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The Unicorn Puzzle

Author

Listed:
  • Davydova, Daria

    (Ecole Polytechnique Federale de Lausanne)

  • Fahlenbrach, Rudiger

    (Ecole Polytechnique Federale de Lausanne and Swiss Finance Institute)

  • Sanz, Leandro

    (Ohio State University)

  • Stulz, Rene M.

    (Ohio State University and ECGI, Brussels)

Abstract
From 2010 to 2021, 639 US VC-funded firms achieved unicorn status. We investigate why there are so many unicorns and why controlling shareholders give investors privileges to obtain unicorn status. We show that unicorns rely more than other VC-funded firms on organizational capital as well as network effects and the internet. Unicorn status enables startups to access new sources of capital. With this capital, they can invest more in organizational intangible assets with less expropriation risk than if they were public. As a result, they are more likely to capture the economies of scale that make their business model valuable.

Suggested Citation

  • Davydova, Daria & Fahlenbrach, Rudiger & Sanz, Leandro & Stulz, Rene M., 2022. "The Unicorn Puzzle," Working Paper Series 2022-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2022-12
    DOI: 10.2139/ssrn.4255165
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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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