• Women 2.0 HowTo Conference San Francisco, September 30 - October 1, 2014

Who Gets to Join the Unicorn Club?

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Cowboy Ventures founder and Women 2.0 conference speaker Aileen Lee starts a conversation about the rarity of billion-dollar startups — and who founds them.

By Jessica Stillman (Editor, Women 2.0)

We’re all for startup founders dreaming big here at Women 2.0, and when it comes to outsizes goals, few are bigger than to build a startup with a billion-dollar valuation. But while aiming to change the world (and get tremendously wealthy in the process) is a laudable goal, exactly how often do startups reach that mile stone?

That’s the question Cowboy Ventures undertook to answer with a recent research program, which founder Aileen Lee (who will also serve as a PITCH competition judge in Vegas) wrote about this weekend in TechCrunch. The takeaways of the project are several, but the essential point was pretty unmissable: billion-dollar startups are about as rare as unicorns.

“How likely is it for a startup to achieve a billion-dollar valuation? Is there anything we can learn from the mega hits of the past decade, like Facebook, LinkedIn and Workday?” Lee asks in the article. “To answer these questions, the Cowboy Ventures team built a dataset of U.S.-based tech companies started since January 2003 and most recently valued at $1 billion by private or public markets. We call it our ‘Learning Project,’ and it’s ongoing,” she explains.

What are the the conclusions of the project? The complete article lists many, but they include:

  • We found 39 companies belong to what we call the “Unicorn Club” (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors). That’s about .07 percent of venture-backed consumer and enterprise software startups.
  • On average, four unicorns were born per year in the past decade.
  • Inexperienced, twentysomething founders were an outlier. Companies with well-educated, thirtysomething co-founders who have history together have built the most successes
  • The “big pivot” after starting with a different initial product is an outlier.
  • There is very little diversity among founders in the Unicorn Club.

The post makes for a fascinating read for founders, but it is also worth checking out the conversation it has spawned. VC Fred Wilson, for instance, points out the project is US-centric and misses big international successes. He also questions the value of entrepreneurs (rather than VCs) spending much time pondering the findings.

“This is a very useful exercise in the VC business since it is these big wins that produce the vast majority of returns in the business. I am not sure it is that is worthwhile exercise for entrepreneurs since you can bypass the VC business entirely, keep all or most of your company, and sell it for $20mm and have a big personal and financial success,” he writes.

Did any of these findings surprise you?

Jessica Stillman (@entrylevelrebel) is an editor at Women 2.0 and a freelance writer with interests in unconventional career paths, generational differences, and the future of work. She writes a daily column for Inc.com, contributes regularly to Forbes and has blogged for CBS MoneyWatch, GigaOM and Brazen Careerist, among others.