In recent years, a host of promising unicorn companies have emerged in China. These are local startups that are generating enormous wealth early in their development. (The standard definition of a unicorn is a privately held startup valued at more than US$1bn.) Most of these enterprises are in the vanguard of their industry, leading the way for the generation of new technologies, business activities and business models. Their rise is thus regarded as a bellwether of future economic growth.
In this report, our first annual study of Chinese unicorn companies, we surveyed and interviewed the top executives of 101 rapidly growing high-valuation enterprises.
Support from China’s capital market has been essential for the growth of unicorns. Support stems from two sources – Government policy and the diversification of financing channels in China – and has ushered in a golden era of rare opportunities for investors and startups.
A vast majority of the companies surveyed, 80%, expect a new round of financing during the next two years. Within that group, nearly a third (25% of the total respondents) said their plans for financing were urgent. These companies should systematically improve their financial, taxation and internal control aspects, so as to meet the listing requirements as soon as possible. When it comes to other types of deals, 48% have plans for the merger and acquisition (M&A) of outside businesses, but only 6% plan to be taken over by other companies. Based on these responses, unicorn leaders seem to value independent, long-term development over flipping their companies for immediate gain. They want to create tomorrow’s great global enterprises
The survey shows that technology-driven companies account for a high proportion of unicorns. Among the respondents, 40% said that their company’s core competitive advantage is technology and data. This is far higher than the next most frequent responses, talent and operations management, at 19% each. Even fewer respondents considered marketing, capital and partners to be their core competitive advantages.
Both technological innovation and business model innovation have been found to attract capital in China. The survey found, however, that unicorn company leaders plan to focus their attention more on technological innovation than business model innovation during the next three years.
Unicorn leaders identified their top priorities in this order: first, attracting skilled talent (77% picked this); second, brand building (74%); and third, establishing the enterprise’s culture and values (71%). These ranked higher than controlling costs and increasing profitability (68%) and using new technologies in current products and services (67%). Together, the priorities of unicorn leaders indicate that the Chinese market is still in a rapid growth phase, and while unicorns can obtain adequate capital support, they must pay close attention to their workforce.
More than 60% of the respondents said that their companies changed their organisational structure every 12 months, which is much more frequently than traditional companies do. With such a high level of organisational flexibility, employees must be adaptable. This appears to be one reason that unicorn leaders are so interested in developing their enterprise culture and keeping it engaged. The survey also reveals that unicorn structures are more likely to be organised by line of service or product line (57%); only 31% reported being organised by function.
China TMT Leader and Private Equity Group Central China Leader, PwC China
Tel: + (21) 2323 3362
China Centre of Excellence Partner , PwC China
Tel:  (21) 2323 2655