Finance term paper
When Aileen Lee originally finance term paper the term «unicorn» in 2013, there were only thirty-nine companies that were considered unicorns.
GBF is a strategy where a startup tries to expand at a high rate through large funding rounds and price cutting to gain an advantage on market share and push away rival competitors as fast as possible. Many unicorns were created through buyouts from large public companies. In a low interest rate and slow-growth environment, many companies like Apple, Facebook, and Google focus on acquisitions instead of focusing on capital expenditures and development of internal investment projects. The average age of a technology company before it goes public is 11 years, as opposed to an average life of four years back in 1999. IPOs also run the risk of devaluation of a company if the public market thinks a company is worth less than its investors. Investors and startups also do not want to deal with the hassle of going public because of increased regulations.
Regulations like the Sarbanes-Oxley Act have implemented more stringent regulations following several bankruptcy cases in the US market that many of these companies want to avoid. Startups are taking advantage of the flood of new technology of the last decade to obtain Unicorn status. With the explosion of social media and access to millions utilizing this technology to gain massive economies of scale, startups have the ability to expand their business faster than ever. The valuations that lead these start-up companies to become unicorns and decacorns are unique compared to more established companies. A valuation for an established company stems from past years’ performances, while a start-up company’s valuation is derived from its growth opportunities and its expected development in the long-term for its potential market. Bill Gurley, a partner at Benchmark predicted in March 2015 and earlier that the rapid increase in the number of unicorns may «have moved into a world that is both speculative and unsustainable», that will leave in its wake what he terms «dead unicorns». For high-growth companies looking for the highest valuations possible, it comes down to potential and opportunity.
When investors of high-growth companies are deciding on whether they should invest in a company or not, they look for signs of a home run to make exponential returns on their investment along with the right personality that fits the company. To judge the potential future growth of a company, there needs to be an in-depth analysis of the target market. After the market finance term paper reasonably estimated, a financial forecast can be made based on the size of the market and how much a company thinks it can grow in a certain time period. With the financial forecasts set, investors need to know what the company should be valued in the present day. This is where more established valuation methods become more relevant. Investors can derive a final valuation from these methods and the amount of capital they offer for a percentage of equity within a company becomes the final valuation for a startup.
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Competitor financials and past transactions also play an important part when providing a basis for valuing a startup and finding a correct valuation for these companies. The sharing economy, also known as «collaborative consumption» or «on-demand economy», is based on the concept of sharing personal resources. E-commerce and the innovation of the online marketplace have been slowly taking over the needs for physical locations of store brands. A prime example of this includes the decline of malls within the United States. In support of the sharing economy, unicorns and successful startups have built an operating model defined as «network orchestrators. In this business model, there is a network of peers creating value through interaction and sharing.
Three out of the top 5 most valuable unicorns are located in China. The other two unicorns are headquartered in San Francisco, California. Uber services are active in a total of 81 countries and 581 cities around the world. ANT Financial, formerly known as Alipay, is a payment to payment company that runs the payment platform of Alibaba. Airbnb, is a property-sharing, online marketplace company that lets the consumers have short-term lodging in a variety of vacation rentals, apartment rentals, hostel beds, or hotel rooms.
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