Finding “Real” Unicorns
In the course of my work as an investor at WVV, and especially during my time building and operating startup accelerator Alchemist, people have always asked what I look for when investing. The typical answer is well-rounded teams with strong technical moats and a big vision, although that could easily apply to 75% of the companies with whom I meet. However, the real subjective answer is “I’ll just know when I see it.”
Having funded and worked with over 400 early-stage companies, I’ve come to recognize that a founder’s ability to execute against a vision is imperative to their success. It’s usually not what school you went to or what degree you have, but the hustle, grit and borderline insanity that drives a founder to build something they believe is missing in the world — something they lose sleep over because the solution does not exist, and they are the only ones that have the insight and determination to make it a reality. The successful founders are the ones who are maniacally focused on building real businesses and have already taken measures to make that dream a reality without being distracted by the allure of being a unicorn right out of the gate.
According to CB Insights, there are over 450 unicorns as of October 2020. However, 2018 research from Stanford suggests that unicorns are overvalued by an average of 48%. The term “unicorn” aimed to give extraordinary companies a class of their own, but now that we have so many, it doesn’t seem to represent rarity anymore. Instead, it is more representative of the common practice of venture capital (VC) firms inflating valuations to drive hype and make their shares worth more than what’s actually noted on the books.
Stewart Butterfield, Founder and CEO of Slack, had one objective when he set out to raise money for his startup back in 2014: “a billion dollars or nothing.” This unicorn pressure continues to permeate through the entrepreneurial world and has led to a dramatic shift in how startups are built and run. Instead of building a business primed for long-term success, startups take unwise shortcuts in order to emulate these unicorns. Even accelerators have built the concept of unicorns into their teachings for budding startups to drive investor FOMO. However, based on research from Wharton, not only does this not lead to success in most cases, but it also discourages a lot of people who might otherwise enter entrepreneurship because they don’t see themselves as being in the mold of these unicorns.
WeWork is a great example of an inflated valuation that sold an unrealistic vision and current standing of the company. The founder was more interested in building a highly valued company than a real business and was further encouraged by the VC community to project this behavior. We all acted shocked when we found out, but the truth of the matter is anyone who knows how to do simple excel functions could run the numbers and see that there wasn’t a sustainable business model there.
If the dot-com bubble and pandemic have taught us anything in venture capital, it’s that real businesses with sustainable business models and scrappy founders who can adapt quickly are the ones who persevere. Maybe we should be looking for camels instead of unicorns?
The term “camels” was recently coined to describe startups that value sustainability and prioritize balancing growth with cash flow, rather than the unicorn mindset of rapid growth at any cost. Camel founders take the time to speak to potential customers and then create a plan to build the company in the right ways. They do not run before they can walk, and they take the time to surround themselves with a team that truly believes in their mission, not just the potential for a high valuation. These camels seem to be the real unicorns because they have become so rare!
The volatile times we live in have shone a spotlight on the qualities needed for a business to survive and thrive despite the rough waters of a pandemic-fueled recession. The startups with flexible, future-proofed business models are the ones who are actually worth emulating, not the fast-fading unicorns. Perhaps if we refrain from using the term “unicorn” for anyone besides these camel founders, we’ll be able reclaim it so that it’s actually something worth aiming for once again.
Special mention to Kristopher Francisco, CEO of Evolute for suggesting I write this post!
Danielle D’Agostaro is the Principal Partner at WV Ventures, a $100M VC joint venture between Advocate Aurora Health, Foxconn, Johnson Controls and Northwestern Mutual. Danielle is an experienced operator with a demonstrated history in early-stage startup investments.
Prior to WVV, Danielle spent the last 7 years building the Alchemist Accelerator into the leading enterprise accelerator in the country. As Managing Partner and COO, she not only ran the daily operations of the company, but also invested in and worked with over 400 companies such as LaunchDarkly, Rigetti Quantum Computing and Cobalt.io. Before that, she worked at Adobe Systems as a digital marketer and developed marketing initiatives for UC Berkeley’s campus restaurant division.
Danielle received a B.A. in Media Studies from University of California, Berkeley, where she finished her degree in 2.5 years. She has a passion for food, wine and film and sees startup founders as the most inspirational people she has ever met.
