The economic recession triggered by the Covid-19 pandemic has challenged the entire philosophy of the start-up culture. We outline two viable venture capital models that exist and highlight the different paths to achieve business success.
In business, a “unicorn” describes any privately held company worth more than a billion dollars. The term, coined by venture capitalist Aileen Lee, is used to indicate how rare these highly successful start-ups are to find. This model focuses on rapid growth and profit. As of October 2020, there are more than 400 unicorns around the world, with the majority belonging to the world’s economic powerhouses – China and the United States. Many entrepreneurs aspire to build unicorns. However, hyper-competitive and rapidly evolving markets make it difficult for this model to prosper. Is there an alternative way of growing a business, with different funding schemes and without the need to raise enormous amounts of equity?
A new age of start-up investing has arisen amid the demands of entrepreneurs, and it is altering the traditional venture capital model. Chasing after unicorns involves risky, make-or-break expansion tactics that often tank perfectly viable companies. The rise of alternative venture capital models has seen other practical growth strategies emerge – the camel, zebra, gazelle etc. And, just as all of these animals coexist in nature, so too should different venture capital models. It represents the diverse versions of success and how to get there.
The camel personifies a start-up that is able to survive changing economic conditions and remain resilient. This model may not have the exponential growth which unicorns aspire for, instead, camels strategically manage their growth often diversifying their business models to reinforce their foundation. By building camels, Satgana hopes to create an enabling environment for frontier innovators who are able to cross-pollinate across geographies and sectors. These companies interweave both profit and impact-based goals into the core fabric of their business model, making them multi-mission athletes.
Alternative venture capital models are gaining traction. The diversification of the start-up ecosystem has seen more entrepreneurs taking a different approach to the sought-after unicorn. Many of these entrepreneurs have raised early-stage funding and burned out, growing at a rate that is extremely hard to maintain. Often the push to grow the company that fast would kill the company outright.
Indie.vc founder, Bryce Roberts, calls their venture capital model “permissionless entrepreneurship”. They believe that companies can create movements that reshape and reframe society and yet founders are still asked to fit their visions into a unicorn shaped box. He further adds that it is worthwhile for entrepreneurs to look into other viable models. Currently, Indie.vc has a 12-month program that supports entrepreneurs on a path to profitability. Their investments range from $100,000 to $1 million in exchange for an equity stake and a percentage of gross revenue.
At Satgana, our goal is to invest in companies where there is a positive correlation between their product/service and its impact on society. So therefore, by definition, their economic success is the success of their purpose. A founder’s appetite for the scaling culture can vary from high-growth blitzscaling to slow-build big business. It’s up to the founder and investor to find a common ground that supports the true mentality, values and mission for the business.
As markets struggle to understand the short- and long-term consequences of the pandemic, stakeholders are opting to support businesses that repair, cultivate and connect the society in which they operate. Future proofing entrepreneurship will hinge on tapping into a global network of cross-pollinators and collaborating with frontier innovators to solve problems in emerging market economies. At Satgana, we believe that developing alternative business models to the start-up status quo has become imperative. To this end, we aspire to become a venture builder that will launch camels.