Unicorns are mythical creatures. Both in the ancient literature sense - and in the billion-dollar start-up sense.
Canva, a white-hot, Surry Hills-based design software start-up became the world's latest "unicorn" this week - a private company valued at more $US1 billion.
It marks a significant milestone for the fast-growing company, and is another sign of the momentum in Australia's maturing tech industry.
Still, there are reasons not to get too carried away by the news.
For one thing, "unicorns" used to be rare, hence the moniker. That is no longer really the case.
According to CB Insights, a start-up research firm, there are now 224 of them around the world (some of the better-known ones include Uber, Airbnb and Spotify).
Canva is the only Australian firm currently on the list - and the first to make it on there since Atlassian. It could have been valued even higher.
"We could have raised at a higher valuation from other investors, but that's not something we wanted to do," co-founder Cliff Obrecht told me this week.
Yet is also important to note that start-up valuations should really be taken with a grain of salt.
Don't just take my word for that.
"All these private valuations are fake ... It's all on paper, it's all a myth", Bill Gurley, a widely respected US venture capitalist, and an early backer of Facebook and Uber, famously said in 2015.
Start-up valuations have also been described by Bloomberg as "fuzzy", "insane" and "kind of made up".
It is difficult to succinctly explain why, but here is an attempt.
Venture capital firms that back start-ups typically demand provisions to limit their downside risk.
After all, investing in start-ups is risky. Most of them (anywhere from 60 to 90 per cent, depending upon who you listen to) end up failing.
Common protections VCs get when investing in start-ups include "liquidation preferences" that, in the event of a sale or float or wind-up, ensure they get paid back before anyone else; and "ratchets" that entitle them to more shares if a certain return threshold isn't achieved.
So, while the sale of a small percentage of a company at a certain price may imply a big valuation, the reality is much more complicated.
In any case, "unicorn" status is coveted by start-ups for a few reasons.
It's a powerful tool for recruitment - the battle for talent in the tech industry is fierce. It's also a good, easy news story to tell.
Canva's raising was picked up by various outlets, here and abroad, some of which don't normally cover the field. Hey, it's three days after the fact, and I'm still writing about it here.
The upshot is that many people (potential users) who hadn't heard of the service before, will have now. Well played.
Achieving a high valuation from investors, though, is not without risks.
It exposes a private company to the possibility of a dreaded "down round" in future.
"That's definitely a risk," Blackbird Ventures partner Rick Baker, one of Canva's earliest backers, told me this week. "But it's one we were obviously willing to take."
Seven "unicorns" suffered this fate last year - you could say they had their horns ripped off. They were sold, or had to raise money, at valuations below the $US1 billion mark.
At least one, Jawbone, a maker of wireless speakers and fitness trackers, went out of business.
For Canva, the prospect of this would seem remote.
Sure, the company is yet to turn an annual profit. In the most recent financial year, it lost $3 million, and it generated just $24 million in revenue.
But a start-up losing money in the early years of its existence is not unusual.
And Canva claims it turned cashflow positive last year, and has been so for four straight months.
Its revenue is said to be growing at triple-digit rates, and it's mostly recurring, something investors salivate over.
Its cost of acquiring customers is said to be extremely low (it doesn't spend much on marketing, and has grown through word of mouth), as are its churn rates (the percentage of subscribers quitting).
I could dive further into the weeds of the metrics used to value software companies here, but the reality is this: some very smart people are deeply psyched about the company's potential.
They could be wrong. If the company continues on its current trajectory, they will be right.
Regardless, Canva is certainly not the most ridiculous-looking investment out there.
Cryptocurrencies, or even closer to home, smaller tech stocks on the ASX, look much, much more questionable. And retail investors are punting on them.
Which brings us to arguably the most important point.
Start-ups like Canva are almost completely backed by sophisticated, professional institutional investors (themselves backed by gigantic entities such as super funds, which allocate only a small portion of their money to the sector).
If they make a failed bet (and they do), these investors have the financial strength to withstand any losses. And if they're right, they will also reap the rewards.
