Unicorn

The size of a public company fits in one line. Multiply the traded share price by the number of shares and you get market capitalization, a number that lets you set two companies side by side. Private companies have no such number. There is no market where the shares trade, so the only moments a price gets attached are funding rounds, and those terms are usually not disclosed.

So "a big company" meant something different in every conversation. One company cited registered users, another gross transaction volume, a third the total it had raised. Those three figures are not interchangeable, which meant a discussion about which company was larger never got anywhere. Private companies had no shared scale to be measured against.

In 2013 an American investor proposed one: a valuation of $1 billion. At the time fewer than forty private companies in the United States had crossed that line, which is why the label borrowed the name of a mythical animal. Reaching that size without going public was supposed to be that rare. It isn't anymore, and the word carries less weight than it did, but it still occupies the slot for describing the scale of a private company in a single term.

The test is one calculation. If the post-money valuation agreed in the most recent round clears the threshold, the company is a unicorn. Post-money is the company's value after the investment arrives — the pre-money figure plus the amount raised. A company that agrees on $850 million and raises $200 million lands at $1.05 billion and crosses the line.

Following how that number gets built shows what kind of label it is.

1. A price per share gets agreed first. The company and the investor estimate a value using methods like applying a multiple to a financial figure — for a subscription business, usually a multiple of annual recurring revenue (ARR).
2. That price is multiplied by the total share count, on a fully diluted basis, which includes reserved option shares that haven't reached anyone yet. Counting those shares raises the denominator, so the same price per share produces a larger company value than a headcount-based intuition would suggest.
3. If the product clears $1 billion, the name applies from that day.

Three things belong alongside that. First, the price per share was set by trading something like five percent of the company. One transaction — $50 million for five percent — determines the stated value of the other 95. Second, the investor who paid that price almost always received protections with it. If the terms let them recover their investment first when the company is sold, then in a $400 million sale an investor who put in $250 million takes that $250 million off the top. The billion on the table and what one common share actually collects are different numbers.

Third, the figure was agreed rather than discovered. A public price is what a buyer paid in an open market this morning; this one is what two parties settled on in a negotiation, and nothing retests it until the next transaction. A valuation can stay on a company's profile for two years without anyone offering to pay it. That is also why the label never expires on its own — no mechanism removes it when the business behind it slows down, and the only event that revises the number is another round or a sale.

The label gets used in three places.

1. Recruiting and press. It goes in the first line of a company description and at the top of job postings. When a candidate has few clues about what stage a company is at, it conveys scale in one word — which is exactly why it is worth asking what the word is standing in for.
2. Investor reporting. A fund has to tell the people who financed it what the holdings are currently worth, and shares that haven't been sold get carried at the price of the last round. So the label is partly the company's achievement and partly its investors' bookkeeping, and the two readings can drift apart for years before anyone has to reconcile them.
3. The next round's negotiation. Once a billion is written down, it becomes the floor for the following conversation. If performance hasn't grown into it and more money is needed, the choice is between accepting a down round at a lower valuation or holding the number by granting the new investor stronger protections. Choosing the second preserves the figure while shrinking what founders and employees collect at an exit.

"Post-money clears a billion when this round closes. The unicorn story goes out then."

The agreed valuation crosses the threshold and an announcement is being prepared.

"Unicorn or not, look at the preferred terms — common stock isn't worth that."

The number on the table and the value of employee shares are not the same.

"The billion was last year's round price and there's been no transaction since."

Nobody has tested whether the number still holds.

Pagedeck just closed its Series A, so this line is far away. Grace has nonetheless decided not to accept terms that inflate the number. Doubling a liquidation preference to protect the headline valuation would take employee shares close to zero in any ordinary sale.

Mia raises the same point in candidate interviews. She tells people to ask less about what the company is currently valued at and more about the terms attached to that value — when part of the compensation is stock, those terms are as informative as the salary.

The first reading is that the company earned or holds a billion dollars. It is a number with a currency sign, so it sounds that way. But it comes from multiplying the price of one minority transaction by the total share count. A company that sold five percent for $50 million has $50 million in the bank; the billion is the output of a calculation and exists nowhere, and it cannot be spent, borrowed against on its own, or handed to employees. Miss that and it's impossible to understand how a company can become a unicorn and cut costs a few months later.

The second is that the label means the company is safe. Crossing a hard line is a real accomplishment, so the inference is natural. But the figure is a price agreed in one past transaction, and whether it still holds only gets confirmed by the next one. If growth stalls in between, the next round prices lower and the label is all that's left. Which is why investors and candidates alike look past it to how much revenue grew and how many months of cash remain.