Announcing NMV's 2020 Investment Portfolio
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On Unicorns: We’re Looking For A Different Kind Of Magic
I have a 4 year old daughter. She loves unicorns (and glitter and the color purple). Imagine my surprise when I joined New Media Ventures and learned that venture capitalists also love unicorns. A couple of year ago, Aileen Lee wrote a seminal article about unicorns: companies that are valued at over $1 billion, and provide amazing returns to their investors. Like the mythical creature, these unicorns are extremely rare. Based on her analysis, the odds of building or investing in a billion dollar company are “somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime”. That hasn’t stopped pundits from writing articles, each one brimming with more buzzwords than the next, about how to build, spot and invest in unicorns. The venture capital business model is, after all, premised on investing in many companies, most of which will fail. “Unicorns” are important if investors are to achieve their promised rate of return. The good news is that the number of unicorns seems to grow every year. According to Business Insider, their number more than doubled between 2013 and 2014.
The bad news is that this approach ignores a whole class of great, scalable startups with a path for financial sustainability and great investor returns. Our colleague Corey Ford at Matter, and others in the field, calls these startups “thoroughbreds”. Thoroughbreds may not be as exciting as unicorns but are more likely to be real and long-lasting. Others have pointed out that being pressured to grow that fast turns some entrepreneurs away from venture capital or leads investors to miss some perfectly good deals. For us, as impact investors, we measure success by looking at financial returns but also positive change in the world. While we love unicorns as much as anyone else, we don’t want the startups we invest in to have to compromise on their values at the expense of breakneck growth. We find and finance unconventional entrepreneurs who are building world-changing companies. Thoroughbreds on a mission, that’s the magic we look for.
It can be challenging for these unconventional entrepreneurs to attract capital because they don’t look like traditional unicorns. Luckily some startups are leading the way in changing conventional wisdom. Upworthy raised $8 million from traditional investors in 2013, after a seed round led by mission-driven investors gathered by New Media Ventures. In December 2014, Change.org – the online petitions site – raised $25 million in its series C. Most recently, Etsy – a certified B-Corp – was just valued at over $3.5 billion after its IPO. These are just a few examples of a movement we are excited to see grow every day.
At New Media Ventures, we want all entrepreneurs who believe you can combine social, environmental and political change to be able to find the capital they need for their growth. Let’s make it easier for these entrepreneurs to raise capital so they can focus on what they do best: innovate and build inspiring businesses. Let us know if you want to join us in this effort!