2019 Unicorn Review: Girlbosses on the Rise

By Cary Zimmerman

So far, 2019 has been a banner year for female-founded “unicorns,” a term coined by famous venture capitalist Aileen Lee to describe startups valued at $1 billion or more. In the context of the total number of startups, the unicorn club is small. But that club is growing fast, to more than 300 globally and nearly 150 in the U.S. as of this writing (and, reportedly, 40 new unicorns in 2019 alone). This year has seen the following six female-founded companies achieve this coveted status. Below, I provide some background on how these “girlboss” startup founders led their companies to this rarefied air.

Data from Crunchbase and Pitchbook.

How Is a Unicorn Valued?

Venture finance is different from traditional corporate finance because startups have little or no operating history, usually have no profit (think Uber and Lyft), and often have no revenue at all. As a result, a discounted cash flow analysis[1] or other traditional valuation method isn’t appropriate to value a startup. Instead, the investors who are willing to fund these high-risk, fledgling companies value them – often after negotiation with the companies themselves – based on a calculus (more art than science) that considers the “total addressable market” for the company’s offerings, the talent of critical employees, the company’s consumer value proposition, barriers to entry for competitors, and other qualitative and quantitative factors. “Pre-money” valuation reflects the valuation of the company before it takes in investments from a fundraising round; “post-money” valuation is the valuation after it takes in the investments.

Why Multiple Fundraising Rounds?

A startup needs money to validate its product or service offerings and to grow. It can “bootstrap” (rely only on existing resources) or raise money from outside sources to fund these efforts. A startup that goes the fundraising route starts with a “Pre-Seed” or “Seed” round, followed by a sequence of rounds in alphabetical order: Series A, Series B, and so on. In Pre-Seed rounds, funds are raised from the founders and their family and friends. In a Seed round, wealthy individuals called “angel investors” and venture capital funds (institutional pools of money managed by professional investors) often invest alongside family and friends and founders. Investments in Series A and subsequent rounds are usually from venture capitalists. How much money to raise, and when to raise it, are usually questions of necessity – essentially, how much “runway,” or time before the money runs out, does the company have to executive on its strategic objectives? This dictates when fundraising is required.

Will These Unicorns Go Public?

These days, startups stay private for longer because a deep well of private capital is available to them. The most successful startups now raise hundreds of millions of dollars, and so-called venture capital “megafunds,” like SoftBank’s $100 billion Vision Fund, are growing in number to fund these companies. But the IPO market also has heated up over the past few years, with many companies including Uber, Lyft, Pinterest and Stitch Fix (another female-founded company) raising money through offerings in the public markets. Whether a startup goes public depends on a number of factors (raising large amounts of cash and providing liquidity to early employees and investors are two main reasons to do so), but these days, startups can remain private for much longer than historically was possible, due to the availability of so much money in the private markets. Staying private enables startups to continue to operating outside of the harsh public spotlight and avoid onerous shareholder reporting and regulatory obligations.

Where to Start?

Each of these unicorn founders started by transforming an idea into action, setting up and funding a company, and hustling, then hustling some more. They converted their dreams into reality, and into billion-dollar businesses, by carefully conceiving of their enterprise and rallying the resources necessary to build it. These girlbosses also relied on the guidance of trusted advisors and consultants experienced in helping burgeoning businesses prepare their go-to-market strategy. There are a host of legal issues to consider in launching a startup, including the following examples:

• What type of entity the company should be, and what jurisdiction it should be formed in;
• What intellectual property the company owns (or should own), and how to properly protect it;
• How to properly engage and compensate key employees, contractors and suppliers, and whether to compensate them with equity; and
• How to raise capital from investors in compliance with securities laws.

These are very important considerations for any startup founder to mind as they plant the seeds of their business.  If you’re a girlboss with a startup—or if you’ve got a great idea for a company and are thinking of launching a startup—your journey should start with a call to an experienced corporate and securities lawyer, who can help you issue-spot and set your company up for success (and potentially unicorn status!). Please contact me at caz@kjk.com or 216.736.7275 if you have any questions as you start planning for your startup’s future, or reach out to any of KJK’s Corporate or Securities professionals.

[1] A method that, making certain assumptions based on a company’s history and expected growth, models out the anticipated future cash flows of a business and reduces that to a “net present value.”

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