Brief

Herd on the Street: So Many Unicorns, So Little Cash

Billion-dollar start-ups are common these days. More fantastical: Insurgent companies profiting at scale.

By Dunigan O'Keeffe

First published on Νοεμβρίου 09, 2023
min read


At a Glance Unicorns—start-ups that have achieved $1 billion in market value—now number in the thousands. But fewer than 1% of them are generating $1 billion in both revenue and cash—a truer measure of sustainable success. The founders in the latter group aren’t just focused on raising capital. They are intent on building industry-altering companies that can stand on their own at scale. As a business term, the word “unicorn” has taken on a life of its own in recent years. First coined a decade ago by venture capitalist Aileen Lee to describe 39 start-ups that had attained $1 billion in market value, it rapidly became a badge of entrepreneurial success—a signal that a founder had assembled a powerful team, was attacking a massive market opportunity, and had a clear path to becoming a market leader. Today, however, unicorns are commonplace. Bain research shows that almost 2,500 of the companies founded over the last 20 years have achieved valuations topping $1 billion in the public and private markets. What’s decidedly less common are unicorns that can stand on their own without regular infusions of venture capital. Indeed, our research turned up just a handful of companies launched over the past two decades that are generating cash from operations at scale (see Figure 1). This raises the question: Is it time to stop talking about market value for its own sake and refocus on what start-up success really looks like? Figure 1 Fewer than 1% of unicorns generate more than $1 billion in revenue and operating cash Setting a new standard While a $1 billion valuation is inarguably an impressive milestone, it’s been made easier by the large amount of venture capital that has surged into the market over the past decade, encouraged by stellar successes like Google and Amazon and supported by low interest rates. The gusher has allowed many companies with unproven business models to consistently raise cash at higher multiples from investors betting on the future. Raising cash and generating cash, however, are two very different things, and the entrepreneurs who build sustainable business models understand this intuitively. While they’re keenly aware that they need to raise capital to build for the long term, they aren’t fixated on short-term valuation. Through our work on the Founder’s Mentality, we’ve seen that great founders are instead energized by a bold ambition to create something truly valuable for customers and a determination to build companies that will have an enduring impact in their industry. This is a multiyear journey that focuses from the outset on not just one, but three $1 billion goals: $1 billion valuation: Bold vision. Investors have conviction in our long-term market opportunity and our potential to secure a leadership position over time. $1 billion annual revenue: Market acceptance. Our product or service appeals to a broad set of customers, and the company has become adept at courting and keeping them. $1 billion annual cash flow: Business model validation. Our business is capable of generating the cash we need to reinvest in long-term growth and market leadership. (For the purposes of holding a high standard for business model success, we look at cash flow net of the value of stock-based compensation.) We call the companies that cross all three of these thresholds “established insurgents,” and our research indicates that they are exceedingly rare. Of the approximately 225,000 companies founded over the last 20 years, around 2,500 have been able to reach $1 billion in market valuation. (We expanded Lee’s universe to include public companies, given how the lines between public and private have blurred in recent years). But of these, fewer than 250 have crossed the $1 billion revenue threshold, and just 15 generate more than $1 billion in cash and revenue: Airbnb, BioNTech, Daqo New Energy, Jazz Pharmaceuticals, JD.com, Li Auto, Meituan, Meta, Palo Alto Networks, Pinduoduo, Service Now, Sunshine Insurance, Tesla, Vipshop, and Xiaomi. These 15 companies make up just 0.7% of total unicorns, yet collectively they represent a stunning $2.3 trillion in market value. Each has written an amazing story of innovation and scaling, and their enduring success continues to fuel enthusiasm to find and fund the next one. This analysis has some limitations: Lack of public data means we had to extrapolate how many still-private companies made it into our emerging insurgents group based on revenue. We also had to exclude from the cash flow analysis large, successful private companies like Stripe, ByteDance, and Ant Group, for which detailed financials aren’t available. Finally, this analysis leaves out inspiring start-ups like YouTube that were acquired and scaled by a larger company. Yet even if you expand our final list of 15 to account for the few private companies potentially left out, the total still reflects how exceptional it is to achieve success across all three of these dimensions. The insurgents in this select group have grown beyond an initial vision of how they might disrupt markets and have become enterprises that are actually doing so on a broad scale. By building powerful business models that are carving out enduring relationships with customers, they are having a profound impact on both their industries and the broader economy. Insurgent speed The founding teams behind these companies are doubly impressive for how quickly they’ve been able to make their impact. On average, they cleared these three hurdles within 10 years of launch. Of course, they’re not perfect—many are still early in their journey, and there’s no guarantee that their success will continue. But their momentum so far is undeniable. Looking across the group of 15, a few themes emerge: Platforms – Five of the companies are consumer platforms in China (JD.com, Pinduoduo, Meituan, Vipshop, and Xiaomi), and three are US-based platform leaders in social media (Meta), hospitality (Airbnb), and cybersecurity (Palo Alto Networks). Sustainability – Three of the companies have seized the opportunity presented by the energy transition through solar (Daqo New Energy), electric vehicles (Li Auto), or both (Tesla). Biotechnology – Two companies are leaders in discrete areas of biopharmaceuticals: BioNTech and Jazz Pharmaceuticals. Global poles of innovation – China (eight companies) and the US (five) dominate the list. BioNTech and Jazz Pharmaceuticals are the sole European-headquartered companies on the list. Still striving In the current capital environment where late-stage venture funding has slowed, it’s worth paying close attention to the “emerging insurgents” identified in our research. These are the public and private companies that have crossed $1 billion in valuation and revenue but have yet to generate $1 billion in cash flow (at least, as publicly disclosed). Of the 206 public companies in this group, some, like Uber and Snowflake, have impressive momentum and valuations that imply they will push across the cash flow threshold soon. But many others have not moved fast enough to build sustainable businesses. It took Meta only seven years to get to $1 billion in cash flow. The more capital-intensive Tesla took 15 years. Yet fully 54% of the companies in this group are more than 15 years old and have yet to get over the hump (see Figure 2). Speed is a natural advantage for young companies. There is now tremendous urgency to use this edge to refine their business models for cash flow generation. Figure 2 Nearly one-third of emerging insurgents have yet to achieve positive cash flow We plan to update our list on a regular basis to keep track of which companies are achieving established insurgent status and what we can learn from them. We’ve learned one lesson already: As we enter this next era of business building, founders seeking to raise venture capital—as well as those building businesses within corporates—need to move beyond the business world’s fascination with market value. The founders that truly change the game have twin priorities at the outset: They are focused on rapidly scaling a powerful customer franchise and building a cash-generative business that can sustain itself. As our 15 insurgents have demonstrated, if all of that’s in place, valuation will follow.

