The (Unreality) of The Unicorns: UK tech sector creates one Unicorn startup per month

The (Unreality) of The Unicorns: UK tech sector creates one Unicorn start-up per month in 2018 states a report
The (Unreality) of The Unicorns: UK tech sector creates one Unicorn start-up per month in 2018 states a report

Britain is currently creating more $1 billion technology companies, known as Unicorns, than any other country apart from the United States and China, a study has found states a recent report from the EIS. But is this really a good news and a reason to celebrate, or not?

In the last 20 years UK-based entrepreneurs have built 72 companies, including 13 in the past year, that have exceeded a valuation of $1billion. This is compared with 29 in Germany, Britain’s closest European rival, and India with 26. In that time, the US and China have created 703 and 206 respectively, according to research for the government’s digital economy council published this week.

One of these Unicorns – BrewDog – Utilised EIS funding through crowdfunding at the early stage of growth. This undoubtedly helped the start-up to get off the ground and reach the valuation not only of $1billion but over £1billion. EIS has also helped well known companies such as MoneyBox – a retail investing app – and Gousto – a meal prep delivery service – reach the critical mass of society by increasing their user base and making use of television advertising.

Part of the reason behind this growth and the success of these companies is the availability of investment both at start-up and scale-up level. Banks are often reluctant to lend to high-risk companies especially those that are not asset-backed or are IP-based such as those in the technology sector. This has meant that Alternative finance routes have become more and more important for these tech-based businesses looking to grow and scale.

Mark Brownridge, Director General of the Enterprise Investment Scheme Association, stresses the importance of small business investment and finance availability:

“Since 2008 there has been an undoubted reticence by banks to lend to small businesses and start-ups, and especially those that are technology based and not asset-backed. 2017/18 saw more applications for the Enterprise Investment Scheme (EIS) than ever before, showing the huge demand for investment that SMEs and start-ups currently have in order to grow, scale and eventually reach the valuations seen in achieving unicorn status.”

But some criticise what is a unicorn and what gives them that status. According to wikipedia, a unicorn is a privately held startup company valued at over $1 billion.The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures. But are these really successful ?

The first wave of Unicorns, such as companies  such as Uber and Airbnb, all benefited from the spread of smartphones and cheap cloud computing. Many of these companies built global empires by simply taking existing businesses — like taxis, food delivery and hotels — and making them mobile.

But Unicorn’s valuation’s are questionable.These are derived from valuations developed by the venture capitalists and investors who participated in the financing rounds of the companies, so there is a loop of interest happening there. The values  have nothing to do  with the actual financial performance or other fundamental data. Despite their abnormally high valuations, many of the companies have yet to generate any profits… making though, in the meanwhile,  the next billionair to make it to the Forbes list. So is this model a good one? Or completely unreal and detached from the needs of the world, just contributing for more inequality?

Anyway, you can check EIS report to know more about UK’s unicorns. EIS is designed for the high-risk, high-growth start-ups and small business that go onto to innovate and disrupt industries across the tech sector. It is no surprise that the 72 unicorns founded in the last two decades has coincided with the 25 years that the EIS has been in use. While not all of them will have used the scheme directly the rise of alternative finance has benefited this community enormously.”

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