Social Entrepreneurship

Forget Unicorns. We Need More 'Zebra' Startups.

Is there another way to grow companies, without the continuous desperation to raise enormous amounts of equity?
Forget Unicorns. We Need More 'Zebra' Startups.
Image credit: Rebecca Eldridge | Getty Images
Guest Writer
CEO of LeumiTech
5 min read
Opinions expressed by Entrepreneur contributors are their own.

From the Rust Belt of Detroit to the corn fields of Iowa, American companies across industries are focusing on the next-gen solutions that will allow them to survive, grow and stick around in a hyper-competitive, fast-moving global market. A prime example is PepsiCo's recent $3.2 billion acquisition of Israeli company SodaStream.

Related: Why I Turned Down $10 Million Even Though Our Company Was Nearly Broke

The message for legacy companies is clear: You must self-disrupt or gobble up your disruptors, or else face obsolescence at the hands of nimble startups with access to more capital than ever before.

Globally, venture capital investment reached nearly $130 billion in the first half of 2018 (the run rate indicates an increase of 65 percent from 2017). Today's startups are in a frenzied race to the next bigger, better round of capital. The seed rounds of 2018 are the series A rounds of five years ago; the series A rounds are the new B rounds.

For the VCs raising hundreds of millions, or even billions, of dollars per fund, the need to have a unicorn is obvious. That is, at least one company in the portfolio must generate enough money to compensate for write-offs and provide an extra multiple on the fund.

But, those unicorns, growing on an accelerated timeline, must spend significant sums while simultaneously racking up substantial losses in the first few years of operation -- feeding their need to continuously raise very large amounts of money, based mainly on equity.

Related: It's Possible to Make Money and Do Good

Is there another way to grow companies, with different funding schemes and without the continuous desperation to raise enormous amounts of equity?

Yes, and it comes in the form of a new animal at the high-tech zoo: the zebra company.

Zebra companies are characterized by doing real business, not aiming to disrupt current markets, achieving profitability and demonstrating it for a while, and helping to solve a societal problem. As explained by Mara Zepeda, CEO and co-founder of Switchboard, zebra companies "are both black and white": They are for-profit and for a cause.

We think of these businesses as having a "double bottom line" -- they're focused on alleviating social, environmental or medical challenges while also tending to their own profitability.

Related: Why Startups Focused on Solving Social Problems Are Attracting Investors

One of my favorite examples is Toya (a LeumiTech client), a gaming platform designed to motivate and inspire young girls to reach their full potential. The digital gaming industry has historically lacked content for women and girls, or has limited content to a very narrow definition of femininity based on beauty. Toya, founded by Anat Shperling and Yifat Anzelevich, is challenging and changing those norms by providing games that put girls into the role of hero, and by offering games untethered to gender (focused on nature, mysteries and history, for example). A for-profit entity, Toya still serves a very important social goal of promoting gender equality through its products.

The U.S. is also teeming with examples of successful zebras. Zepeda's company, Switchboard, provides a platform to help college alumni and students connect with one another about career opportunities using an innovative "ask/offer" model, and helps colleges keep track of donor information. Its multiple revenue streams include assessments, coaching and training, and access to the platform.

A company called Hearken, led and co-founded by Jennifer Brandel, aims to "flip the traditional model [of journalism] on its head," helping newsrooms shape their coverage based on their audiences' biggest questions. Together with a couple of other female entrepreneurs, Zepeda and Brandel launched DazzleCon, a conference for like-minded founders to learn and discuss all things zebra (like a group of wolves is a pack, a group of zebras is called a dazzle!).

As these examples evince, the zebra movement owes its momentum primarily to female entrepreneurs and entrepreneurs of color, groups that have historically struggled to secure financing in equal numbers to their peers, despite their ability to demonstrate profitability and commitment to good causes.

Related: 6 Ways to Profit With a Purpose

The nature of zebra companies is very much aligned with women's characteristic business acumen. Once they are able to secure the initial funding, female entrepreneurs tend to prefer more certainty and take less risk and, consequently, grow profitable and sustainable businesses -- albeit at a slower pace and, potentially, on a smaller scale.

When First Round Capital looked at the investments it made in 300 companies over 10 years, it found companies with a female founder outperformed those with all-male founding teams by 63 percent. Similarly, the Small Business Administration found that investing in women-led businesses improved the performance of venture firms.

As a bank that has long been entrenched in the startup space, we are extremely intrigued by zebra companies. We believe in the potential of businesses with secure paths to profitability and viability built into their models. Strong fundamentals allow such companies to assume bank debt on their balance sheets and avoid dilution by raising only equity money.

Promoting diversity among entrepreneurs, and especially encouraging women to become a more substantial part of this community, will benefit the entire ecosystem, allowing us to elevate new businesses while viewing the world from a more diverse perspective.

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