Canva is one of the most valuable private companies in the world, and it started in Perth. Here’s what makes a startup a unicorn, how they’re valued without being on the share market, and why those numbers can be shaky.
The term “unicorn” was coined in 2013 by U.S. venture capital investor Aileen Lee, to describe a privately held startup valued at US$1 billion or more. At the time, such companies were rare, hence the name.
Today there are well over 1,000 unicorns worldwide, mostly in the U.S. and China. Companies worth US$10 billion or more are sometimes called decacorns.
How startups raise money
Startups usually need lots of money to grow before they make a profit. They raise it by selling shares to investors in a series of funding rounds.
Early on, money often comes from the founders, friends and family, and angel investors, wealthy individuals who invest in young companies.
Later rounds, often labelled Series A, B, C and so on, are usually led by venture capital firms. They invest in many startups, knowing most will fail, in the hope that a few will become huge successes.
How they’re valued
Because startups aren’t listed on a stock exchange, there’s no market price for their shares.
Instead, their valuation is set by what investors pay in a funding round. If an investor pays $100 million for 10% of a company, that implies a valuation of $1 billion.
That headline number can be misleading. Investors in later rounds often get special rights, such as getting their money back first if the company is sold, which means the headline valuation may overstate what ordinary shares are worth.
Valuations can also be set in secondary sales, when existing shareholders, such as employees, sell shares to new investors.
Australia’s unicorns
Australia has produced a number of unicorns.
Canva, the online design platform founded in Perth in 2012 by Melanie Perkins, Cliff Obrecht and Cameron Adams, has become one of the world’s most valuable private tech companies, valued at tens of billions of U.S. dollars.
Atlassian, the software company founded in Sydney by Mike Cannon-Brookes and Scott Farquhar, was a unicorn before listing on the Nasdaq in 2015.
Others include payments company Airwallex, buy now, pay later pioneer Afterpay, which was later bought by Block, and tech companies such as SafetyCulture and Employment Hero.
Why valuations change
Startup valuations rose dramatically in 2020 and 2021, when interest rates were very low and investors were eager to back fast-growing tech companies.
When rates rose in 2022, many unicorns raised money at lower valuations, known as down rounds, or were marked down by their investors. Some failed altogether.
The boom in artificial intelligence has since driven some AI startups to valuations in the tens or hundreds of billions of dollars, raising questions about whether a new bubble is forming.
Exits
Investors eventually want to cash in. That usually happens when a startup lists on a stock exchange in an initial public offering, or is bought by another company.
