Becoming a unicorn, isn't that the hidden dream of many startupers? Granted, it's not an end in itself, but what CEO would refuse this financial and entrepreneurial consecration?

Especially since the year 2021, despite the COVID period, saw the birth of 12 unicorns including Ledger, Back Market, Shift Technology or even Vestiaire Collective. As for 2022? This select list is growing with five newcomers at the beginning of the year: Ankorstore, Exotec, Qonto, Spendesk and Payfit!

But, as you've understood: not just anyone can become a unicorn. Indeed, being valued at over $1 billion requires proven success.

So, what are the steps to reach the Holy Grail? What level of ambition should you envisage?

Becoming a unicorn: the hero's journey

Being a startup requires a good deal of resilience. Unforeseen events, sometimes chaotic customer relationships, administrative tasks and fragile treasury are all elements that make you a courageous entrepreneur. And, courage is needed before claiming to be among the chosen ones.

Startup: becoming a scale-up first and foremost

Firstly, let's remember that a startup is only a transitional stage. Its ultimate goal is to find a functioning economic model. A startup is meant to transform into a "classic" company or a scale-up.

What is a scale-up?

The "startup" jargon encompasses terms whose meaning is not always understood. Firstly, a unicorn is primarily a scale-up, not listed on the stock exchange, valued at $1 billion and created less than ten years ago.

As you've guessed, a scale-up is the logical evolution of a startup. So, this means that the product or service exists and that it has met a significant volume of customers. The famous "product market fit" is there. Above all, the business model allows for a certain level of profitability: at this stage, most startups have already raised funds to accelerate.

What are the key criteria to become a scale-up?

The rapid growth of these startups requires a lot of financial and human resources. Moreover, these two indicators are crucial for the transformation of a startup into a scale-up, that is to say, a viable company in the long term:

• Recruitment, a central issue

The scale-up has at least 10 employees and must consider at least a 20% increase in hiring per year to support its scaling, especially internationally. Building a solid, competent team that still embodies the values of the growing startup is the biggest challenge of the scale-up.

• Turnover, a growth indicator

The glitz of fundraising often makes us forget that return on investment (the famous ROI) is the first factor that investors look at. So, a scale-up should generate on average a turnover of 1 million euros and be profitable at the very least.

Scale-up: The Importance of Financing

To reach this status, it is common for start-ups to have already raised funds. We will disregard the ideation and creation stages which rely on personal financing and public grants like BPI or Region. The critical phase that interests us concerns seed funding, scaling, and expansion.

The Seed Funding

If you are at this stage, it's good news. You have successfully launched the first version of your offer which has been validated by your first customers. This traction suggests that monetization on a larger scale is possible.

A first round of funding, or Seed, is conceivable: in France, it is often between 1 and 5 million euros. This first round of funding aims to boost the commercial conquest of the product or service. Depending upon your industry, especially if you are developing a business based on disruptive innovation, a pre-seed may be planned to finance the development of your first version.

The Scaling

At this stage, your scale-up status is almost validated. The recurrence of revenue generates significant turnover on a critical size market, and you have a team of 15 to 80 people to grow your project. The business model is essentially stabilized. Congratulations! Reaching your breakeven point is the gateway to rapid growth.

Here, series A funding rounds from venture capital funds (the Venture Capitalists) are quite common. The amounts range between 5 million and 10 million and aim to conquer market shares and diversify the offer and product features.

Expansion: On the way to the world of unicorns!

You've made it! You are a scale-up. Nothing can stop you now. The challenge at this stage? International marketing and possibly the acquisition of other start-ups. The expected gains are normally more assessable.

Series B involves amounts between 10M€ and 20M€ (this is an average, but the amounts can exceed this range). The ambition at this stage is already high. From this series and the following (C, D, E, etc.), the "simple" scale-ups can potentially become unicorns.

Becoming a Unicorn: The Ambition of a Meteoric Growth

Growing a start-up, is already believing in the potential of your project. And, if you meet a need, things can move very quickly. Companies like Sorare, Alan, Spendesk have thus become scale-ups in record time before being where they are today. Admittedly, there are few who succeed. However, if you are on the way to becoming a scale-up, the unicorn in you may be ready to reveal itself!

Becoming a Unicorn: The Essential Valuation

As we have seen, the qualification as a unicorn is based on a valuation of the company exceeding one billion euros. But what is this valuation based on?

The one billion dollar mark

The valuation of a company not listed on the stock exchange is not the result of a predefined formula. In reality, it is only determined by one thing: the propensity to pay of potential and historical investors, i.e., the sum they are willing to pay to acquire a share of the company's capital. To arrive at this sum, interested investors carry out an audit of the target (or Due Diligence) and analyze financial data (turnover, margins, MRR, existing debt), estimate the addressable market, probe the competition, etc... They also take into account more qualitative, even subjective, aspects such as the quality of the teams and their potentials. The goal: to form an opinion on the probability of the company's success and in the case of success, the financial gain that can be expected.

You will have understood, the valuation is above all a bet on the future.

And after the valuation?

Being a unicorn is not the end of the race. Its very definition predicts that this state is only the representation of a scale-up at a given moment. So, what can unicorns hope for the rest of the journey?

There are presumably 3 possibilities:

• they no longer need venture capital to grow. They are quite "old" and are now part of the global economic landscape like Veepee.
• they can also go public on the Euronext Paris market like OVH Cloud or on the Nasdaq like Criteo. The process is, unsurprisingly, complex. It requires major internal changes: modification of the legal regime, opening of the board to independent directors, regular financial control, etc. A kind of fundraising power 1000!
• finally, they can merge by being bought out by larger companies or disappear by going under like Katerra.

Becoming a unicorn: the other side of the coin

Becoming a flagship of the French Tech is not a bed of roses. And, beyond the media glitter, such growth is not without its drawbacks.

Loss of control

From the first fundraising round, you are no longer the only captain of the ship. This is still the case when you are a unicorn. In concrete terms, founders exchange money for capital in their company. With each funding round, you undergo dilution, which can be synonymous with loss of autonomy.

You also have to be accountable! Whereas fundraising rounds are based only on projections, the raison d'être of venture capital is to be able to lose money provided there is rapid growth behind it.

The difficult control of hypergrowth

Having so much money necessarily implies aiming high and very quickly. To do this, hiring must follow. Employees become so numerous that the leader is no longer there to recruit his own team. There is then a high risk of turnover and internal structural problems.

This is when the startup's DNA can get lost. The danger is therefore to organize yourself like a "big box" company, stifling all creativity and flexibility. However, most unicorns have already understood that the governance system and the employer brand are the two pillars of a thriving unicorn.

No turning back

Not everyone is equipped to live this incredible adventure! The pressure is enormous: with investors and astronomical sums injected, the only possible outcome is rapid growth.

Of course, there are as many paths as there are startups and business models: self-financing (or bootstrapping) or resorting to debt, for example. And you, what will yours be?