Which kind of startup you are building - zebra, camel or donkey?

"We do not need investor dollars, we prefer to grow using customer's money."

"Give us capital so that we can maintain our burn rate for scale up."   

"Give us capital in this round so that we can negotiate better with the investors in the next round ."

After hearing many such founder conversations over the years, I started thinking. 

What kind of startups that are being built around us? And who are these animals that always get mentioned in the startup lexicon?

With some research, here is what I found out.                         

Typically venture capital backed startups are classified into 3 broad categories.

1. Unicorns

Off course, we all know the unicorns. 

The legendary horse like animal with single horn. These are very rare startups that have crossed a billion dollar valuation. 

The originator of this term wanted to convey a very rare occurrence and the magic of an alchemist.

A very tiny fraction of venture-backed startups attain this magical goal (less than 0.07%).  

2. Dragon's egg

These are the startups, which look small today, but they have the potential to turn out big in the future.

VCs love them as they have the potential to impact the overall fund performance and investor returns, significantly over time.

3. Living dead 

As the name suggests, these startups manage to survive in the tough business world, but do not show the kind of growth that will excite the partners in the VC network and other early stage investors.

They would rather prefer to spend time and energy with Unicorns and Dragon’s egg kind of startups.

And there are other animals too.

Yours truly was fortunate to grow up on the farm in a village keeping the company of cats, dogs, cows, bullocks, peacocks and many other two and four legged friends and hence can better relate here.

Camel

Like camels, these startups know how to survive in the tough desert situation. 

They create value with or without venture funding and are not overly dependent large funding rounds.

They first get the unit economics right and then will scale.

They manage the burn rate effectively taking a long term approach while being ready for any downturn that might might hit them any time.

Zebra

Life is black and white for zebra kind of startups.

While revenue and profits are important, so is reason for existence - solving real good problems and creating sustainable value in the process.

Zebras are collaborative, conservative and responsible citizens of the startup world.

Gazelle /antelope/deer                                                                  

They grow (run) very fast at least 20% year on year effectively doubling the revenue every 4/5 years. Investors love them.

They create good employment opportunities and are important for growth of a nation.

Given the rapid growth in the tech sector over last 4 decades, they tend be more tech startups while are also present in other high growth sectors and segments.

Cockroach

They focus on profitability rather than growth.

They are less risky as they don’t chase lofty revenue growth at the cost of investor capital.

Donkey

This is an overvalued unicorn which struggles to justify huge valuation form the earlier round.

Off course there were some mistakes made in valuations and future projections. We all know those big names which could not live up to the promise.

Finally, Paul Graham from Y Combinator explained how every startup is also like a mosquito. He writes in one of his famous essays,

“A startup is like a mosquito.

A bear can absorb a hit and a crab is armored against one, but a mosquito is designed for one thing: to score.

No energy is wasted on defense.

The defense of mosquitos, as a species, is that there are a lot of them, but this is little consolation to the individual mosquito.

Startups, like mosquitos, tend to be an all-or-nothing proposition.

And you don’t generally know which of the two you’re going to get till the last minute.“

So, what kind of startup you are building and investing in?

And if you need a detailed checklist on which kind of startups get funding and which ones do not, please do drop a line at [email protected]

About the author: Mahesh Dumbre enjoys working with entrepreneurs, investors and executives, globally, helping them achieve true growth potential. 

He is an ex-Tata Group executive who enjoyed building businesses globally (over 17 years in 8 countries across 11 industries, 80+ million USD value addition) as well as teaching and writing. He can be reached at [email protected].