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Why bet on a unicorn when you can ride a camel

Techno speak

Angels, unicorns, centaurs, ponies, dragons, camels… oh my!

Why emerging market and early-stage investors should be betting on tech start-ups and tech-founders who align with the camel before the unicorn.

Who’s who in the zoo when it comes to startup investment lingo? When in doubt, bet on the real thing, not a mythical creature 

What’s a unicorn?

In tech and startup language, the most common description of a success story is usually labelled: the unicorn.

When we say the word unicorn, what comes to mind? A mythical beast resembling a horse with a single long-pointed horn between its eyes and wings on its midsection? That type of unicorn is an ever-elusive storybook creature and pipe dream of a pet.  

In the Venture Capital world, a unicorn is something entirely different.

It’s a startup company that successfully reached a valuation of $1 billion or more. The reason these companies are described as unicorns is because it is extremely rare for an early-stage startup to reach such a high valuation, though it is not an insurmountable goal.  

Becoming a unicorn can seem like a daunting journey at best, and while most advice focuses on raising as much capital as possible, the shortest path to becoming a unicorn is to simply focus on your customer and the value your company brings. A sustainable business model with a superior product or technology is what private investment firms look for, and that is the biggest defining factor to becoming a unicorn.

Some of the most well-known companies in the world today – such as Airbnb, Robinhood, and Epic Games –  all reached unicorn status as startups, and all put their value proposition and customer first. 

Becoming a unicorn is a true testament to the potential of any startup and puts a company in select groups who (usually) go on to achieve incredible things. 

Startups that gain valuations of $1 billion or more may perhaps not be quite as exciting or mystical as seeing an actual unicorn. But in reality, they’re almost as rare… so other creatures describe successful startup stories?

In the Prairies and Alberta’s tech ecosystem there are a few notable unicorns gems, however – we’re an emerging market and that means to create more unicorns, we need a beast with consistent tenacity and grit, as well as the strength of character to get us over any humps. 

Enter the Camel

Stick a unicorn, a dragon and a pony out in the open desert for a week or two and see who survives… Metiquity Ventures’ bet is the trusty camel. 

This startup metaphor is based on survival and profitable risk assessment. Camels put management of resources first. They are focused on the long haul scaleup. Not speedy exit rounds. 

When we hear horror stories such as the dot com crash of the early 2000s and other Silicon Valley cringers we know that we don’t want that happening in an emerging market such as Alberta.

When VC asset classes focus on growth at all cost (creating unicorns) it works best in the strongest bull markets and best conditions (in which only a unicorn could survive). Emerging markets take grit and planning, business acumen and hard work, plus cash flow and careful management of resources and assets.  

Emerging markets need Camels 

The Prairies and Alberta’s technology sector market need camels. Those founders, early-stage companies and tech startups that are ready to survive for long periods of growth in the heat and sun, sometimes with little sustenance and watering, because they were smart enough to store their energy and resources for a non-rainy day in their hump. 

They execute balanced growth, take a long-term outlook and make diversification a pillar of all business strategies. This allows them to evolve on balanced growth. They can survive more market shocks and downturns. Their tenacity over shiny facade is what gives them the advantage. 

And frankly, let’s face itthis is the way Albertan entrepreneurs and Western Canadian investors have built our economy for decades. Grit, strength, and the ability to plan for downturns. 

Camels support efficient and balanced economic growth

Investors that are looking to emerging markets such as that of Alberta and the Prairies tech sector and digital innovation ecosystems are interested in sustainable models of growth and business. They should also be looking for mixed portfolios that feature companies that drive capital efficiency and crisis-resistant models. 

Metiquity looks at investment in the emerging tech market and asset class from this perspective: where are the camels?

The data is still early, but there are strong indications that this is a strategy for pre-seed investment here to succeed. For one, survival rates are higher in emerging startup ecosystems. At the same time, because they are more capital efficient (and valuations on average are more reasonable), they can generate greater cash-on-cash multiples on higher ownership

By changing the way VCs search for new investments and by valuing more economically stable companies over longer time horizons, venture capitalists can create healthier and less risky startup business environments. This also allows them to reward well-run startups and mitigate their own high risks. It is a win-win-win, and in the face of current market instabilities, it seems like the right time to start adjusting venture capital strategies.

When it comes to animals, we love them allwe’re happy to feed and water potential unicorns, dragons, ponies, centaurs and the like. But we’d be telling you a mythical tale if we didn’t admit that the camel is our favourite of the crew. 

Other interesting creatures include Dragons, Centaurs and Ponies.
  • Dragons: You’d think a unicorn would be about as good as it gets  –  but there’s an even bigger behemoth that rarely shows its fiery breath and impact. That is the dragon, also known as a private company valued at over $12 billion or more. 
  • Centaurs: The centaurs are companies that have a valuation of more than $100 million in annual recurring revenue.
  • Ponies: These cute but consistent steeds have a valuation of more than $10 million. 

But, all of these four-legged categories bring us to the most important animal of all (in our subjective opinion only)… the camel. 

Camel 101

  • Not blitz-scaling 
  • measured risk and reward with balanced sustainable growth
  • Long-haul founders and teams passionate about the global challenges they are disrupting
  • Strategic growth focus
  • Maintain reserves for rainy (or not so rainy as the case may be) days

Can you think of a more recession-proof animal other than a camel? Albertan entrepreneurs and Western Canadian investors have built our economy on grit, strength, and the ability to plan for downturns. 

Is Alberta’s Early-Stage Risk Capital Market Broken?

Bryan Slauko, CFA, June 2020

Alberta’s early-stage startups are in desperate need of capital that traditional venture capital funds are not going to provide and local investors are not ready to provide. Alberta’s early-stage risk capital market is very inefficient and unstable as a result. A massive early-stage funding gap persists where promising companies can’t access the capital they need when they need it the most. Continue Reading

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