Investors are now moving from 'Unicorns' to 'Green Zebras' startups

What Is A Zebra Startup?

A term created by Zebra Unite in 2017, Zebra Startups are the founder-driven alternative to growing a Unicorn. Being both ‘black and white’, these companies are characterized by alleviating social, environmental or medical challenges while also tending to their own profitability; they are for profit and for a cause.

Instead of disrupting their way to market dominance, Zebras prioritize profitability, focusing on equitable ownership and building sustainable businesses.

Zebra startups seek to create a positive social impact, for example by providing solutions for underserved markets or prioritizing employee happiness.

From WeWork to Uber, it turns out that quite a few of these $1bn-plus businesses are in fact full of hot air.

Investors should stop hunting these mythical creatures and search for another one instead: enter the “Green Zebra”.?

Next generation of companies following this model will not only operate on zebra principles, but environmental, social and corporate governance (ESG) ones. They will be green zebras, and green in the widest sense of the word: more inclusive, ethical, thoughtful and sustainable.

Fuelled by the current CleanTech boom, the next generation of Zebra startups also operate on ESG principles (environmental, social and governance). Being ethical, considerate and more sustainable, the new wave of green zebras show investors that sustainability goes hand in hand with an unmissable commercial opportunity. Electric air-taxi company Lilium and Berlin’s vertical farming veterans InFarm, have been able to demonstrate this opportunity to investors.

How To Get Your Green Stripes

Know Your Why

The first step for founders aiming to build a zebra startup is to know why they want to start a company. Are you looking to seek exceptional growth and fame? Or are you looking to contribute to society and make a sustainable profit?

If your ‘whys’ mirror the latter, following green zebra principles is the right business model for you.

Build Your Team

In an ideal world, a zebra stratup will have three leaders; a Chief Technology Officer (CTO) responsible for the product, a Chief Marketing And Sales Officer to secure a loyal customer base and a Chief Executive Officer to oversee the finances and investments. These three leadership roles have complementary skillsets that allow the core business functions to be performed.

Experience of the market you want to enter by at least one leader is incredibly important to understand the pain point you’re trying to solve, as well as all being driven by the same “why” to guide business decisions as you launch and grow.

Execute Your Idea

Your business idea should be built from a vision of what the world will look like in 20 years’, and your mission should be defined by how you want your company to contribute.

Executing your idea is just as important as the idea itself, as how you choose to bring your idea to life will directly impact whether your company is a success. There have been many innovative ideas that have never taken off due to poor execution into the market.

Just like zebras, your startup needs to be lean to overcome failure, a method that focuses on speed rather than cost. For example, instead of creating the perfect product before going to market, start by making a minimum viable product (MVP) as simple as a mock-up product. Use feedback via data analysis and customer experience to create the perfect solution.

How VC can nurture more green zebras?

VCs need to embrace ESG principles themselves

How are you going to properly support a portfolio company that is driven by ESG principles if you’re not putting them into practice yourself? At the moment, the number of funds that explicitly apply these criteria is extremely small.

But there is increasing pressure from founders (of zebras and beyond),?employees and consumers to do so.?The forerunners, such as Antler,500 Startups and Balderton, ?which have come out with explicit ESG initiatives already, will also be the ones that green zebras gravitate towards, and stick with. These initiatives are a good start in signalling that a firm is about more than just quickly maximising returns for stakeholders.

LPs need to set clear rules for VCs

Many VCs say they aren’t the ones setting the direction of the industry —?it’s the LPs. Indeed, limited partners with institutional money can set incentives for VCs to behave in one way or the other.?We are beginning to see what happens when LPs flex their power when it comes to improving diversity, equity and inclusion (DEI), with US LPs including the?Mellon Foundation and the?Princeton Endowment increasing the heat for the VCs.?The same pressure could shift VCs away from unicorns and towards green zebras, with LPs asking their VCs not only about DEI, but also about how they manage ESG and impact.

Governments could get more involved

It is in the interest of governments everywhere for LPs and VCs to work together on important solutions and make the world more sustainable. I believe the government should not only see itself as a regulator of last resort — the policeman that steps in when big tech becomes destructively large — but as another powerful incentive setter.?For example, while the UK’s?Future Fund was set up as Covid-19 aid package, it could become a strong force in the VC world going forward by expanding its remit and responding to different societal challenges. Similarly, the European Innovation Council supporting the European Investment Fund’s fund-of-fund strategy with equity investments could funnel money into strategic focus areas: sustainability, healthcare and deeptech should be among them.?More broadly, they need to find ways to get private funds into the right and sustainable green zebra companies. All of this would be in the public interest and has so far likely been prevented by risk aversion.?

It is time to go beyond thinking around risk-mitigation and start looking more strongly at the opportunities for all three actors involved. A shift of attitude driven by state actors into the LP structures, right to the heart of the VC landscape will help us to prepare the soil for the green zebras we so desperately need.?

It is in the public interest to finally take a step in this direction away from the often fake unicorns to the much more down-to-earth green zebras.?

( Excerpts from an article of Dr. Johannes Lenhard and other news reports on CleenTech/ GreenTech)