EPFO APFC 2023 General Studies · Question 119 of 120

Correct — B, (b) 2 only. Statement 1 gets the threshold wrong and statement 2 states the definition correctly, so only the second is right. Statement 1 says that in the venture capital industry a 'unicorn' is any startup that reaches a valuation of ten billion dollars. The figure in the accepted definition is one billion dollars, not ten. The term was coined in 2013 by the venture capitalist Aileen Lee, who used it in an article about privately held software startups valued at more than a billion dollars by public or private market investors; she chose the word for the statistical rarity of such companies at the time, when reaching that valuation while still private was an unusual event. The ten-billion figure in the statement is not arbitrary — it is the threshold for a different term. A privately held startup valued above ten billion dollars is called a decacorn, and one valued above a hundred billion a hectocorn. So the statement has taken a real threshold and attached it to the wrong animal, which is a characteristic way of manufacturing a false statement out of true material. Statement 2 says that only a privately held startup can be a unicorn, and on the accepted definition that is correct. Being privately held is part of what the word means, not an incidental feature of the companies it describes. The point of the term was to identify companies that had reached a very high valuation without going to the public markets, so a company leaves the category when it lists its shares through an initial public offering or is acquired by another company — it does not stop being valuable, it stops being the thing the word denotes. Trackers of unicorn populations remove companies from their lists on listing or acquisition for exactly this reason. Journalistic usage is looser and will sometimes go on calling a recently listed company a unicorn, which is where the doubt in this statement comes from, but the industry definition the stem invokes is the strict one. So statement 1 falls, statement 2 stands, and the code for that combination is option (b). The wider context is worth carrying with the definition. Startups reaching billion-dollar valuations while private has become far more common than it was in 2013, and India now has one of the largest populations of such companies in the world, after the United States and China; the exact count varies between trackers and changes quickly, so the definition is a safer thing to memorise than any number.

• (a)1 only — This option reverses both verdicts. The threshold in statement 1 cannot be accepted: a unicorn is a privately held startup valued at more than one billion dollars, and ten billion is the threshold for a decacorn. Rejecting statement 2 means holding that a publicly listed company can be a unicorn, which conflicts with the definition and with the way the term is actually used by the firms that track it — a company is removed from a unicorn list when it completes an initial public offering or is acquired. The reason a candidate might reject it is that news coverage sometimes goes on applying the label after listing, out of habit or because the company was famous as a unicorn beforehand. Loose usage in the press is not the industry definition, and the stem asks specifically about the term as used in the venture capital industry, which is where the word originated and where its meaning is settled.
• (c)Both 1 and 2 — Accepting both statements is the likeliest wrong answer, and it is chosen by a candidate who knows the private-company condition — which is the harder half — and misremembers the valuation threshold. The confusion is easy to fall into because ten billion dollars is a real threshold in this vocabulary, just not this one: it defines a decacorn. A candidate who has read about a handful of very large private companies described with both words may retain the larger number and attach it to the more familiar term. The safeguard is to learn the three tiers together as a single line — unicorn above one billion, decacorn above ten billion, hectocorn above a hundred billion — since a question that misstates one of them is nearly always using another one of them as the false figure.
• (d)Neither 1 nor 2 — Rejecting both statements requires denying that a unicorn must be privately held, and that condition is part of the definition rather than an observation about unicorns. The likely reasoning is a familiar one on two-statement items: having correctly spotted that the ten-billion figure is wrong, a candidate concludes that the examiner has built the whole question out of falsehoods and marks both statements down. Two-statement items are set in all four configurations and finding one statement false says nothing at all about the other. There is also a substantive route to this option, which is to think that the private-company condition is merely typical rather than definitional — that a unicorn is simply a startup worth a great deal, whether listed or not. The history of the term settles it: it was coined to name companies that had reached a billion-dollar valuation while still private, and that is the whole of its point.

Venture capital is equity finance provided to young, unlisted companies with high growth potential and correspondingly high risk, supplied in rounds — seed, Series A, Series B and onward — with each round setting a fresh valuation for the company. Because these companies are not listed, the valuation is not a market price but the figure agreed between the company and the investors in the latest round, which is why private valuations can move sharply and can be written down as well as up. A unicorn is a privately held startup carrying a valuation above one billion dollars. The term was coined in 2013 by the venture capitalist Aileen Lee to describe the rarity of the event; a decacorn is valued above ten billion dollars and a hectocorn above a hundred billion. A company drops out of the category when it lists through an initial public offering or is acquired, because from that point its value is set by a public market or a purchaser rather than by private rounds. The wider vocabulary of the ecosystem is examinable alongside it: angel investors who fund the earliest stage, incubators and accelerators that support young firms, the valuation and dilution arithmetic of successive rounds, exit routes through listing, acquisition or secondary sale, and the distinction between a startup and a small business, which lies in the intent to grow rapidly and to be financed by equity rather than by retained earnings. In India the policy framework runs through the Startup India initiative and the recognition of eligible entities by the Department for Promotion of Industry and Internal Trade, with the tax and compliance benefits that follow recognition.

