6 Steps to Becoming a Unicorn Startup

Unicorn startups are highly regarded in the business world. To become a unicorn startup, a company needs to reach a valuation of at least $1 billion from investors.

As of 2024, there are about 1,200 unicorn startups worldwide. Very few startups achieve success due to the numerous challenges and barriers that must be overcome to turn a company into a billion-dollar startup. The article discusses some common characteristics and strategies of successful unicorns so that startups can confidently overcome challenges. While not impossible, becoming a unicorn startup can be extremely difficult. In fact, 90% of companies fail in their first year of operation, and the odds of becoming a unicorn are even lower. The average time for a startup to become a unicorn is typically six years.

What is a unicorn startup?

In business, simply put, a unicorn startup is a private company with a valuation that reaches or exceeds $1 billion. This term was coined by venture capitalist Aileen Lee in 2013 to emphasize the rarity of startups with high valuations in the startup ecosystem. The number of startups called unicorns is very small, accounting for only about 0.07%, but they are becoming increasingly common.

In 2014, there were only 80 unicorn startups in the world, and just a decade later, this figure has increased by over 1,500%. Unicorn companies are often considered major successes in the startup industry because they have achieved rapid growth and have the potential to become significant and influential companies in the future. Examples of the most successful unicorn startups of all time include Uber (valued at $80 billion in its initial public offering in 2019), Airbnb (valued at $86.5 billion in its initial public offering in 2020), ByteDance (the parent company of TikTok), SpaceX, and other tech companies.

How to become a unicorn startup: 6 steps toward success

The following steps will help startups better understand the processes and business strategies that successful startups apply to thrive in their market.

1. Planning phase: develop a minimum viable product (MVP)
Every unicorn company starts with a “ground-up idea.” While having a good idea may not be enough to turn a startup into a unicorn, it is an important first step in a process filled with challenges and difficulties. A startup will not attract resources or secure venture capital funding without a market for its product. In this phase, the startup should create a detailed and structured business plan, envision what the startup’s product will look like, and identify who its target customer is, what their age is, etc. It is important to have an overview and a clear roadmap for the startup, as this will make securing venture capital much easier.

Here are some important steps to consider in the business planning process or the “seed” stage to turn a startup into a unicorn:

Identify user problems and propose solutions
Define the “largest and most populous” target market and potential customers
Create an accessible, user-friendly, and cost-effective product
Develop the MVP using minimal resources (including only essential features)
Test the MVP with users to gather feedback
Make adjustments to the MVP based on feedback
Estimate costs to produce the improved product (eventually)

2.Building an Effective Business Model

This approach is also essential during the seed stage of the startup lifecycle. Once an idea is developed and a minimum viable product (MVP) is created, the startup will need to self-organize to ensure rapid exponential growth as a unicorn startup. At this stage, the startup should plan for the future and build a roadmap that includes each step of the journey to reach $1 billion while answering questions such as:

How will the startup market its product?
In today’s startup world, marketing is as important as the idea (if not more so). While there may be a fantastic vision for the product and a great solution for common problems, without effective marketing, the startup will lack the necessary momentum for substantial growth. This explains the importance of identifying the best marketing channels and strategizing how the startup will use them to spread information about its business.

How much will the startup’s product cost?
The startup will need to strategically price its product/service. This seemingly small detail can make or break the startup’s journey. The pricing of the startup’s product should be based on the following:

The real value provided to the users
Competitive pricing
Demographics of the target market

If the startup’s product is priced higher than its actual value, no users will want to buy it. Conversely, a price that is too low may lead customers to doubt and avoid the product due to concerns about inferior quality.

What will be the startup’s sales channels?
A startup’s sales channels may include various locations, both physical and virtual, where customers can purchase the startup’s product or service. These may comprise traditional stores, online-only platforms, and affiliate partnerships. To confidently pursue the path of becoming a unicorn startup, the startup needs to have a clear idea of where it will sell its products before it begins to scale.

How does the startup plan to launch its product effectively?
While building its business model, the startup should test its MVP and gather feedback from users to ensure that the model addresses their problems. Collecting feedback from early users will ensure that the startup’s product addresses their pain points. Furthermore, this allows the startup to make necessary adjustments before securing funding and officially launching its product.

After developing an attractive value proposition that clearly differentiates its product from competitors, the startup should implement a local or small-scale rollout to validate the business model under real-world conditions, identifying strengths and areas for improvement.

Do not rush to launch the product; instead, the startup should focus on the goal of providing an exceptional customer experience, as satisfied customers can become the best advocates for the startup. Customer reviews and testimonials are considered crucial and invaluable for any startup in its early stages. They serve as clear social proof and help build trust with the startup’s customer base.

3. Securing Initial Funding for the Startup

After creating and testing the MVP and planning appropriately for significant growth, the startup is ready to secure initial funding. This is the preferred form of financial support that the startup will receive.

Although the initial investment capital that the startup receives may be much less than future funding rounds, this seed funding can have a significant impact on the startup’s chances of becoming a unicorn.

Seed funding will provide the startup with the necessary capital to bring the business model to life and officially launch the product in the market. Venture capital firms often show little interest in a startup until after the initial funding round.

