Unicorns and the VCs Who Love Them: How the Relationship Works at its Best

Last Updated on July 10, 2021

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A “unicorn,” in the jargon of private equity funds and venture capitalists (VCs), is a privately owned startup with a valuation that exceeds $1 billion. For this purpose, valuation is defined by what the founding group and the VC investors who write checks for the proper pitch agree upon.

If you give the VC folks 20% of the company’s equity in return for $200 million or more then the contracting parties have together valued the entity at $1 billion or up.

Could your business be next? The urge to get in on, or even be the founder of, the next unicorn is a very American concept. And one of our readers could well be the next such founder, could have the brilliant idea that breaks through the clutter and justifies that valuation.

But before you make that pitch, or receive the check, there are a lot of steps you’ll have to take. Here are some tips that could help you along the way.

Unicorns Need to Create

This is the key idea of Peter Thiel’s book, Zero to One (2014). Don’t merely refine. It is relatively easy to come up with an idea for improving on something that already exists. One can think of that as getting from one to two.

With Facebook already in the field, it was relatively easy for other entrepreneurs to pick up on what Mark Zuckerberg had done and to find new and arguably better social networks. Folks such as Jack Dorsey went from one to two. But Zuckerberg and the small group around him created. They had gone from zero to one.

Unicorns and VCs
The VC check that will define your entity as a unicorn won’t come when you simply describe an idea. You need all the moving parts in the right place. Photo credit: Shutterstock.com

Meet that challenge. Don’t imitate Zuckerberg. Learn from him.

Or if you want a more recent example: the “Consensus Mechanism” of the WeDream Exchange is a great example of a move from 0 to 1.

Unicorns Need to be Part of the Right Team

Even more important than coming up with a great zero-to-one idea is execution. The VC check that will define your entity as a unicorn won’t come when you simply describe an idea. It will come, if at all, if you have a qualified team in place, you have proven that your concept works, and you can tell them that you need your money so you and that team can scale the concept.

You don’t want to be in the position of telling the VC: “I need your money so I can put together a great team.” If you are the entrepreneur they are looking for, you can put together the necessary team while you are still working on a shoestring budget.

This may not be a matter of you, as a sole founder, choosing those you want around you. Not all founders are sole founders. To revert to our earlier example: Zuckenberg didn’t create a team. He began as a member of one, an equal partnership with Chris Hughes, Eduardo Saverin, and Dustin Moskovitz. Every great startup has its own unique chemistry. Some founders are thrust together, some start solo and build out from their own vision. There are no rules here, except perhaps: You’ll never pitch alone.

Unicorns Need to Stay Ahead of the Curve

Many business founders think, in the back of their minds, that they still have to have a foot in the old ways — the era of brick-and-mortar stores and print or broadcast advertising. You don’t. The future will not cycle back to that past, and don’t create a business plan that does so.

Unicorns Benefit From Credibility

Remember that, although the money you get from the first VC will be important fuel it will also be something less tangible: credibility.

Look forward to your VC presentations with this fact in mind. If you really are serious about unicorn status you will want to reach out to the top-tier VC firms, those with unicorns in their past. A deal with any one of them (there are only about 20) means you are instantly ‘in the room’ where fateful decisions are made.

Yes, there may be a need for further funding rounds as you move forward. But you have an opportunity to move forward, to scale up, and to make your “1” the standard for a new industry.