Technology

How Startups Can Improve Their Odds of Becoming a Unicorn

Published

5 years ago

February 8, 2018

Jeff Desjardins

In 2017, we showed that 57 startups were able to achieve unicorn status – a rare designation that is reserved only for privately-held startups valued at $1 billion or more.

While this number may seem high, unicorns are still quite the rarity.

In the U.S. alone, there are currently 19,550 venture-backed startups vying for those same massive valuations. At the same time, it’s been estimated that each new startup only has a 0.00006% chance of becoming a billion dollar company.

How to Improve Those Odds

No one ever said that joining the ranks of unicorns would be easy, but there is some good news for aspiring founders.

Today’s infographic, which comes to us from FounderKit, looks at traits of existing unicorns – and analyzing this wealth of data might help entrepreneurs in shaping their own companies for future success.

How to Improve Your Chances of Becoming a Unicorn

Put together with information from Fortune and Crunchbase, this infographic gives us some clues as to how game-changing unicorns have been built in the past.

While it’s certainly not a prescription for future success, it does provide a blueprint for what’s needed to improve your chances of beating the odds.

Playing the Red Team

If you’re an entrepreneur with billion dollar dreams, take a close look at the categories that best resemble your startup.

For example, if your model depends on leasing hardware to the energy sector as a major revenue source, you should note that the odds are mostly against you. For starters, only 7% of unicorns are hardware companies, and energy doesn’t register high as a major business sector that has seen many unicorns. Further, companies that rent or lease their physical or intellectual assets make up just 1% of recent unicorn companies, which makes this particular model look pretty disadvantageous.

It doesn’t mean that this idea is not feasible – maybe it’s an underappreciated sector, or the idea is completely groundbreaking. However, given the information above, it’s most likely that this will be a tough go, so it’s worth making adjustments accordingly.

Playing the Green Team

Based on the above information, what combination of startup traits could provide the most common recipe for unicorn status?

Let’s create a hypothetical new startup:

It should be consumer focused, since the majority of companies are B2C (62%)
It should provide software, since 87% of all unicorns focus there
This startup should be retail/e-commerce marketplace focused, a category home to a whopping 25% of recent unicorns
It should have a model based on commission or brokerage fees (33% of recent unicorns)

It’s not hard to see similarities with the above traits and recent unicorns like Shopify or Airbnb, which both serve as solid precedents for success.

Of course, it’s far from a guarantee of future unicorn status, but it does mean that you likely have better than a 0.00006% chance.

Related Topics:unicorns odds startups entrepreneurs founders

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Technology

Nvidia Joins the Trillion Dollar Club

America’s biggest chipmaker Nvidia has joined the trillion dollar club as advancements in AI move at lightning speed.

Published

3 days ago

May 30, 2023

Dorothy Neufeld

Nvidia Joins the Trillion Dollar Club

Chipmaker Nvidia is now worth nearly as much as Amazon.

America’s largest semiconductor company has vaulted past the $1 trillion market capitalization mark, a milestone reached by just a handful of companies including Apple, Amazon, and Microsoft. While many of these are household names, Nvidia has only recently gained widespread attention amid the AI boom.

The above graphic compares Nvidia to the seven companies that have reached the trillion dollar club.

Riding the AI Wave

Nvidia’s market cap has more than doubled in 2023 to over $1 trillion.

The company designs semiconductor chips that are made of silicon slices that contain specific patterns. Just like you flip an electrical switch by turning on a light at home, these chips have billions of switches that process complex information simultaneously.

Today, they are integral to many AI functions—from OpenAI’s ChatGPT to image generation. Here’s how Nvidia stands up against companies that have achieved the trillion dollar milestone:

	Joined Club	Market Cap in trillions	Peak Market Cap in trillions
Apple	Aug 2018	$2.78	$2.94
Microsoft	Apr 2019	$2.47	$2.58
Aramco	Dec 2019	$2.06	$2.45
Alphabet	Jul 2020	$1.58	$1.98
Amazon	Apr 2020	$1.25	$1.88
Meta	Jun 2021	$0.68	$1.07
Tesla	Oct 2021	$0.63	$1.23
Nvidia	May 2023	$1.02	$1.02

Note: Market caps as of May 30th, 2023

After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).

As Nvidia’s market cap reaches new heights, many are wondering if its explosive growth will continue—or if the AI craze is merely temporary. There are cases to be made on both sides.

Bull Case Scenario

Big tech companies are racing to develop capabilities like OpenAI. These types of generative AI require vastly higher amounts of computing power, especially as they become more sophisticated.

Many tech giants, including Google and Microsoft use Nvidia chips to power their AI operations. Consider how Google plans to use generative AI in six products in the future. Each of these have over 2 billion users.

Nvidia has also launched new products days since its stratospheric rise, spanning from robotics to gaming. Leading the way is the A100, a powerful graphics processing unit (GPU) well-suited for machine learning. Additionally, it announced a new supercomputer platform that Google, Microsoft, and Meta are first in line for. Overall, 65,000 companies globally use the company’s chips for a wide range of functions.

Bear Case Scenario

While extreme investor optimism has launched Nvidia to record highs, how do some of its fundamental valuations stack up to other giants?

As the table below shows, its price to earnings (P/E) ratio is second-only to Amazon, at 214.4. This shows how much a shareholder pays compared to the earnings of a company. Here, the company’s share price is over 200 times its earnings on a per share basis.

	P/E Ratio	Net Profit Margin (Annual)
Apple	30.2	25.3%
Microsoft	36.1	36.7%
Aramco	13.5	26.4%
Alphabet	28.2	21.2%
Amazon	294.2	-0.5%
Meta	33.9	19.9%
Tesla	59.0	15.4%
Nvidia	214.4	16.19%

Consider how this looks for revenue of Nvidia compared to other big tech names:

$NVDA $963 billion market cap, 38x Revenue
$MSFT $2.5 trillion market cap, 12x Revenue$TSLA $612 billion market cap, 7.8x Revenue$AAPL $2.75 trillion market cap, 7.3x Revenue$GOOG $1.6 trillion market cap, 6.1x Revenue$META $672 billion market cap, 6x Revenue pic.twitter.com/VgkKAfiydx

— Martin Pelletier (@MPelletierCIO) May 29, 2023

For some, Nvidia’s valuation seems unrealistic even in spite of the prospects of AI. While Nvidia has $11 billion in projected revenue for the next quarter, it would still mean significantly higher multiples than its big tech peers. This suggests the company is overvalued at current prices.

Nvidia’s Growth: Will it Last?

This is not the first time Nvidia’s market cap has rocketed up.

During the crypto rally of 2021, its share price skyrocketed over 100% as demand for its GPUs increased. These specialist chips help mine cryptocurrency, and a jump in demand led to a shortage of chips at the time.

As cryptocurrencies lost their lustre, Nvidia’s share price sank over 46% the following year.

By comparison, AI advancements could have more transformative power. Big tech is rushing to partner with Nvidia, potentially reshaping everything from search to advertising.