Five ways startups can become Unicorns?

“row of five flags on poles” by Joshua Fuller on Unsplash

Big Market. Success requires a big market. Non-US founders tend to create startups that address a minor problem. For example, a problem of a city or a small country, instead of targeting big problem that is a global problem. A startup that does not look into a big market will most likely fail. For most startups having a global strategy for a big market means having a solid go to market strategy for the US. To create a US strategy, you need people with experience in doing business in the US, especially in the Bay Area. Therefore, without a big market a unicorn is only a dream. It seems that founders from countries like Israel, Estonia and Czech Republic understand that to achieve huge success you need to build a startup for the US market. Having a big market strategy increases the success ratio of funding and finally delivering a huge exit as a unicorn.

“woman wearing gray tank top” by Jakob Owens on Unsplash

Talent. Building a successful startup requires top startup talent. Startups become unicorns when there is an alignment of business and tech talent. Talent in emerging markets is largely trapped in large corporations and investment banks. Talent that is ambitious and risk taking from emerging markets tends to migrate to global commercial hubs like London or NYC, which decreases the talent pool of people that can become co-founders in home countries. Top technical talent in emerging market on the other hand is highly compensated in large corporations and does not have an incentive to forfeit a large salary for a small probability of success as a founder of a startup or becoming an early employee of a startup. Therefore, the disconnect between business and technical talent in emerging markets makes it extremely difficult to form a stable team that can deliver a unicorn. It is not enough to have a talent pool of ambitious founders, but what is needed, is a pool of people that understand the difference between being an entrepreneur and employee. Many times, it is just not enough to be a hard worker and be smart to take a startup to unicorn status. To push a company to unicorn status you need 24/7 dedication of the core team. Being a founder means forfeiting a huge salary and predictability of a stable job for equity and the possibility of being in a startup.

“tigers fighting on swamp” by Frida Bredesen on Unsplash

Hypergrowth. A lot of startups outside of Silicon Valley fail to explain why they exist. It is not enough to build a cheaper product or incrementally better product than the product built in the Valley. To make it too unicorn status you need to show that your product is substantially better and is in hypergrowth. Startups with better products have hockey stick growth and excited customers. In other words, mediocre companies that are in zombie mode will not transform into unicorns. Best companies are willing to risk more and bet everything on growth. If you are not growing like crazy that means you are mediocre and should do an acquihire asap.

Investors. Successful companies are backed by amazing investors. Many venture funds from outside of the US don’t fund companies with innovative business models. If they do, they require a big chunk of the cap table. Angel investors in emerging markets prefer to invest in real estate or more tangible assets then startups. This means that funding is pretty much limited for companies with disruptive features. You need Silicon Valley VCs, if you are disruptive business that needs to reach massive scale. This does not mean funding for foreign founders is very easy in Silicon Valley. Quite the opposite fundraising is impossible if you are not from the Bay Area network. Nonetheless, YC, 500 Startups and Techstars are the best launching pads for foreign founders that want to build innovative and disruptive business. Getting an A round and follow on rounds from Sand hill becomes less hard (not less easy) if you did a seed round with top accelerators. Top accelerators can help the best foreign talent succeed in the valley.

“assorted flags” by Jason Leung on Unsplash

Government and large corporations. Outside of the US the majority of venture funding is sponsored by the government or large legacy corporation. Government backed funds or corporate VSs tend to be slow and heavy on red tape. The price of government money has a many string attached and many times limits the possibility of follow on investment from Silicon Valley investors. Working with a corporate VC might be beneficial short term but, in most cases blocks rapid growth because founders are trying to keep the corporate VC happy at the cost of hockey stick growth.

Cytowski & Partners

Written by

Law firm specializing in startups, series A and US expansion. No legal advice I No attorney client relationship I Attorney advertising

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