Unicorns that don't need buzzy apps to earn their billions

Car app Uber's next round of funding will reportedly value it at $50 billion, putting it ahead of Chinese smartphone giant Xiaomi's $45 billion.

The big difference between the two companies: one actually makes something—a product that you can hold in your hand—while the other uses an app to piggyback on an existing infrastructure. Which raises a question: How many startups valued at more than $1 billion, the so-called unicorns, make real things? As Peter Thiel, PayPal co-founder, famously said, "We wanted flying cars, instead we got 140 characters."

The dividing line between making things and making billions from technology isn't clear-cut. Warby Parker makes eyeglasses and Blue Apron makes meal-kits—two staples of day-to-day living—and both just notched $1 billion-plus valuations. But they wouldn't exist without e-commerce platforms—tech first and manufacturer second.

So here is a list of 11 unicorns, based on CB Insights data, that get less press than the billion-dollar apps, but build real things and don't need e-commerce to earn their billion-dollar valuations.

—By Eric Rosenbaum
Posted 13 May 2015

Anyone who thinks that gaming is for teen geeks and middle-aged miscreants must have missed that Facebook spent $2 billion on virtual reality mask Oculus Rift, Microsoft bought video game franchise Minecraft for $2.5 billion, and Amazon acquired live video game streaming site Twitch for $1 billion.

So where does that leave Razer, which makes gamer-focused products— from laptops and headphones— and is currently valued at $1 billion? Intel's venture arm Intel Capital became an investor last year.

"Razer is a more traditional high-end consumer electronics business that is building a great brand with gamers," said Michael Dempsey of CB Insights' research and data team. "My one concern is that I don't know how many people outside of the gaming community know Razer."

"It's hard having a stand-alone device," said Kathleen Smith, principal at IPO tracker Renaissance Capital, yet she pointed out that Logitech has survived, with a market cap of $2.6 billion, and GoPro has found a way to marry devices with a new ecosystem.

WeWork is the on-demand sharing economy's commercial real estate and management company, offering flexible access to office space, office furniture and office telecommunications, among other things. With one-third of U.S. workers now freelance and the start-up boom creating new companies daily, it's a business model that makes sense. But is WeWork really worth its current $5 billion valuation?

Dempsey said an argument can be made that WeWork's model is more simple and more scalable than other high-growth models, including Uber. And it is expanding rapidly. The company just raised $355 million in December and is riding two booms—yet also racing against them. If the start-up boom takes a turn, WeWork would be hit, and it's also exposed to the boom in commercial real estate leases.

Smith said one key to an IPO would be current revenue. Based on its $5 billion valuation, to be valued at 10 times revenue, it would need $400 million to $500 million in revenue. "Office" IPOs have been successful. TriNet, a human resources provider for small and medium-sized business, went public last April and has returned 36 percent since its IPO.

Legendary Entertainment, the privately held Hollywood studio behind blockbusters "The Dark Knight" and "The Dark Knight Rises" and this summer's highly anticipated "Jurassic World," is currently valued at $3 billion.

But a majority of its funding is private equity, including a $250 million investment from Japan's SoftBank, as well as an earlier, $275 million private equity deal. Existing VC investors include Google's Eric Schmidt, PayPal co-founder Peter Thiel, Breyer Capital and Accel Partners.

It's notable among unicorns for being a mainstream content company, and media giants have been buying up online media properties. But Dempsey said the traditional business model of film production companies is a proven one, and Legendary's relationship with major studies and its pipeline have probably helped raise capital.

"I would think Legendary gets acquired or merges before going public," Dempsey said. Dreamworks is a public company, but it hasn't performed great as a stock, and M&A is more common in the content space.

Ed Bradley was pals with Jimmy Buffett and pulled off the miraculous feat of wearing an earring and still appealing to the Sunday night audience of "60 Minutes," but no one would argue that the venerable newsmagazine itself was hip. It took Vice Media (Brooklyn-based, of course) to turn that trick.

Shane Smith and his band of globetrotting renegade journalists are turning out serious newsmagazine journalism that somehow also manages to run counter to the corporate news culture. Which is why the media companies are so eager to invest in Vice. Its website, Vice.com, is also a key asset in attracting a younger audience.

Vice's valuation reached a reported $2.5 billion after it closed a $250 million investment from Technology Crossover Ventures in September, which added to the $250 million it had already received from Hearst's A&E Networks. 21st Century Fox bought a 5 percent stake in Vice for $70 million in 2013. It's on quite a run for a company that started as a punk magazine based in Montreal. Which is another way of saying that its "sellout" is now almost complete.

A blood test may seem like very simple medicine in an era of gene decoding. But investors are betting that Theranos—using a fraction of the blood used today and getting results faster, cheaper and offering them everywhere—is worth its $9 billion valuation. Laboratory Corp. of America and Quest Diagnostics have a combined market cap of $21 billion.

Theranos is not exactly under the radar. It's been the subject of an exhaustive profile in "The New Yorker," with its CEO and founder Elizabeth Holmes positioned as a Silicon Valley rock star. And few start-ups have not one but two Secretaries of State on their board—Henry Kissinger and George Schultz.

It's not a household name, but that may change. Theranos testing centers are currently inside Walgreens locations in Arizona and California, and the company plans to hit all 50 states.

Most of the big valuations in the hot healthcare IPO space have been in the $1 billion to $2 billion range. "Theranos is unprecedented," Smith said. Only one other company on this list has a higher valuation.

