A few unicorns will not create a dynamic and innovative economy

The world’s unicorns, VC-backed startups worth more than $1 billion, have been getting a lot of press over the last five years.  All this excitement about the unicorns is understandable — they underscore the promise of new technologies and the power of the entrepreneurial spirit.  Unicorns also represent a threat to entrenched incumbents, which more often than not are incapable of intercepting the future.

But the reality is that unicorns represent a tiny slice of the economy. As of March 2021, the market value of America's 291 unicorns was estimated to be $940 billion. While that’s a big and steadily growing number, it’s less than 3% of the total market value of the companies that make up the S&P 500 ($34.4 trillion).

Unicorns are less important in Europe: their valuations are 1.6% of the combined market capitalization of the region's largest companies.

Take out the UK and European unicorns look even more irrelevant.  Continental Europe unicorn valuations don't even reach 1% of the regions' large company market value.

Unicorn valuation in China (including Hong Kong) look more respectable vs. large and mid-cap companies based there.  This is likely to to greater economic dynamism and shallower capital markets.

The fact that unicorn valuations are a tiny fraction of their larger competitors shouldn't discourage us from supporting startup formation in sectors such as AI, robotics, fintech, genomics, and electric vehicles.

But we also need to get serious about encouraging entrepreneurship in every organization--especially the large companies that increasingly dominate our economic landscape.  These megacorps have the talent and reach to generate breakthrough innovation, but their considerable resources are often squandered because they're managed with a bureaucratic model that systematically stifles initiative and creativity.

Entrepreneurship flourishes in organizations that are bold, simple, flat, and open. These are not the hallmarks of a typical corporate leviathan, but they need to be--and they can be.  Consider Haier, the global home appliance leader, which has comitted to becoming an “entrepreneurial platform,” one in which every employee feels like they’re working for a startup.  In a speech at the 2015 Drucker Forum, Haier CEO Zhang Ruimin said, “Our goal is to let everyone become their own CEO.” To that end, Haier has divided itself into more than 4,000 “microenterprises” — small, highly autonomous businesses in which team members select their own leaders.

Sure, entrepreneurial hotbeds are important.  But let’s stop worshipping the unicorns and start working to make every organiza­tion entrepreneur-friendly.


Here's a summary table of unicorn valuation and firm count by country, courtesy of CB Insights.