The closing current-affairs items of these papers are drawn from the vocabulary of public discussion rather than from any syllabus, and 'unicorn' is a good example: it is a word a candidate will have met many times in newspapers without ever being told its precise content. That is what makes it examinable. The examiner does not ask which company is a unicorn, which would be a memory test and would date badly; the examiner asks what the word means, and constructs a false statement by substituting one real threshold for another. The construction is worth recognising because it recurs across the current-affairs block: take an accurate definition and change a number to a number that belongs to a neighbouring term. A candidate who has learned the three tiers together sees the substitution immediately; one who has absorbed the word from context alone has no way to tell one large number from another. The topic has some connection to the post as well. A great deal of the employment created by high-growth private companies falls within the ambit of provident fund and social security law, and an officer dealing with such establishments needs to understand that a company with a very large paper valuation may still be loss-making and thinly capitalised in cash terms, since a private valuation is a negotiated figure rather than a market price.

• A unicorn is a privately held startup company with a valuation above one billion dollars. The term was coined in 2013 by the venture capitalist Aileen Lee, who chose it for the statistical rarity of companies reaching that valuation while still private. Statement 1 of this item is wrong because it puts the threshold at ten billion dollars.
• Ten billion dollars is the threshold for a decacorn and a hundred billion for a hectocorn. Learning the three tiers as one line is the protection against this item's construction, since a false statement about one of them is usually built by borrowing the figure that belongs to another.
• Being privately held is part of the definition rather than an incidental feature. A company ceases to be counted as a unicorn once it lists through an initial public offering or is acquired, because its value is then set by a public market or a purchaser instead of by private funding rounds. That is why statement 2 of this item is correct.
• A private valuation is not a market price. It is the figure agreed between the company and its investors in the most recent funding round, which is why such valuations can be revised sharply downward as well as upward and why a company with a very large valuation may be making substantial losses.
• India has one of the largest populations of unicorns in the world, after the United States and China. The exact count differs between trackers and changes quickly as companies are added on new funding rounds and removed on listing or acquisition, so the definition is a far safer thing to memorise than any particular number.

• Accepting the ten-billion-dollar figure because it is a real threshold in the same vocabulary. It defines a decacorn; a unicorn is valued above one billion dollars, and this substitution is exactly how the false statement was manufactured.
• Doubting the private-company condition because press coverage sometimes calls a recently listed company a unicorn. The stem asks about the term as used in the venture capital industry, where a company leaves the category on listing or acquisition.
• Concluding that both statements must be false once one has been found false. Two-statement items are set in all four configurations, and the truth of one statement carries no information about the other.
• Treating a private valuation as though it were a market capitalisation. It is the figure negotiated in the latest funding round, not a price set by a market of many buyers and sellers, and it can be revised in either direction.

Business and economy terms from current public discussion appear in the closing questions of these papers, and they are asked in three ways. The commonest is a two-statement item on the definition, as here, with the false statement built by changing a number, a date or an attribution rather than by inventing something implausible. The second names the term and asks for its meaning directly in a four-option set, where the distractors are neighbouring terms from the same vocabulary — unicorn against decacorn, angel investment against venture capital, an initial public offering against a follow-on offer. The third asks about the Indian policy framework around the phenomenon, which for startups means the Startup India initiative and recognition by the Department for Promotion of Industry and Internal Trade. Preparation is a short glossary rather than wide reading: for each term that is current in the business pages, write down the definition, the threshold or number attached to it if any, who coined it and when, and the neighbouring term most likely to be confused with it.

No directly related past PYQ was found.

• practice — not a real PYQ

  A privately held startup company with a valuation of more than ten billion dollars is commonly referred to by which one of the following terms?

  • (a)Unicorn
  • (b)Decacorn
  • (c)Hectocorn
  • (d)Gazelle

  Answer(b) Decacorn — the tiers run unicorn for a private startup valued above one billion dollars, decacorn above ten billion and hectocorn above a hundred billion. 'Gazelle' belongs to a different vocabulary altogether, describing a firm that grows its revenues rapidly over several consecutive years regardless of its valuation or whether it is listed.

• practice — not a real PYQ

  The term 'unicorn', as used in the venture capital industry for a privately held startup valued at more than a billion dollars, was coined in 2013 by which one of the following?

  • (a)Aileen Lee
  • (b)Peter Thiel
  • (c)Marc Andreessen
  • (d)Eric Ries

  Answer(a) Aileen Lee — the venture capitalist used the word in a 2013 article about privately held software startups that had reached billion-dollar valuations, choosing it because such companies were then statistically rare. Eric Ries is associated with the lean startup method rather than with this term, and the other two names are prominent investors to whom the coinage is sometimes wrongly attributed.