How to Invest in the Next Unicorn Company

Unicorns exist. Unicorn companies, that is. In fact, there are now 554 of them in the world.

Unicorn Company

We’re not talking about one-horned horses… no, these are private companies, called “unicorns,” that have reached a $1 billion valuation. Unicorn companies are rare – CBInsights estimates that any given private company has a 0.00006% chance of reaching a $1 billion+ valuation… and it takes an average of seven years to crack that $1 billion mark if it does happen.

Very few private investors are lucky enough to invest on the ground floor of the next SpaceX, Instacart, or Chime. But there are a few strategies that can help increase the odds of finding that billion-dollar diamond in the rough.

A Unicorn Company Looks for Tech… and Weeds Out Competition

Unicorn companies use technology to succeed – most even incorporate it into their products and services. Nearly 90% of successful private companies produce software. Just 7% produce hardware, and the rest focus on goods and services. Obviously, the future is digital, but with all those software companies, there’s bound to be competition.

In fact, of the 10 most recent unicorns, four focus on fintech. But as venture capital investing experts have advised, 2022 may not be the year for this industry because of all this competition.

More and more companies are using artificial intelligence, or AI, to streamline deliverables, make decisions, and become more efficient overall. DoorDash (NYSE:DASH) is a company that’s had great success leveraging AI to solve delivery challenges. Companies like Waymo, which focuses on self-driving taxis, are using AI to deliver their customers to where they need to be without involving a human.

So look for companies that scale technology to make their processes and products better and more efficient in the digital world.

A Unicorn Company Knows How to Disrupt

Looking for a company that’s likely to make money? Find those that disrupt their respective industries… disruption refers to innovations that have a radical impact on their respective industry. Disruptors may not have reinvented the wheel, but they know how to make the wheel cheaper, faster, and better than their competitors.

Look at Netflix (NASDAQ:NFLX) started by sending DVDs in the mail – it was cheaper and easier to have a movie on hand at home than to go out to the video store or the theater. But once streaming services came along, Netflix became a true disruptor in that space.

Disruptors are major innovators in their field, and they know how to be agile when they need to pivot. Their business models are flexible and offer easily implemented options, especially when the chips are down.

Unicorn Companies Start With Great MVPs

Billion-dollar companies start with MVPs – minimum viable products. These are efficient, scalable products that don’t require a lot of initial cash to develop.

MVPs are equipped with only the essentials so that they’re easy to build upon… like the three cars Uber Technologies (NYSE:UBER) started with or the online bookstore Amazon (NASDAQ:AMZN) once was. It’s easier to tweak the product and make only the most beneficial upgrades when starting with a solid base product.

Unicorns Grow Big or Go Home

If you’re looking for the next unicorn company, make sure you choose a company that’s able to scale as it grows. An outsized but realistic goal is important to ensure that the team continues reaching and thinking outside the box to get to the goal.

That’s why it’s important for investors to do due diligence on principals and team members. Ensure that the company has a board, and that board shares the same values and objectives as the folks driving the product.

A few questions to ask about any company in which you plan to invest, especially potential unicorns:

  • Who’s on the team?
  • What is the team’s goal?
  • What is the basic product?
  • How does the business grow?
  • What roadblocks might the company face, and how do they plan to surmount them?
  • What are the fundraising plans?

Finally, examine the prospects the company has of being acquired by a larger company… a few examples include Amazon’s acquisition of Ring, Audible, and Zappos, the apparel and shoe company that went for $1.2 billion.

Build “unconventional wealth” by researching and investing in the companies that the Amazons of the world will clamor to own.

On this date of publication, Vanessa Rush did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Investing in startups through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:

1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education

Read more: Private Investing Risks

Vanessa Rush is a former journalism instructor with more than 20 years of experience writing and editing in the trucking, health and fitness, law, B2B, and financial industries.

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