The Unicorn Puzzle
From 2010 to 2021, 639 US VC-funded firms achieved unicorn status. We investigate why there are so many unicorns and why controlling shareholders give investors privileges to obtain unicorn status. We show that unicorns rely more than other VC-funded firms on organizational capital as well as network effects and the internet. Unicorn status enables startups to access new sources of capital. With this capital, they can invest more in organizational intangible assets with less expropriation risk than if they were public. As a result, they are more likely to capture the economies of scale that make their business model valuable.
We thank Harry DeAngelo, Ludovic Phalippou, Jay Ritter, Mike Weisbach, Karen Wruck, and seminar participants at the Ohio State University and the University of Florida for comments. Fahlenbrach gratefully acknowledges financial support from the Swiss Finance Institute. Please send correspondence to René M. Stulz, firstname.lastname@example.org. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Unicorns — startup businesses that are valued at at least $1 billion before going public — essentially did not exist before the 2000s...