Is there life for investors beyond Unicorns?

For long, investors have been on the great hunt for the unicorns. And we shouldn’t find it strange. After all, the prominent startup dream has only one end to its story: scaling until it is set for an IPO or an exit through a billion-dollar deal. When VC Alee Leen first introduced the term unicorn, in 2013, there were less than 40 of these rare creatures in the whole world. At the beginning of 2022, we reached one thousand unicorns globally, which leads us to think that, nowadays, for many, this dream may not be so far from reality.

Though the desire to turn a small startup into a unicorn is a path many entrepreneurs follow, there’s a lot more to explore in the startup ‘jungle.’ And entrepreneurs are not the only ones invested in creating these mythical creatures. Investors are fiercely on a hunt for them, paying more attention to leaders who pursue this path, thus paying less attention to other relevant ‘species’ in our ecosystem. Examples like WeWork have nevertheless shown that startup valuations are, sometimes, full of hot hair, igniting pressure over both founders and teams in a non-sustainable spiral, often leading to not-so-desirable endings.

Please don’t take me wrong. Unicorns have an important place in our economies. They have the power to disrupt the way industries work and the potential to rapidly change people’s lives. And to do so, the speed of their operations may not comply with a slower pace of growth. But society and the economy are changing. And so are startups. Some of today’s successful giants were once turned down by investors who failed to see their enormous potential in a context of paradigm change: HP did it with Apple, and seven VCs did it with Airbnb (in 2008).

Social movements (a lot sparked by the pandemics), like the great resignation, have shown that people changed their values for good. Presently, wellness and money do weigh differently in one’s life scale. Purpose has gained a more significant space when considering different choices such as starting a business, choosing a job, or simply choosing a cheese brand in the supermarket.

Well, startups have changed too. In fact, in the last few years, other ‘animals’ have gained extensive protagonism: examples of those are the camels, gazelles, and zebras – three types of companies sometimes overlooked by our VCs. But what are they?

The term Gazelle was introduced in the 80s by David Birch. It referred to companies with a revenue of at least 100k, which increased its sales by 20% each year for four consecutive years. Gazelle was the term used to refer to unicorns in their beginning stages, before this designation even existed.

Another animal to look for is the Camel, introduced by Alex Lazarow in 2017. Being resistant to cash droughts, they’re safer bets since they are less dependent on investors to survive. They’re better spotted and more attractive in times of crisis, such as pandemics or war. They are close to profitability, and though they grow at a slow pace, they survive for more extended periods since they have better control over expenses and make long-term commitments with their clients.

Zebras are companies “that are profitable and improve society,” according to an article by Jennifer Brandel, Mara Zepeda, Astrid Scholz & Aniyia Williams, creators of the concept in 2017. They often have underrepresented founders and, because of that, are overlooked. They look for sustainable prosperity instead of exponential growth. At first sight, they may seem of less reward to investors, but they represent a more consistent and sustainable payback while solving the significant challenges of our society. Also, after all the talk to give more opportunities to underrepresented entrepreneurs, an important step can be investing and assisting in the growth of these zebra businesses.

When looking at the Portuguese startup community, I see many startups – though resilient, like camels, fast like gazelles, or for-profit and impactful as zebras – often overlooked by investors blinded by the search for the next unicorn. Many entrepreneurs in the Portuguese ecosystem have been building solutions that deserve the financial injection our VCs sometimes are not willing to give.

Public institutions also have an opportunity to fill in this gap and step up with public investment tools or incentives to connect investors to these ‘neglected’ entrepreneurs. At a first sight they might not appear to be future unicorns with skyrocketing sales data or trillions of dollars of revenues, still, their talent, impact and perseverance may well be worth an opportunity to show what they are capable of.