At a Glance

Unicorns—start-ups that have achieved $1 billion in market value—now number in the thousands.
But fewer than 1% of them are generating $1 billion in both revenue and cash—a truer measure of sustainable success.
The founders in the latter group aren’t just focused on raising capital. They are intent on building industry-altering companies that can stand on their own at scale.

As a business term, the word “unicorn” has taken on a life of its own in recent years.

First coined a decade ago by venture capitalist Aileen Lee to describe 39 start-ups that had attained $1 billion in market value, it rapidly became a badge of entrepreneurial success—a signal that a founder had assembled a powerful team, was attacking a massive market opportunity, and had a clear path to becoming a market leader.

Today, however, unicorns are commonplace. Bain research shows that almost 2,500 of the companies founded over the last 20 years have achieved valuations topping $1 billion in the public and private markets.

What’s decidedly less common are unicorns that can stand on their own without regular infusions of venture capital. Indeed, our research turned up just a handful of companies launched over the past two decades that are generating cash from operations at scale (see Figure 1).

This raises the question: Is it time to stop talking about market value for its own sake and refocus on what start-up success really looks like?

Fewer than 1% of unicorns generate more than $1 billion in revenue and operating cash

Setting a new standard

While a $1 billion valuation is inarguably an impressive milestone, it’s been made easier by the large amount of venture capital that has surged into the market over the past decade, encouraged by stellar successes like Google and Amazon and supported by low interest rates. The gusher has allowed many companies with unproven business models to consistently raise cash at higher multiples from investors betting on the future.

Raising cash and generating cash, however, are two very different things, and the entrepreneurs who build sustainable business models understand this intuitively. While they’re keenly aware that they need to raise capital to build for the long term, they aren’t fixated on short-term valuation. Through our work on the Founder’s Mentality, we’ve seen that great founders are instead energized by a bold ambition to create something truly valuable for customers and a determination to build companies that will have an enduring impact in their industry. This is a multiyear journey that focuses from the outset on not just one, but three $1 billion goals:

$1 billion valuation: Bold vision. Investors have conviction in our long-term market opportunity and our potential to secure a leadership position over time.
$1 billion annual revenue: Market acceptance. Our product or service appeals to a broad set of customers, and the company has become adept at courting and keeping them.
$1 billion annual cash flow: Business model validation. Our business is capable of generating the cash we need to reinvest in long-term growth and market leadership. (For the purposes of holding a high standard for business model success, we look at cash flow net of the value of stock-based compensation.)

