Chinese Unicorn Report

Text: Hengda Institute Ren Zeping Gan Yuan Xie Jiaqi

Many high-quality unicorns in China have flown overseas. In order to promote the development of the new economy and let domestic investors share the new economic growth, the state has successively introduced policies to welcome the return of unicorns in 2018. So, what are the characteristics of the unicorn? Why are you living overseas? How to welcome the return of the unicorn? What are the new changes in the new related policies? What are the opportunities and risks? This paper aims to study the industry characteristics, business models, domestic and international policy differences, domestic new policy interpretation, impact on A shares, opportunities and risks of unicorns.

What is a unicorn ? The international definition of a unicorn is a company with a valuation of less than 10 years and a value of more than 1 billion US dollars. From a global perspective, the United States and China account for more than 70% of enterprises, showing the vitality of China's new economy. According to CB Insight statistics, from 2013 to March 2018, there were 237 unicorn companies worldwide. Among them, 118 from the United States accounted for 49.78%; followed by China, 62 out of 26.16%; ranked third and fourth in the United Kingdom and India, 13 and 9 respectively. If the industry is valued, the top three are financial technology, e-commerce and software services, accounting for about 45% of the overall valuation. Global circulation crowdfunding and venture capital are important reasons to promote the rapid growth of these companies. The industry is mainly distributed in three major areas of high-end manufacturing, Internet and high-tech.

What types and characteristics are there for unicorns? According to the innovation form, it can be mainly divided into platform ecological type and technology driven type. The platform ecotype is mainly based on the Internet to build a platform, not directly in contact with the entity management, similar to the third party for the entity enterprise and consumers to build a link bridge. "Platform" is an Internet-based time-based model that can be summarized into three points: "familiarity", "recognition" and "realization". IT empowers the dynamic linkage of marketing, management and finance. Technology-driven is based on high-tech, such as big data, cloud computing, artificial intelligence, blockchain technology, etc., representing companies are mostly high-tech manufacturing.

Why are Chinese unicorns? Different from the international definition, Chinese unicorns need to be registered in China. As of March 2018, there were 126 unicorn companies in China, distributed in 15 industries in 10 cities, with a total valuation of 625.3 billion US dollars, about 4 trillion yuan. Compared with the international situation, the Chinese unicorn has the characteristics of short growth cycle, strong innovation ability and concentrated concentration. The outbreak of the unicorn company shows the improvement of China's overall innovation strength. These enterprises lead the development of new forms of industry and promote the development of upstream and downstream industries and even cross-border industries. The “hard technology” drive has become a typical feature of Chinese unicorns. From the perspective of investment and integration, it can be found that the shift in investor preferences from heavy-asset traditional enterprises to light-asset high-tech enterprises is often concentrated in the slogan industry.

Where is the Chinese unicorn distributed? Mostly based on the Internet, focus on "North, Shanghai, Hangzhou, and Shenzhen." According to the list of industries, enterprises are highly concentrated in the fields of culture and entertainment, e-commerce, automobile transportation and technology finance, and the foundation of these enterprises is based on the Internet. The number one is big entertainment and e-commerce, with 18 of them accounting for 14.17%. In terms of geographical distribution, over 80% of the unicorns are concentrated in the four cities of “North, Shanghai, Shenzhen and Hangzhou”, while Beijing ranks first with 58 enterprises. In addition, Beijing leads with an overall valuation of US$336.1 billion. other cities. Interestingly, although the number of Shanghai unicorn companies is twice that of Hangzhou, the overall valuation is lower than that of Hangzhou, which ranks fourth with US$19 billion.

What are the commercial characteristics of Chinese unicorns? “Technology Innovation + Platform Ecology + High-tech Zone + Policy Support”. More than 65% of Beijing unicorn companies are concentrated in “cultural content”, big data, and artificial intelligence. These are also in the field of martial arts; 50% of Shanghai unicorn companies are new Internet + companies, such as easy fruit fresh, Xiaohong Books, hungry, etc.; 45% of Shenzhen unicorn enterprises are technology-driven; 14 unicorn enterprises in Hangzhou, mainly e-commerce and Internet finance, most of which are centered around the Ali ecosystem.

As can be seen from the list, about 50% of enterprises are more or less associated with BAT. Among them, there are 27 affiliated with Alibaba, 37 associated with Tencent, and 16 associated with Baidu. There are three related to the three, which are hungry, Didi Travel and Car help.

First, what is a unicorn?

1. Basic concept: Established for less than 10 years, with a valuation of more than 1 billion US dollars

A unicorn, a fictional creature in mythology and legend, resembles a spiral angle at the head of a white horse. Whether in the East or the West, the appearance of the unicorn represents the arrival of lucky Fuyao. Because of these characteristics, Aileen Lee, the famous American Cowboy Venture investor in 2013, will be established in the market for a short period of time (not more than 10 years) and will be valued at more than 1 billion US dollars (about 6.3 billion yuan) by investors or valuation agencies. Startup companies, collectively referred to as "unicorns." The word "unicorn" began to be popular in the United States and quickly spread to the international community.

So for the concept of unicorn, the criteria for judgment are two points:

One is time; the second is valuation.

According to the time point, the standard that is reached within 2 years is called the newborn unicorn or the newborn unicorn, and more than 10 years will be removed from the list.

According to the valuation, the valuation is less than 1 billion US dollars, but there is potential for development, called potential unicorn; the valuation is between 1 billion and 10 billion for the general unicorn; the valuation is more than 10 billion US dollars (about 6300 The billion renminbi is a super unicorn.

2 , International Profile: The number of China and the United States leads the world, and the growth rate of high investment increases the number of unicorns

From a global perspective, the United States and China have divided more than 70% of enterprises. As the country of origin of the concept of unicorns, the United States has been at the top of the list of leading countries for several years. According to CB Insight statistics, from 2013 to March 2018, there were 237 unicorn companies worldwide. Among them, 118 from the United States accounted for 49.78%; followed by China, 62 out of 26.16%; ranked third and fourth in the United Kingdom and India, 13 and 9 respectively.

From a valuation perspective, the overall size reached $ 837 billion in 2018, peaking in 14 and 15 years. By country, the United States still holds the first place, and China is second, but the gap between the two countries is not large and the average valuation of each company is much higher than that of the United States. If the industry is valued, the top three are financial technology, e-commerce and software services, accounting for about 45% of the overall valuation.

Combined with the investment and financing situation, it is not difficult to find that the birth of unicorn is closely related to external investment and financing. In terms of the number of new students each year, 2015 and 2017 were the peak season for the production of unicorns, with 66 and 65 start-up companies respectively. Among them, 32 and 28 are in the United States, and 18 and 22 in China. In the case of a large increase in investment and financing in the previous year, the growth rate of unicorns will increase next year. For example, in 2014, when the growth rate of investment and financing was high, 2015 became a year of new births. As global liquidity strengthens, the development of technology is accompanied by the injection of capital. Global circulation crowdfunding and venture capital are also important reasons to promote the rapid growth of these companies.

From the perspective of industry distribution, enterprises are mainly distributed in the three fields of high-end manufacturing, Internet and high-tech. There are 32 kinds of meticulously divided industries. The top four are e-commerce, software services, financial technology and big health, with 37, 34, 27 and 17 respectively, accounting for about 60% of the total.

Technology-oriented high-tech and high-end manufacturing, mainly in transportation, hardware and big data and artificial intelligence: such as SpeceX, Weilai is the representative of transportation; Xiaomi, Meizu, Royole Corporation is the hardware side representative, Qulltrics, Palantir Technologies is the representative of big data.

The Internet is based on the platform ecosystem (this feature is explained in detail below), mainly focusing on e-commerce, financial technology, software services, and representing companies such as Ant Financial, Meituan, Airbnb, etc.

3. What are the characteristics of a unicorn?

According to the innovation form, it can be mainly divided into platform ecological type and technology driven type.

The platform ecotype is mainly based on the Internet to build a platform, not directly in contact with the entity management, similar to the third party for the entity enterprise and consumers to build a link bridge. The main companies are Uber, Lyft, Meituan Public Comment Group and so on. The core idea of ​​platform eco-type enterprises is to rely on the platform to “share”.

What is the platform? The platform is a business model created by humans, designed to use a powerful Internet effect to blur the boundaries for multi-group interaction. In addition to affecting its own user base, a good platform can also extend the derivative and redefine industry structure to formulate industry rules.

"Platform" is an Internet-based time-based model that can be summarized into three points: "familiarity", "recognition" and "realization". IT empowers the dynamic linkage of marketing, management and finance. The enterprise develops and creates the mobile user space according to the user's needs. After the user is familiar with it, the surrounding promotion is carried out, and then the user and the user form a network of interpersonal relationships. The brand effect is deep, the user's stickiness is improved and the user's sense of dependence is enhanced, the cost of user replacement will increase, and the long-term and user-active will form a good cycle. When the enterprise platform users expand to a certain scale, there will be a strong traffic guidance role, and the realization is easier and more valuable. Relying on the strong capital accumulation, resource integration and system management capabilities of platform-based enterprises, the unicorn enterprises that have been hatched have shown remarkable explosive growth characteristics.

For example, the US group public comment, the strength of smart food on the mobile side is beyond doubt. In 2017, the annual transaction volume exceeded 360 billion yuan, accounting for more than 85% of the market share, and the mobile transaction volume accounted for about 95%. With a high proportion of market share, the US Mission is based on existing traffic users, and the layout of other industries is also faster and more convenient. On March 21 this year, the US group took a taxi to log in in Shanghai and officially entered the taxi market. In addition to further tapping the value of users and improving the ecological layout of the enterprise, this move is to enhance the capitalization of the enterprise capital market to realize the flow realization.

“Sharing” is to break the gap between private and public, tradition and technology, and between the world and the world. Companies with unused resources can connect and increase availability, liquidity and economy. The focus is on "technology + tradition" and "cross-border". “Tradition + Technology” breaks through the solid barriers and narrows the regionality while bringing vitality to the enterprise. Cross-border cooperation blurs the scope boundaries, integrates resources, optimizes resource allocation, and each exerts an advantage to bring economic optimal solutions. For example, Uber, Didi and Lyft are the integration of travel, let the ride share; Airbnb is the integration of hotel housing and hospitality.

Technology-driven is based on high-tech, such as big data, cloud computing, artificial intelligence, blockchain technology, etc., representing companies are mostly high-tech manufacturing. Most of these companies are sustainable and have a natural monopoly, with a focus on bringing differentiation. For example, Tesla, the leader of electric vehicles, analyzes its core three technologies, including battery technology, motor and control technology, and overall integration capabilities, making Tesla electric cars different in performance and appearance. After that, Tesla conducted a space technology exploration to further increase the technical barriers of enterprises and expand the development space. One of the important reasons why high-tech technology is different from other traditional enterprises is the rapid development of technology-driven enterprises.

In addition, economically, these unicorns mostly affect the economic operation of the industry and even change the way of operation. For example, Alibaba will introduce Alipay, and change the payment method. After years of consumer training, it will form a change in the payment habits of various industries. From the sense of use, these companies give consumers different ways of using traditional or cognitive. For example, Apple's Siri artificial intelligence system, Amazon's Alexa, Alibaba's Taobao and so on. These innovative ways of using, will make consumers impressed for the first time, and secondly, whether it is for efficacy or interest, it supports consumers to use it. To do this, the unicorn company's opening road is even successful.

Second, why is the Chinese unicorn so cow?

1. Fast growth, wide range, and concentrated outbreaks, concentrated in the investor industry

In addition to the internationally defined concept of unicorns, in March 2017, the Torch Center of the Ministry of Science and Technology and the Great Wall Enterprise Strategy Research Institute released the "2016 China Unicorn Enterprise Development Report" gave the concept of Chinese unicorns, defining standards. The following four points need to be met: 1) companies with legal person status registered in China; 2) not established for more than ten years; 3) have obtained private equity investment, and have not yet listed; 4) the company's valuation exceeds 1 billion US dollars.

According to this definition, combined with Hurun, IT Orange, CB Insight, the Torch Center of the Ministry of Science and Technology, and the list published by PitchBook, comprehensively, as of March 2018, there are 126 unicorn companies in China, distributed in 10 There are 15 industries in the city with a total valuation of 625.3 billion US dollars, about 4 trillion yuan, of which 11 are super unicorns with a valuation of more than 10 billion US dollars, accounting for 8.66% (the list details are at the end of the article). Compared with the list released by the Torch Center of the Ministry of Science and Technology in 2014, the number of unicorns in China has changed dramatically from 2014 to 2018. On average, 19 unicorn companies have been added each year, and the growth has become an index change. This also reflects the short-term growth cycle of China's new ventures, the ability to innovate, and the characteristics of outbreaks. The outbreak of unicorn companies shows the improvement of China's overall innovation strength, and these enterprises often become the leaders who lead the development of new forms of industry, develop themselves and promote the development of upstream and downstream industries and cross-border industries, and promote regional economy and become new. A strong support for the economy. The “hard technology” drive has become a typical feature of Chinese unicorns. "Hard technology" can effectively create high-end supply and effectively optimize China's economic structure.

From the perspective of investors, the rapid development of unicorn companies is inseparable from the high level of capital support. According to Hurun's research statistics, Sequoia Capital ranked first with a total of 27 unicorns and over US$5 billion in investment. In addition to other well-known venture capital companies, the most investment in unicorn companies is the BAT department, and Tenth ranked first in Tencent. These investment entities focus on different areas each year, but in the same year, the focus will be highly concentrated in similar areas. For example, in 2015, it focused on shared bicycles and Internet finance; in 2016 and 2017, it focused on entertainment culture, artificial intelligence, and big data.

As for the reason why such concentration is so high, from the analysis of these invested companies, these investment and financing institutions are preferred technology companies with technology gates or differentiated technologies, and the technology of these companies is often welcoming the market. Then there is the layout of the head BATHM company in order to improve the ecology. The most important point is that investment and financing now range from traditional fixed assets and heavy traditional enterprises to heavy technology and innovative light assets.

2 , the geographical characteristics of the industry: mostly based on the Internet, focusing on "North, Shanghai, Hangzhou, Shenzhen"

According to the list of industries, enterprises are highly concentrated in the fields of culture and entertainment, e-commerce, automobile transportation and technology finance, and the foundation of these enterprises is based on the Internet.

The number one is the big entertainment industry and e-commerce, with 18 of them accounting for 14.17%. Great entertainment includes cultural media, live video, animation, ticketing and other sub-sectors, including iQiyi, betta fish TV, Himalayan FM, fast hand, and today's headlines. The general point of these enterprises is to deepen the user experience with content after the user group traffic, and increase the user's stickiness. The content content dispute is the point of difference between these enterprises and other enterprises.

The e-commerce industry has developed rapidly from an emerging industry to a mature and stable period. The business model is clear and the profit model is obvious, which makes the unicorn companies highly concentrated in these industries. The current e-commerce industry, perhaps called new retail, is more appropriate, including fresh retail, group purchases, maternal and child e-commerce, furniture e-commerce and so on. After the traditional B2C, B2B, C2C, O2O to the new retail, relying on the Internet sales model, the speed of transformation iteration can only be faster than consumers think. Open online link line, "entity + retail" is one of the main modes of this industry. The focus of the industry is on customer traffic: online and offline traffic mutual feedback, mutual help is the essence.

The development of these two fields is so fast that it is inseparable from the consumption upgrade, and the data can also see changes in the consumption patterns of the people. The consumption of pure “needs” is no longer satisfied. The contemporary consumers, the transformation and upgrading of consumption, from the material to the spirit, from the tradition to the intelligence is the need of the times.

In terms of geographical distribution, over 80% of the unicorns are concentrated in the four cities of “North, Shanghai, Shenzhen and Hangzhou”, while Beijing ranks first with 58 enterprises. In addition, Beijing leads with an overall valuation of US$336.1 billion. other cities. Interestingly, although the number of Shanghai unicorn companies is twice that of Hangzhou, the overall valuation is lower than that of Hangzhou, which ranks fourth with US$19 billion. From this point of view, unicorn companies are mainly distributed in the capital and the Pearl River Delta region.

From the perspective of geographical distribution, many unicorns gather in “North, Shanghai, Hangzhou and Shenzhen” mainly because these cities have high economic and technological development, government support is strong, and high-tech zone policies encourage innovation; secondly, these cities have a large number of Population and talent flow tend to be obvious; Third, these cities have head science and technology enterprises, which bring innovation atmosphere to the whole environment, such as Hangzhou's Alibaba Group; Beijing's Baidu, Sohu, Sina; Shenzhen's Tencent and Shanghai's beauty Group public comment.

3. Commercial characteristics: “Technology Innovation + Platform Ecology + High-tech Zone + Policy Support”

On the whole, most of these enterprises are in the national high-tech parks, and the national high-tech parks are the national economic development gathering place. The outbreak of the unicorns reflects the vitality of the new economy and the importance of science and technology. Looking apart and separating, the development areas of the four places are also different:

More than 65% of Beijing unicorn companies are concentrated in “cultural content”, big data, and artificial intelligence. These are also in the field of martial arts; 50% of Shanghai unicorn companies are new Internet + companies, such as easy fruit fresh, Xiaohong Books, hungry, etc.; 45% of Shenzhen unicorn enterprises are technology-driven; 14 unicorn enterprises in Hangzhou, mainly e-commerce and Internet finance, most of which are centered around the Ali ecosystem.

In addition to the help of high-tech zones, the growth of China's "unicorn" enterprises is inseparable from the growth of platform-based enterprises. In the context of the new economy, fission and splitting has become a new way of generating Chinese unicorn companies. In 2017, there were 36 unicorn enterprises split from the fission of platform-based enterprises, accounting for 28.35% of the number of Chinese unicorn enterprises.

Relying on the strong capital accumulation, resource integration and system management capabilities of platform-based enterprises, the unicorn enterprises that have been hatched have shown remarkable explosive growth characteristics. Platforms that are keen to hatch unicorns include Alibaba, Tencent, Jingdong, and Ping An.

Under the current trend of enterprise ecologicalization, unicorn enterprises have become an important component of the enterprise ecological chain. Through self-incubation and strategic investment, platform-based companies can build a complete ecosystem. As can be seen from the list, about 50% of enterprises are more or less associated with BAT. Among them, there are 27 affiliated with Alibaba, 37 associated with Tencent, and 16 affiliated with Baidu. Among them, there are three related to the three, are they hungry, and they are traveling. And car help.

In terms of valuation, a total of 11 super unicorn companies with a valuation of more than 10 billion US dollars, in addition to Dajiang Science and Technology, all others are related to BAT (Alibaba once invested in Xiaomi Technology). It can be seen that the higher the market value of the enterprise, the higher the possibility of association with BAT.

In terms of policy, persistence in innovation is the first driving force for development. The rapid development of unicorns is also inseparable from a friendly policy environment. With the "13th Five-Year Plan" issued by the State Council, to ensure that the entry into the ranks of innovative countries and the establishment of a solid foundation for building a world-class science and technology, China will focus on implementing innovation-driven development strategies and supporting supply-side structural reforms. The 19th National Congress will also regard the development of high-tech science and technology as the top priority, comprehensively deepen the reform of the science and technology system, vigorously promote comprehensive innovation with science and technology innovation as the core, and shape more leading developments that rely on innovation to drive more advantages.

Appendix: List of Chinese Unicorns

Source: Evergrande Institute (combined with Hurun, IT Orange, CB Insight, Torch Center of the Ministry of Science and Technology, and PitchBook's list)

This article was first published on the WeChat public account: Zeping Macro. The content of the article belongs to the author's personal opinion and does not represent the position of Hexun.com. Investors should act accordingly, at their own risk.

(Editor: Li Jiajia HN153)

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