The cause of tech start ups are staying private

Will the tech unicorn go the way of the dodo? It depends on a number of factors. In this episode of the McKinsey Podcast, McKinsey partners David Cogman and Kara Sprague talk with McKinsey’s Simon London about why dozens of billion-dollar technology start-ups in Silicon Valley and elsewhere are choosing not to go public—and whether the unicorn phenomenon is cyclical or here to stay. An edited transcript of their conversation follows.

Podcast transcript

Simon London: Welcome to this episode of the McKinsey Podcast. I’m Simon London, an editor with McKinsey Publishing. Today we’re going to be talking about unicorns, the new breed of companies valued at a billion dollars or more, but which remain in private hands. The first unicorn didn’t appear until 2009. But today, there are more than 100 worldwide.

Anatomy of a unicorn: Why tech start-ups are staying private

To discuss the issues, I’m joined today by Kara Sprague, a McKinsey partner based in San Francisco, and also by David Cogman, a partner based in Hong Kong. Kara and David, thanks for joining today.

Simon London: Perhaps we should start by defining our terms. Kara, could you tell us more about these unicorns? How many are there? Where are they based? And what kind of businesses are they in?

Kara Sprague: As you said in your introduction, Simon, there are more than 100. The latest count from CB Insights says there’s 164.1This rate of growth and the number of unicorns is actually quite fast. When we last looked, at the end of last year, there were 146. Most of them are based in the United States or China. But there are also some that you could find in India, Germany, and elsewhere around the world. The list includes many familiar names like Airbnb, Uber, SpaceX, but also some names that many probably haven’t heard of. For example, companies like Tanium, which specializes in IT security, or MongoDB, which works on databases.

What they all have in common, as you mentioned, is that they are worth more than $1 billion in value. And they remain in private hands. There’s even some of these unicorns that we could call decacorns, which are worth more than $10 billion in value.

Simon London: David, from a China perspective, what jumps out at you at the list of unicorns?

David Cogman: A bit under a third of the companies are China based, but you look at the type of companies you have there and it’s actually quite a bit different from what you would see in the US. The US tech sector tends to be a lot more, if you like, “real” tech.

Whereas what you have in the China tech sector is a lot more intimate, and a lot more, if you like, sort of reseller business models. So, companies that are providing intermediation through a service. Things like social media—e-commerce is obviously a very big issue. E-commerce in China is absolutely huge. It’s a massive market, and much, much better developed than most other countries right now, including the US.

So you have a slightly different mix of types of companies. The China Internet sector itself is, in a way, fundamentally different than the US because it’s basically dominated by three behemoths that function as platforms. The end game for a lot of the Chinese start-ups—well, not just the end game, but right from the outset many of them want to be on one of those platforms, and on two of those platforms, and potentially acquired by them at the end of the day. It’s a lot more organized around that exit route than perhaps the US would be.

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