How startups can break free from venture capital's 'unicorn culture' and thrive against steep odds, according to a startup founder and angel investor

Jonathan Shokrian

Jonathan Shokrian is the founder & CEO of MeUndies and an angel investor in early-stage startups.
In this op-ed, he writes that he's over the 'unicorn or bust' culture surrounding tech investment.
He sees alternative paths — both practical and cultural — for startups to take to achieve a sustainable definition of success: steady growth, solidly fair talent practices, and building lasting relationships with like-minded investors.
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The 'unicorn or bust' model of venture capital is soaked in subjectivity and destructive because the aggressive culture underpinning it dissuades entrepreneurs from finding alternative paths to success. Luckily, there's a fresh movement to reconsider the role of venture capital in fueling startup journeys en route to profitability, acquisition or going public. As a founder with a second hat as an investor in early stage companies, I believe the world needs a more inclusive investment community that values sustainable growth and stakeholder trust over aggressively pursuing a cycle of massive investment rounds that favor a small number of companies.

Today's VC rounds tend to be focused on founder pedigrees, splashy concepts or specific emerging technology classes like artificial intelligence, augmented reality, cybersecurity, robotics or autonomous vehicles. Many startups simply do not have the access necessary to grab the attention of unicorn-hungry VCs or secure their long-term support. Meanwhile, VC-backed companies like Lyft and Uber are going public despite being deeply unprofitable — a growing trend that pits founders against each other at the expense of healthy, sustainable business operations.

There's another way — however, it requires both entrepreneurs and VCs to fight against tunnel vision and make decisions based on the customer and core values rather than short-term growth.

Understand that racing toward $1B could prove fatal

The sustainable path to profitability for today's startups — 99% of which won't attain the same pre-IPO investment access or opportunity as massive brands like Lyft — is equal parts rewarding, challenging and harrowing. Founders operating across industries and geographies have to make tough business decisions along the way to profitability. However, focusing on building customer trust through the delivery of a great product or experience can ensure startups maintain core values they launched with and secure enough resources to continue building, hiring and scaling.

In truth, many founders that launch startups in aggressive pursuit of cash also fall into the trap of going after bigger, more aggressive customer acquisition goals. Meanwhile, they lose sight of taking care of the customers they already have and innovating products necessary for continued growth. In fact, several of the direct-to-consumer, subscription-based startups that secured huge early funding rounds when we launched in 2011 are no longer around — swallowed by rapidly evolving markets and elusive venture funding.

According to Pitchbook, 64% of unicorns that completed an investor-backed IPO since 2010 were unprofitable at the time of listing. There's simply no guarantee that massive rounds lead to profitability — or survival. That's why startup founders should focus on scaling their companies in ways that deliver steady growth, intelligently paced market expansion and responsible workplace practices. They should prioritize developing a sustainable corporate culture and environment to create innovations, develop applications, provide services or bring products to market.

Keep in mind that massive rounds don't guarantee massive returns

Choosing steady investment over massive rounds can help young companies weather economic ups and downs that have taken out entire classes of startups in the past. Modest growth strategies can also allow founders to retain independence in their decision-making — with less working-level influence from VCs tied to cash injections. It's difficult for founders of startups receiving massive rounds to stick to their core beliefs and company mission under VC pressure to hit $1 billion or step aside.

That's why it's important for early stage startups especially to understand that many VCs aren't interested in funding companies that will use $50-100 million to grow a business headed for acquisition. Most overlook credible startups that will solve real problems with enough funding because they want proof of unicorn potential and profitability — or, at least, how founders plan to achieve it. Startups swept up in unicorn mania, meanwhile, run the potentially fatal risks of deviating from their founding missions, getting pushed out by VCs or boards, subsidizing product prices with venture capital and losing customers vital to profitability when prices need to go up as funding dries.

To be clear, I believe that venture capital can be hugely helpful in scaling young businesses — and that will remain the case for the foreseeable future. However, I know from experience that it's easy for founders to get caught up in the pressure-packed cycle of chasing the next round of funding. And, as a recent Recode interview with Social Capital's Chamath Palihapitiya reveals, the pressure's intensity can be felt on all sides of the VC equation.

Changing the fundamental culture around startup investment will be a monumental, complicated task. That's why I call on VCs and fellow investors to join me in inviting more mission-driven, promising startups to the table regardless of their funding numbers. Startup founders, meanwhile, need to consider skipping the win-or-die race for lofty venture capital rounds in favor of securing strategic cash injections from trustworthy investors that lead to long-term growth.

Jonathan Shokrian is the founder and CEO of MeUndies. He is also an angel investor in early stage startups.

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