Equity raising has been increasing year after year especially in the time of COVID-19 pandemic. VCs are rushing to fund drug companies with the hope of finding a cure for this dangerous disease. Others are tapping into the growth of e-commerce due to the social distancing practice worldwide. Real estate price is falling and traditional business is failing due to the new normal.
Is there a way to grow companies without the desperation of raising enormous amount of equity funding?
Businesses like Grab is moving to Food delivery and the super app needs more and more money to grow. At Series G, Grab is still yet to be profitable less to say going for IPO. F&N is moving into e-commerce to sell more drinks as traditional sale through eatery outlet is crumbling.
The message is loud and clear. It’s either you self-disrupt your business or being swallow up by your disruptors, or else face obsolescence at the hands of new start-ups that has access to more capital and disrupt your industry.
In a hyper-competitive, fast moving market disruption is already here and will continue for the next decade. In 2019 global venture investment capital reached nearly $136.5 billion, an increase of 85 percent from 2017.
The way Series A is raised today is equivalent to the funds raised in Series B five years ago. The seed round is the Series A five years ago. This is crazy!
The need for unicorn is obvious as VCs are raising hundreds of millions and they need to generate enough money. The need to provide an extra multiple on the fund is obvious as not all portfolios will do well and VCs need to compensate the write-offs.
Unicorns which are growing on an accelerated timeline must spend lots of money while pilling up losses in the first few years of operation. Their need of continuously raising large amount of money will be based on equity and valuation.
That is why we need to find another way of growing companies with different funding schemes without the continuous desperation of raising enormous amounts of money through equity and valuation.
I called it the Zebra Company at the high-tech zoo not the unicorns.
Zebra companies are companies that do real business with a traditional income statement approach. They achieve profitability and demonstrate their worthiness for a while, while not disrupting the current markets. Their aim is to solve societal problem. As explained by Mara Zepeda, CEO and co-founder of Switchboard, zebra companies “are both black and white”.They are for-profit and for a cause.
These businesses can be term as having a “double bottom line”, while focusing on profitability, they are focused on alleviating people, social and environmental problems just like how the Sustainable Development Goals put it the triple bottom line.
One of my favourite examples is Danai Spa. The company uses ECP medical technology to help middle class to alleviate heart disease problem while affording them with affordable treatment price. Even lower than most major hospital in the market.
A company called Jocom, Malaysia first online grocery app brings together farmer and manufacturer direct to consumer hence flipping around the traditional model of brick store. Foregoing the middle man distribution channel consumer save around 20% on average their shopping bill. Farmer made direct profit through this business model.
Both these business owners are female entrepreneurs.
Do you know that a group of wolves is called a pack, a group of zebras is called a dazzle!
The Zebra movement primarily is driven by female entrepreneurs and entrepreneurs of color. Groups that have historically struggled to secure financing as compare to their other peers despite their ability to perform better and their commitment to good causes.
Needless to say the nature of Zebra companies is very much aligned to women’s characteristic as their business acumen are different from men. Female entrepreneur prefer to take less risk, grow profitable business and have more certainty. Although they move at slower pace and smaller steps but they can sustain a longer time.
Compared to raising money through equity dilution, Zebra business model has its own appeal to traditional investor. Banks will be even more willing to lend as Zebra business model has a healthy balance sheet. What is the rush then to create the next unicorn? When we can build something together through Zebra business model?