Zebras, Not Unicorns

The world of agri-food tech is obsessed over valuations, funding rounds and exit multiples. We’ve very quickly forgotten that the food industry should be about food. Profits should be a consequence of our priorities. What’s wrong with a solid food business that generates a modest return year-after-year, if all it does is to feed the people in its community good food, using locally-sourced ingredients?

Food companies are the main source of our food — we need to demand differently of them, and change the way we think about funding, building, and growing them.

Article below reproduced with thanks to Bret Waters at 4thly


My friend David and I were enjoying a glass of wine together one evening recently. We’ve both been in the Silicon Valley startup world for our entire careers — he ended up going into the Venture Capital business while I stayed on the entrepreneur path, but we were both chasing unicorns (billion dollar companies). Yet here we were, over a delicious glass of Zinfandel, talking about Mittelstand, the German term describing companies that are decidedly non-unicorn but are the rock-solid foundation of any economy. They are small-to-medium in size, privately owned, care about the well-being of their employees, have strong local linkages, and use conservative long-term financing. So pretty much the exact opposite of the Silicon Valley ethos of “burnout or bust in the pursuit of billions”.

David and I have both come to the conclusion that the mindless pursuit of unicorns and venture capital has not always been good for entrepreneurs. I’m starting to feel as if the Silicon Valley startup world has devolved into a cult of fundraising. Young entrepreneurs obsess about what they think investors will like, instead of what customers will like. Success is measured by VC valuations instead of fundamental economics (see WeWork).

Popular culture is partly to blame. Shark Tank on TV, movies about Mark Zuckerberg, tasty tweets from Elon Musk. All this has led many young people to sit around dreaming of someday meeting a Venture Capitalist and then their life will be wonderful. And yet Venture Capital only really makes sense for a small percentage of new companies. Let’s say you have a startup that looks like it could be a nice, profitable $50M/year business — sounds good, right? And yet there is not a single venture capitalist on Sand Hill Road who would invest in a company that has the potential to get to $50M/year. It’s just not big enough to fit their model.

Their model is to fund ten rocket ships, watch eight of them crash, and reap billions from the two that succeed. It’s a model that can work spectacularly for for the VC’s, but it kinda sucks for the eight entrepreneurs whose rockets crashed.

It also sucks for all the employees who ended up being collateral damage because they were on a rocket ship that only had a 20% chance of success.

Meanwhile, the spectacular VC industry returns have attracted a lot of capital to that end of the market, often at the expense of capital available for mid-market financing. The World Bank calls this the missing middle — the fact that there’s venture capital financing available to potential unicorns, and there’s local bank financing available for shops and restaurants, but there’s a shortage of financing available to the rock-solid ventures in the middle of the bell curve.

It was because of this that fifteen years ago I got involved with Miller Center for Social Entrepreneurship. I was interested in how this missing middle can be addressed, especially as it relates to Social Ventures which weren’t non-profit enough for foundation grants and they weren’t for-profit enough for venture capital. They were neither fish nor fowl, with no financing sources designed for them. Today, I’m pleased to say that that landscape is much different, as impact funds have proliferated and impact capital has become a legitimate asset class.

All of this now leads us to Zebras. In 2017, an essay appeared on Medium called “Zebras Fix What Unicorns Break”. In some respects, it’s a manifesto for the kind of social ventures that we have developed at Miller Center — hybrid organizations that break out of the non-profit/for-profit false dichotomy and prove that companies can be run for both economic profit and social good. But it goes a step beyond that, suggesting that Zebras “come in many different stripes, representing the diversity of their founders and the problems they are solving; are collaborative and feisty as they build businesses that are better for the world; and do so while taking care of their workforce, their communities, and their environment”. The authors of the essay ended up founding Zebras Unite, a cooperative of startup founders who believe in these values.

Here’s the bottom line for me: Run the kind of company you want to run, and finance it with sources and structures of capital that are well-aligned with your goals. Venture capital is great for the next Airbnb or Uber: companies that need to grow at at a risky, unnatural velocity in order to get to billions in value. That’s what venture capital is made for. But for the other 99% of us, we are much better off looking at other ways to finance our startups. The good news, as I’ve written here and here, is that in 2022 there are many great ways to finance a startup, including interesting new financing structures such as revenue share and shared earnings agreement.

So whether you want to be a Unicorn, a Zebra, or solidly Mittelstand, do your research on the sources and structures of capital that make sense for your venture. Everything in business is about alignment of interests — so find sources and structures that align your interests with your investors’ interested. Most importantly, if course, just go build a great business. Make customers happy, make employees happy, create real value by solving real problems. If you do that, there will be many ways to finance and grow your business.

Stay safe, stay healthy, stay focused, my friends.


P.S. The missive has been on a break for a few weeks, as I’ve been buried with some other projects. Hopefully I can get back to my weekly rhythm. Thanks for your indulgence.



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