Here are some common methods that startups can use to secure initial seed funding:

Crowdfunding

This involves raising money from a large group of people, often through online platforms like Kickstarter or Indiegogo. Each investment may be relatively small, but with the large scale of the group, a startup can raise a significant amount of money.

Crowdfunding also helps validate the startup’s product by building a community of individuals who initially believe in the startup’s idea.

Support from Family and Friends

One of the least risky ways to raise funds is to seek support from those with close relationships to the startup. This is considered a favorable starting point because these individuals are more likely to trust the startup’s vision and offer more flexible terms.

However, this also means that startups need to handle this process professionally and responsibly to avoid affecting personal relationships.

Self-Investment

Most initial capital comes from the personal savings of the startup’s founders. While this clearly carries more risk, it can demonstrate to potential future investors that the startup is confident in its idea, its capabilities, and is willing to “put skin in the game.”

It also provides the startup with complete control over the business from the early stages, which can be a crucial factor in realizing the startup’s vision.

Obtaining a Loan

Options such as small business loans or personal loans can be a reliable choice for providing initial investment capital, especially if the startup has good credit or assets.

While loans come with the obligation to repay with interest, this does not mean the startup has to give up its equity.

4. Attracting Major Investors: Series A Funding

The most critical step to becoming a unicorn startup is to have a plan to secure large investments through venture capital funding.

Regardless of how great the startup’s idea is, the startup’s product will not succeed without the necessary capital.

The Series A funding round is the first or second round of investment for a startup, depending on whether the founders have gone through a seed round or self-funded the business. In this Series A funding round, venture capital investors provide cash to the startup in exchange for equity in the company, which includes funds for employee salaries, optimizing their services, scaling into various markets, and developing marketing strategies.

This is also the first time the ownership of the startup will begin to “dilute” as the startup sells part of the company.

Over 80% of startups fail due to cash flow issues. Therefore, it is essential to build a compelling pitch deck and specifically target attracting investors to provide funding.

How Much Series A Funding Do Unicorns Receive?

The average Series A funding for startups in 2024 is about $18 million, but for unicorn startups, the story is quite different. On average, unicorn startups have raised much larger amounts in their Series A rounds, although this is not always the case.

In fact, some startups didn’t attract significant capital until later stages. Notable examples include:

Facebook: raised $12.7 million in Series A in 2005
Airbnb: raised $7.2 million in Series A in 2010
Tesla: raised $7.5 million in Series A in 2004
Canva: raised $15 million in Series A in 2015

How Can a Startup Raise Series A Funding?

Create a Strong Pitch Deck

The startup’s pitch deck is the core of its investor presentation. It should clearly convey the startup’s vision, growth potential, and why investing in the startup is a good decision.

A compelling pitch should highlight what makes the startup different from competitors, along with a clear plan and vision for becoming a unicorn.

Select Venture Capital Firms Wisely

Startups should not rely on all the venture capital firms they approach being willing to invest. Instead, they should target investors who have previously funded companies in similar industries or growth stages.

Be Clear About Funding Needs

Startups must present a detailed and realistic financial plan to investors, explaining how much capital is needed, what it will be used for, and how it will help the business grow and scale.

Negotiate the Terms

Before signing any agreements, ensure the deal aligns with the startup’s long-term vision and maintains enough control to steer the company toward unicorn status.

5. Scaling a Startup

Series A funding is just the beginning for most unicorn startups. In reality, many unicorns go through 4 or 5 funding rounds before launching an IPO (Initial Public Offering).

Startup growth tends to accelerate exponentially during the scale-up phase when they receive larger investments and stronger support, propelling the business further.

Only about 30% of seed-stage startups make it to Series A, and only 65% of Series A startups secure a Series B. Reaching the growth stage alone is already a major success.

However, with the right growth strategies, funding, and organizational structure, startups can successfully scale and confidently move closer to unicorn status.

To become a billion-dollar startup, founders need to focus on accelerating growth, entering new markets, optimizing internal processes, and building a strong team. To achieve these goals, they will also require more funding — often from Series B and C rounds.

Once in the development and maturity stages, startups tend to attract more venture capital, helping them scale operations and get even closer to unicorn status.

6. Planning an Exit Strategy for the Startup

As a startup grows and nears unicorn status, it must develop an exit strategy. This is the plan for founders or investors to withdraw some or all of their equity from the company.

For founders, there are many reasons to exit a business in the future — such as health issues, loss of interest, the desire to pursue a new, more meaningful project, receiving an attractive buyout offer, or simply early retirement.

For venture capitalists, however, an exit strategy means something else. Their main goal is to maximize returns — essentially buying low and selling high. So from the beginning, VCs want to know how they’ll exit the investment.

That’s why experts recommend creating a well-defined exit plan, which can help founders better shape the direction of the startup.

Two Common Exit Strategies

IPO – Initial Public Offering

Going public allows startups to sell shares on the stock exchange, raise substantial capital, and give investors and early founders the opportunity to cash out. This is often seen as the ultimate goal for unicorn startups.

Acquisition

Many unicorns are acquired by larger companies that see value in their technology, customer base, or market position. An acquisition can provide a quick and profitable exit for founders and early investors while the startup is integrated into a larger organization.

Examples: