It’s always a big day when a startup breaks into the world of unicorns. After years of long nights spent slinging code and several tens of millions of dollars in venture capital, a billion-dollar valuation validates your business model and signals you’re gearing up for an exit in the future.
But as these unicorns grow in number, they’ve grown into finer, more majestic beasts: hectocorns, valued at $100 billion apiece.
In this article, we’ll be taking a deep dive into the world of hectocorns, examining:
What they are.
Which was the first hectocorn.
How many hectocorns currently exist.
What to expect from hectocorns in 2022.
What is an Hectocorn?
Unicorns are startups valued at $1 billion, while decacorns are those with at least a $10 billion valuation. The most elusive of them all are the hectocorns: privately held startups valued at $100 billion.
The term hectocorn is formed from the Greek root word ‘hecto’ which can loosely be translated as hundred.
The term hectocorn got into startup lingo just over a year ago when liquidity started pouring into private startups as unicorns like Canva, Brex, and Wise quickly picked up at least one more zero in valuations, while middle-aged decacorns like SpaceX, and Bytedance skyrocketed to hectocorn status.
Which Was The First Hectocorn?
TikTok’s parent company Bytedance crossed the hectocorn benchmark in May 2020 based on private equity transactions that valued the company at $100 billion.
That sentiment was followed by a private equity round with Sequoia and KKR investing $2 billion into the company at a $180 billion valuation.
How Many Hectocorns Are There?
SpaceX and Bytedance are currently the only two privately-held startups with a $100+ billion valuation.
The Complete List of Hectocorns
Here’s a quick breakdown of the world’s two hectocorns, Bytedance and SpaceX, with an emphasis on how they’ve scaled to their current size, their market positioning, and plans to go public.
Description: Bytedance has certainly stepped into multi-hectocorn territory with their short-form video platform TikTok that’s seen rocketing growth — the fastest among social media companies— drawing young people across the world and bringing in $58 billion in revenues in 2021.
Bytedance also owns a host of social media platforms like Toutiao, Douyin, and BuzzVideo, but the crown jewel fuelling the company’s humongous valuation has been their insanely popular short video platform that Meta and Youtube have been trying unsuccessfully to copy or contain.
Description: SpaceX has been dazzling the world by opening new horizons in the world of space exploration. Under the leadership of super-charismatic Elon, SpaceX has bagged several firsts like launching and recovering vehicles vertically and being the first private space carrier to dock with the International Space Station.
Much of SpaceX’s revenue has come from launching satellites for the US military, NASA, and private corporations, with moonshot plans in the works to colonize Mars and beam satellite internet across the world à la OneWeb.
Year Founded: 2002
Location: Hawthorne, California, US
Funding: $7.7 billion across 56 rounds
Valuation: $100.3 billion (October 2021)
Is Stripe an Hectocorn?
Stripe has almost eclipsed PayPal as the payments market leader — really, it’s just a matter of time before they do. Unlike competitors like PayPal, WePay, and Square, Stripe has built a world-class payment platform that is designed for developers and highly technical users in mind.
That is, you can integrate Stripe across your apps, platforms, etc., and make the payment experience native for your users. And developers have taken notice so much that it’s the default for the community.
In March 2021, Stripe raised a monster $600 million series H that valued the payments giant at $95 billion and while there are speculations that they might go public in 2022, they might delay their IPO and raise another round of funding that pushes the company into hectocorn territory.
Judging by the gains Stripe has made since their last raise, it’s a given they’ve crossed a $100 billion valuation and it’s only a matter of time before they raise VC again or go public at that market rate.
How Do You Build an Hectocorn?
To advance into the $100 billion class, startups often get three things right:
Growing revenues (of at least $1 billion annually).
Aggressive venture capital to fuel that growth.
Decacorns need a solid business model that’s been proven to drive revenue, attract VC capital, and scale into that growth bracket. A quick look at past and present hectocorns like SpaceX, Coinbase, and Bytedance confirms that they have a solid grip on a revenue channel that’s only expected to grow.
Stripe processes at least a trillion dollars worth of payments annually, with a 2.9% profit margin it funnels to card issuers and interchange networks; Coinbase brought in over $8 billion in revenue in 2021 on the backs of the ongoing crypto boom; Bytedance has ridden the wave of short-form video to record revenue figures from its advertising business.
In other words, hectocorns only get there by capturing their target market with a product in demand; you don’t get valued at $100 billion experimenting in your dorm room.
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Growing Revenues Of At Least $1 Billion Annually
Startup valuations can be anywhere from 10 - 1,000 multiples of their revenue. Even in a growing market with sky-high valuations, a hectocorn would need at least $1 billion in annual revenues to be valued at $100 billion, assuming a generous 100x revenue multiple.
Of course, lately we’ve seen startups raising at unicorn valuations with outrageous revenue multiples (case in point: Airbyte raised a $150 million series B with a unicorn valuation and annual revenues just under $1 million), but since hectocorns are often headed for the public markets quickly, they need decent revenue figures to sustain their valuation after an IPO.
Profitability is Still Not a Must
Profits have almost become an old-school word in a way that’s reminiscent of the dot-com bubble.
Funded startup founders hold the notion that if you’re not spending money quickly enough, you’re not growing quickly enough either. Hence the emphasis on moving fast, breaking things, and spending your way to huge revenue without any profits.
But as the startups near an IPO or a liquidity event like we mentioned earlier, profits start to come back into the big picture.
Roles are slashed, non-performing projects and assets are quickly offloaded in a bid to bring expenses below revenue. Surprisingly, Stripe, SpaceX, and Bytedance still haven’t recorded consistent profits to date and they’ve been able to make do with venture capital until now.
Even after spending years as public companies, Uber, Lyft, Pinterest, and Snap still haven’t made a profit but that hasn’t hindered their growth or stopped them from raising secondary capital after their listing. It appears profitability can be delayed in the short-term even at hectocorn scale.
Almost exclusively VC-funded
Bootstrapping a startup isn’t anything new. But having heaps of VC removes lots of pressure and makes it easier to scale growth by spending faster, hence why startups favor venture capital. And once in a while, you get VCs like Softbank’s Masayoshi Son who threatens to fund your competitors if you refuse to take his money.
As a result, hectocorns are exclusively venture-funded and while it’s possible to bootstrap startups into unicorn, decacorn, and hectocorn territory like Mailchimp has proven, having venture capital creates lots of room to experiment, scale headcount, and grow extremely fast.
What to Expect for Hectocorns in 2022?
The year 2022 seems to be the year the world’s beloved hectocorns finally break into public markets. Sources claim Stripe and Bytedance intend to go public in 2022, while it’s still unclear how much longer SpaceX will spend as a private company.
But one thing is certain: as this crop of visionaries levels up, we have Klarna, Adyen, Canva, Epic Games, Instacart, Revolut, and an army of startups looking to push boundaries further and reach new heights building products people love.