your alma mater as well as other local top tier universities

Of course, don’t forget to tap into your own network. You know what you’re looking for, or at least you have a rough idea of it. What can it hurt to ask around?

Look to the past to find new unicorns.

Although a lot has changed in the VC world, there are some things you’ll always be able to rely on to steer you in the direction of a good investment.

In sum, don’t be afraid to look to your data. You might not have seen the connections among your old unicorns at the time, but they’re certainly there. Start with the tips above and see if you can identify traits that’ll help you locate the next big star in your target niche.

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