After a flurry of unicorns emerged in 2021/22, 2023 saw a dramatic fall in the number of high-value private companies. But new data shows that decline may be about to disappear, with more companies now obtaining unicorn status this year – largely thanks to AI.

What is a Unicorn?

In business, a unicorn is defined as a startup company valued at more than $1 billion which is not publicly traded. The term unicorn was coined because the existence of these kinds of companies was considered to be so rare as to be almost mythical. But today there are over 1,000 unicorns, including household names such as Airbnb and Uber.

Unicorns make a comeback in 2024

In July of this year, 70 new unicorns were minted, as per reporting by Crunchbase. As the outlet reports, just 29 unicorns were created in the whole of 2023, marking a lull after an energetic 2022. And of those freshly minted unicorns, AI is central to many of the businesses, including xAI, a generative AI startup owned by Elon Musk. However, writing for Crunchbase, Chris Metinko said the news shouldn’t be taken as concrete evidence of a reversal of fortunes for new unicorns. He said:

“It’s hard to draw any big conclusions from the fact more early-funded startups are getting minted as unicorns than last year…It could be only a momentary blip, as the first quarter of the year saw 17 early-stage unicorns minted, while in the second quarter that number dropped more than half to only eight (July saw three minted).”

What is the future for unicorns?

Despite Metinko’s caution, July’s figures do appear to give cause for optimism over the future of unicorns. And at the very least the large number of freshly minted unicorns could be said to pour cold water on some of the more pessimistic forecasts and appraisals of AI and its power to generate new and thriving businesses.

In a February 2024 article, The Economist boldly declared “The age of the unicorn is over”, adding “Don’t expect AI to bring it back.” And approvingly quoted Tom Tunguz who said the glut of funding in 2021 was a result of pent-up energy restrained by Covid and the associated lockdowns. While this view could yet be vindicated over time, others believe the growth of unicorns will only accelerate as developing economies activate their afterburners.

India to have 250 Unicorns

A report by Iron Pillar found India could be set to add more than a hundred unicorns to its current total by 2025, as per reporting by Forbes. The analysis showed India would have 250 unicorns by 2025, after a surge of startups in cloud-based products and services in India in recent years. Speaking to Forbes, managing partner at Iron Pillar, Anand Prasanna, addressed the large numbers of Indian tech founders now basing themselves in the US. He said:

“Indian origin founders are already the largest set of non-US born unicorn founders in the US*. The fact that Indian founders are building global tech companies from the US, using Indian technology prowess, and winning against other global companies should be a matter of pride for all Indians.”

*Comment accurate as of 2022 data

Growth in unicorns boosted by China

Of all the unicorns minted so far this year, 32 are Chinese companies, which as the state-run news outlet CGTN observes, marks the highest increase among any nation, reporting:

“China’s unicorn enterprises are experiencing the fastest growth worldwide, particularly in advanced manufacturing, automotive technology, fintech, corporate services, and artificial intelligence, according to new data. This year, 32 new Chinese companies joined the 2024 Global Unicorn Top 500 Enterprises list, announced in Qingdao, marking the highest increase among all nations.”

The growth in Chinese unicorns comes after what has been characterised as an extended ‘love bombing’ by the country’s President, Xi Jinping, toward entrepreneurs. In a July article, The Economist reported that the Chinese Communist Party was looking to accelerate reforms after a strict regulatory framework was thought to be blamed for some Chinese AI and tech firms relocating to the US.

These overtures were reported to have included bolstering subsidies and making it easier for Chinese firms to list at home and abroad, where they are not operating in strategic sectors. How The Economist’s analysis said the mood among entrepreneurs remained low, reporting:

“The government has woken up to the scale of the problem, but the fix for how to reconcile its contradictory goals is proving as elusive as one-horned beasts.”

Why are there fewer unicorns in Europe?

Despite having a collectively larger population and GDP, Europe, or at least large parts of it, is creating far fewer unicorns than might be expected. One explanation, courtesy of Norges Bank Investment Manager Nicolai Tangen is that “Europe is less hard-working, less ambitious, more regulated, and more risk-averse than the US, with the gap between the two continents only getting wider.”

 Last year start-ups in Europe raised less than half of their US counterparts – and Europe is now in danger of ‘missing out’ on the AI revolution, according to analysis by Forbes. An article for EU Startups went further, saying “Europe has already lost the chance to join the AI revolution.” Writing for the publication Stefano De Marzo argued the continent had yet to even build the foundation infrastructure needed to harness AI.

Given that unicorns predominate in the AI and tech sectors, Europe’s apparent lag behind the US and China in generative AI could explain its relative underperformance in creating terrifically successful startups at any great rate.

Are unicorns back for good?

The resurgence of unicorns in 2024, particularly driven by AI innovation, could signal a renewed vitality in the global startup ecosystem. While 2023 saw a dramatic dip in unicorns, the strong performance in 2024, with 70 new unicorns minted in July alone, points toward the market’s resilience and the transformative potential of AI.

The expansion of unicorns, especially in AI, fintech, and cloud services, underscores the power of emerging technologies in reshaping industries. However, challenges remain. Europe, despite its economic size, lags behind the U.S. and China in unicorn creation. In contrast, nations like India and China are leveraging AI advancements and entrepreneurial ecosystems to foster rapid growth in startups. China, in particular, has shown remarkable progress, with 32 new unicorns emerging this year, assisted by state-backed initiatives to encourage innovation.

Looking forward, AI’s impact on unicorn creation could be poised to accelerate, as countries like India are projected to see a surge in startups. Nevertheless, caution is warranted, as economic shifts, regulatory changes, and market volatility could influence the trajectory of new unicorns. The current optimism, while encouraging, must be tempered with an understanding of the complex global landscape. In the coming years, those who can effectively harness AI and other disruptive technologies will likely define the next generation of unicorns.