READ:
A research study conducted by Play Bigger examined 1,125 startups and the way they grow in the market. They found that unicorns (defined as private, venture-backed companies valued at 1 billion dollars or more) are indeed growing faster than firm prior to their existence. "Firms founded from 2012 to 2015 had a time to market cap (market cap divided by number of years since founding) more than twice that of firms founded from 2000 to 2003." That's a rather dramatic finding, clearly showing an increase in growth speed for a company. They also looked at "69 U.S companies that have raised venture capital since 2000 and gone public" in order to determine whether the amount raised before going public indicated success after. It did not appear to indicate future success. Going further, they found 2 correlations that might be harbinger of post-IPO success: Age of the company (quantitative) and category kings (qualitative, referring to companies "carving out new niches; think of Facebook, LinkedIn and Tableau).
HBR noted they intend to continue research in at least one direction:
"It's difficult to interpret the finding that company age at IPO predicts value creation, because companies today are not just getting big faster but also staying private longer. And it's not clear whether the link between firm age and growth in market cap is causal. Are the strongest companies coincidentally all going public at about the same time? Or is there something intrinsic about the companies that go public very early or very late that inhibits their ability to create value post-IPO?"
RESPOND:
/ My Understanding
Play Bigger has done research that correlates the value of "unicorns" with their speed of growth. It dispels some of the notion that pre-IPO investment indicates value and instead refocuses on the importance of maturity and uniqueness of a company in the market. More work needs to be done to understand both, but creating an prediction based on the amount of funding they were able to raise prior to going public is a bad choice.
/ The Value
It's easy to hear that a company has gotten X-dollars and believe it's destined for greatness. It's not as easy to identify that company grows fast enough, not to fast or slow, but just right. Even further, it's hard to declare a company in a completely new market will succeed if it's got no one to compare it to.
