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FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.
Even unicorns grow, at least the luckiest ones. More than 1,500 private companies have a valuation of more than $1 billion that deserves that label. coined for the first time by venture capitalist Aileen Lee in 2013, according to Crunchbase data. OpenAI is one that has surpassed the stable. But today it is more difficult to go from a horned colt to a winged steed, and what is needed to do this, or who, is in dispute.
Cheap money and momentum made it easier for the founders to reach the legendary milestone. But among U.S. companies founded in the past 20 years, only Meta and Uber have become what consulting firm Bain & Company calls a “scale insurgent,” with $10 billion in annual revenue and $1 billion in cash flow. operating box. By contrast, the 1990-2003 vintage produced six such insurgents, including Tesla, Amazon.com, and Alphabet.
Despite the seemingly minor chances of achieving greatness, the money comes pouring in. Today’s unicorns have raised $1 trillion in total, more than a quarter of which was deployed in 2021, when US interest rates were essentially zero. After reaching a valuation of $157 billion this week, OpenAI is one of the largest, behind TikTok owner ByteDance and Elon Musk’s SpaceX.
Most are still lame. Less than 1 percent of venture capital-funded startups become unicorns. Even these can end up in the slaughterhouse. More than 220 publicly traded companies built a billion-dollar valuation by merging with so-called special purpose acquisition companies in the past five years, ListingTrack data shows, most of them technology groups. Three out of four have fallen below that level.
What slows down the growth of a unicorn the most? Bain theorizes that the glut of cash has fueled even founders who lack business acumen. Companies are less likely to be founded by a child prodigy with prior startup experience now than when Lee first birthed the unicorn concept, his firm Cowboy Ventures says. By that logic, visionaries need a more old-fashioned capitalism.
Many in Silicon Valley come to the opposite conclusion. Venture capitalist Paul Graham last month celebrated the notion of “founder mode”suggesting that the innovators who succeed are those who avoid management norms. Airbnb’s Brian Chesky was an example. Musk could be another. Consider what Meta Platforms boss Mark Zuckerberg calls the “wartime CEO,” who demands unquestioning obedience.
All business founders believe they deserve to operate freely. And while funding remains ample, investors agree too easily. That’s why OpenAI’s Sam Altman was able to tell backers who put up $6.6 billion that they owed refrain from financing your rivals.
Altman is a highly visible experiment in whether power is the key to greatness. Investors in other groups that have been pricked by the horn of a former unicorn may feel that “founder mode” is overrated. Those still on the path will very much hope that it is not.