After the solar sector was left for dead in the days of Solyndra, it roared back to life, and recent solar IPOs have done reasonably well. In particular, the "yieldco" companies that package large-scale solar projects into income-generating companies—First Solar and SunPower are creating a joint yieldco, and Sunedison spun off TerraForm Power—are doing well because of the low yield environment.

But other solar themes are also making it to the IPO market. Solar inverter company SolarEdge Technologies went public earlier this year and is up 65 percent since its offering. And Vivint Solar and SolarCity's IPOs show that there is market appetite for solar project-based companies. They are the best comparison for SunRun, which is among the largest solar project developers in the U.S. and is now valued at $1 billion, with backers including Sequoia Capital and Accel Partners.

Smith said that the 32 energy IPOs from Jan 1, 2014, to April produced negative returns, but the five alternative energy IPOs over that period returned 40.3 percent on average. She said that might make investors interested in SunRun.

There are plenty of smartphone apps aimed at health monitoring—the Apple Watch even trumpets its heart sensor—but Proteus Health goes much further, with its microchip-embedded pills that are activated inside the body and can relay information to caregivers about prescription usage. The ingestible sensor sends information to a disposable patch that patients wear, which is then sent to a smartphone or tablet, elevated to the cloud and then available to doctors and other caregivers.

Valued at $1.1 billion by backers, and partners including Oracle and Novartis, Proteus Health has a lot left to prove—namely, better patient results. The company says health-care systems and doctors are looking for new ways to improve outcomes and that addressing the "forgetfulness" factor—helping patients remember when they have or haven't taken their medication—is key.

Proteus received FDA approval to market its ingestible sensor as a medical device in 2012—marking a new product category, or "de novo" FDA clearance. The company's ambition is to see the sensor implanted in every medicine taken.

The remaining four companies on this unicorn list have something in common, and we hope it means you did not miss them—they all made the 2015 CNBC Disruptor 50 List.

Bloom Energy, valued at $2.7 billion, might be the one investors remain most skeptical about. The fuel-cell company was started in 2001. It uses fuel cells to convert natural gas into electricity and then places those power-source units at customer locations.

The company has raised $1.2 billion from venture heavyweights, including Kleiner Perkins Caufield & Byers. You could say it's the last alternative-energy play left standing from Kleiner Perkins' green-energy heyday. And that has people worried.

Dempsey said that the $130 million it recently raised via a convertible note is a concern. Convertible deals are typically an alternative to a "down round," or lower equity valuation. "Investors are going to need a big exit," Dempsey said.

"The key question is how long until it needs to get a deal done and how much of a haircut it will be willing to take," Smith said.

Intarcia Therapeutics is similar to Proteus in the sense that it's tackling the issue of keeping patients on a prescribed regimen using a medical device. Yet in this case, the device is implanted rather than ingested.

Its approach to diabetes centers on delivery of a drug via a 2-inch rod inserted just below the patient's skin that delivers a steady dose over the course of a year. This negates the need for patients to remember to take their diabetes oral medicine or inject themselves.

When it was founded in 1997—and named BioMedicines—it had developed a breast cancer drug that ultimately failed its late-date trials. Fortunately, scientists at the company were also working on a project that would become a diabetes drug-delivery system, and the company reorganized around this new therapy. Intarcia now has a valuation of $1.75 billion, based on its approach to the $55 billion worldwide market for treating Type-2 diabetes. Investors, including Fidelity, NEA and Venrock, have already invested $888 million in the company.

Elon Musk is an industrial titan—from solar panels and lithium-ion batteries to home energy-storage solutions, electric cars and rockets.

In the case of SpaceX, Musk has created a 3,000-employee company that has been flying cargo resupply missions to the ISS under contract with NASA since 2012. Musk has also created a company with a $12 billion valuation, making it the most highly valued unicorn on this list (SpaceX ranked No. 2 on the 2015 CNBC Disruptor List).

Musk does want a colony on Mars eventually, but SpaceX already has a business model that is reshaping the space sector. The company has nearly 50 satellite launches booked for commercial customers, as well as additional NASA missions, representing close to $5 billion in contracts.

SpaceX was expected to consider an IPO in next 12 to 18 months, but recently raised $1 billion, $900 million of which was Google. "Their contracts with NASA will buoy the overall business ... while they focus on more experimental plans, like the network of satellites to enable widespread Internet connectivity—something that Google has clearly shown interest in with its Project Loon," Dempsey said.

If you want to make something and be worth at least a billion to investors, best to focus on health care, like four of the companies on this list.

Cambridge, Massachusetts-based Moderna Therapeutics uses messenger RNA—or mRNA—to give the body's cells the instructions, or code, they need to create the proteins and antibodies to fight all kinds of diseases, from diabetes and heart disease to certain cancers. One of the chief advantages that Moderna has over other early-stage biotech companies is that its mRNA can focus on fighting multiple diseases at once.

Moderna was No. 1 on the 2015 CNBC Disruptor List.

With any biotech IPO, it's going to come down to the timing of, and results from, clinical trials. The company recently raised an additional $500 million in equity financing and signed pharma giant Merck as a strategic partner to help develop treatment for viral diseases. The company already has 45 preclinical programs under way.

"The ones that have more funding and developments that suggest they are on track, like Moderna, the window has not closed for them," Smith said. "Public investors take that higher level of funding as a good sign. Presumably, somebody smart has decided it's a big opportunity."