We call the companies that cross all three of these thresholds “established insurgents,” and our research indicates that they are exceedingly rare. Of the approximately 225,000 companies founded over the last 20 years, around 2,500 have been able to reach $1 billion in market valuation. (We expanded Lee’s universe to include public companies, given how the lines between public and private have blurred in recent years).

But of these, fewer than 250 have crossed the $1 billion revenue threshold, and just 15 generate more than $1 billion in cash and revenue: Airbnb, BioNTech, Daqo New Energy, Jazz Pharmaceuticals, JD.com, Li Auto, Meituan, Meta, Palo Alto Networks, Pinduoduo, Service Now, Sunshine Insurance, Tesla, Vipshop, and Xiaomi.

These 15 companies make up just 0.7% of total unicorns, yet collectively they represent a stunning $2.3 trillion in market value. Each has written an amazing story of innovation and scaling, and their enduring success continues to fuel enthusiasm to find and fund the next one.

This analysis has some limitations: Lack of public data means we had to extrapolate how many still-private companies made it into our emerging insurgents group based on revenue. We also had to exclude from the cash flow analysis large, successful private companies like Stripe, ByteDance, and Ant Group, for which detailed financials aren’t available. Finally, this analysis leaves out inspiring start-ups like YouTube that were acquired and scaled by a larger company.

Yet even if you expand our final list of 15 to account for the few private companies potentially left out, the total still reflects how exceptional it is to achieve success across all three of these dimensions. The insurgents in this select group have grown beyond an initial vision of how they might disrupt markets and have become enterprises that are actually doing so on a broad scale. By building powerful business models that are carving out enduring relationships with customers, they are having a profound impact on both their industries and the broader economy.

Insurgent speed

The founding teams behind these companies are doubly impressive for how quickly they’ve been able to make their impact. On average, they cleared these three hurdles within 10 years of launch. Of course, they’re not perfect—many are still early in their journey, and there’s no guarantee that their success will continue. But their momentum so far is undeniable. Looking across the group of 15, a few themes emerge:

Platforms – Five of the companies are consumer platforms in China (JD.com, Pinduoduo, Meituan, Vipshop, and Xiaomi), and three are US-based platform leaders in social media (Meta), hospitality (Airbnb), and cybersecurity (Palo Alto Networks).
Sustainability – Three of the companies have seized the opportunity presented by the energy transition through solar (Daqo New Energy), electric vehicles (Li Auto), or both (Tesla).
Biotechnology – Two companies are leaders in discrete areas of biopharmaceuticals: BioNTech and Jazz Pharmaceuticals.
Global poles of innovation – China (eight companies) and the US (five) dominate the list. BioNTech and Jazz Pharmaceuticals are the sole European-headquartered companies on the list.

Still striving

In the current capital environment where late-stage venture funding has slowed, it’s worth paying close attention to the “emerging insurgents” identified in our research. These are the public and private companies that have crossed $1 billion in valuation and revenue but have yet to generate $1 billion in cash flow (at least, as publicly disclosed).

Of the 206 public companies in this group, some, like Uber and Snowflake, have impressive momentum and valuations that imply they will push across the cash flow threshold soon. But many others have not moved fast enough to build sustainable businesses. It took Meta only seven years to get to $1 billion in cash flow. The more capital-intensive Tesla took 15 years. Yet fully 54% of the companies in this group are more than 15 years old and have yet to get over the hump (see Figure 2). Speed is a natural advantage for young companies. There is now tremendous urgency to use this edge to refine their business models for cash flow generation.

Nearly one-third of emerging insurgents have yet to achieve positive cash flow

We plan to update our list on a regular basis to keep track of which companies are achieving established insurgent status and what we can learn from them. We’ve learned one lesson already: As we enter this next era of business building, founders seeking to raise venture capital—as well as those building businesses within corporates—need to move beyond the business world’s fascination with market value.

The founders that truly change the game have twin priorities at the outset: They are focused on rapidly scaling a powerful customer franchise and building a cash-generative business that can sustain itself. As our 15 insurgents have demonstrated, if all of that’s in place, valuation will follow.

Herd on the Street: So Many Unicorns, So Little Cash

Herd on the Street: So Many Unicorns, So Little Cash