In the tech and investing world, a “unicorn” is a startup business valued at over $1 billion. Famous unicorns include Uber, Airbnb, and super-unicorn, Facebook.
Seems like something positive to aspire to, right?
Wrong.
Everyone has their own billion-dollar idea and while it would be great to hit that Facebook-status jackpot, the reality is that unicorn status is actually a tough position to be in.
First of all, having a company valued at $1B, doesn’t mean that company has a billion dollars or even any sales. It means that a group of people have agreed that this is a potential worth. And this only IF and WHEN a startup can secure funding.
A valuation also has no actual correlation with current or future profitability. Plenty of promising unicorns have flopped or otherwise been swallowed by even bigger unicorns before even getting a chance to play the game.
In the worst case scenario, a company that can’t keep up to their valuation will likely fail, in which case the employees and investors suffer the hardest consequences.
When sitting on what is perceived to be the next big idea, it’s easy for both sides to get ambitious or even greedy during the negotiation, but starting with a reasonable and realistic valuation and leaving the terms open to renegotiation in the future is the best bet for both startup and investors.