The Unicorns’ Club: How Startups are Displacing Traditional Companies

The unicorn is an emblematic animal of the Greek mythology (400 BC) that represented the abundance, fertility and health of people. In the Middle Ages, it was coveted for its horn with miraculous powers. Today the unicorn went from being a magical creature to be a reality achievable by any mere mortal.

The industrial sectors are similar to Greek mythology, there are emblematic companies that over time have yielded their throne to modern unicorns. In the automotive sector, companies such as GM (US$63bn in market capitalization, founded 112 years ago) and Ford (US$37bn, 117 years) have fallen, yielding their throne to companies such as Tesla (US$219bn, 17 years) and Uber (USD$93.4bn, 11 years).

The hospitality sector is not far behind. Flagship companies such as Marriott International (USD$42bn, 93 years), Hilton Worldwide (USD$30bn, 101 years) and InterContinental HG (USD$ 12bn, 68 years) have yielded, favoring Airbnb (USD$ 89bn, 12 years).

In the food sector, the trend is similar. Companies like Doordash (USD$66bn, 7 years) have snatched a large part of the market from companies like Domino’s (USD$15bn, 60 years) and Chipotle (USD$ 37, 27 years). In music, Spotify (USD$63bn, 14 years) has captured the market leaving behind companies like Sony Music (USD$63bn estimated valuation, 91 years) and Warner Music Group (USD$13bn, 62 years).

In the financial sector in emerging markets, Nubank (USD$10bn, 7 years) is competing head-to-head with ITAU (USD$54bn, 75 years) and BBVA (USD$34bn, 63 years) and it may not be long before it surpasses them. In Mexico, companies such as KAVAK (USD$1.2bn, 4 years) are competing with automotive agencies with the idea of ​​consolidating the secondary market for car sales.

All these fast-growing tech startups with a valuation of more than a billion dollars are called unicorns, a term coined by Aileen Lee (founder of Cowboy Ventures) in 2013.

What’s the big difference between once iconic companies and unicorns today?

The answer is simple but very complicated to understand and execute by traditional companies: technology, innovation, entrepreneurial culture and VC investment.

Some differences can be explained as follows:

Team: it is what makes things happen. Modern unicorns have an agile team, specialized in relevant areas and with a high capacity for adaptation. In contrast, traditional companies are highly bureaucratic, nepotistic, and vertical; that is, little teamwork, power reserves, little innovation and technological development, etc. Traditional companies are usually bound by fear and bureaucracy, while unicorns are based on their desire to transcend and achieve unimaginable things.

Opportunity: startups have the agility to pursue and develop an opportunity in the face of competition. Its adaptability is remarkable. Traditional companies usually go for the “low hanging fruit” to have timely results each quarter that ensure managers receive their bonuses and shareholders their dividends.

Context: some traditional companies have a bad, or sometimes very bad, reading of the context. They do not react in a timely manner and take too much time to make decisions. Startups move quickly, for them there is no tomorrow, tomorrow is today.

Emerging Markets is in the process of developing its own Unicorn Club. The main country of origin of unicorns in Latam has been Brazil. Undoubtedly, its economic dynamism backed by investment in VC, the technological foundations and its entrepreneurial mentality have led the region to attract the attention of local and international investors.

Other emerging markets have also made a major contribution to the global Unicorn Club, such as Indonesia, the Philippines and Malaysia. Markets in full development, where technology begins to connect with reality, supporting the creation of value solutions for consumers.

Unicorns are a catalyst for development in different geographies. They generate employment, economic development along the value chains and improve the quality of life supported by innovation and technology.

To grow, unicorns need food. The food of the startups is the capital of VC investors, who in multiple rounds inject capital to develop the company and therefore increase its value. During part of their development, they leverage losses in investors’ capital until the business achieves financial profitability with positive cash flows. However, in most cases this does not happen and startups continue to require capital inflows from investors to stay alive. It is a business model of VC money intended to capture market (Venture Capital to Consumer “VC2C”). It is an oxygen tank. When this is over the unicorn disappears. As an investor, it is important to seek out the next unicorn to become a sustainable unicorn by avoiding the VC2C model.

In short, unicorns have gone from being a mythological animal to a real and inspirational entity that generates development, innovation and talent. It becomes a virtuous cycle, where a unicorn multiplies until the Unicorn Club is created.

Traditional companies, governments, universities should come much closer to this new world in search of joint collaboration and establish genuine and true progress in the long term.

“The unicorn is not known for its horn, beauty, or purity; but for its strength and courage as one. “

-Nicole Beckwith (American Actress)

Note: please refer to the original publication at EL CEO: https://elceo.com/opinion/el-club-de-los-unicornios-como-las-startups-estan-desplazando-a-las-empresas-tradicionales/

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Gonzalo Soriano. Investment analyst at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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