Zebras Fix What Unicorns Break
By: Jennifer, Mara, Astrid
Tags: Women In Tech, Social Enterprise, Startup, Ethics, Venture Capital

WHY IS IT SO HARD TO BUILD ZEBRA COMPANIES?

In the last year we’ve spoken to countless founders, investors, foundations, and thought leaders who believe zebra companies are crucial to our society’s success. Yet zebras struggle for survival because they lack the environment to encourage their birth, let alone to support them through maturity. “I wonder how many change-makers are stuck under the demands of unicorn investors,” said TJ Abood of Access Ventures, who added that he worried about “the opportunity cost to society” under this model.

From our conversations with stakeholders, we distilled the most common challenges facing zebra companies:

1. The problem isn’t product, it’s process. Tech isn’t a silver bullet. Building more won’t solve the biggest challenges we face today. An app won’t address the homelessness crisis in San Francisco or unite bitterly divided partisan politicians. The obstacle is that we are not investing in the process and time it takes to help institutions adopt, deploy, and measure the success of innovation, apps or otherwise.

2. Zebra companies are often started by women and other underrepresented founders. Three percent of venture funding goes to women and less than one percent to people of color. Although women start 30 percent of businesses, they receive only 5 percent of small-business loans and 3 percent of venture capital. Yet when surveyed, women — who perform better overall than founding teams composed exclusively of men — say they are in it for the long haul: to build profitable, sustainable companies.

3. You can’t be it if you can’t see it. Look hard outside of Silicon Valley and you’ll find promising zebra companies. But existing and aspiring business owners haven’t seen enough proof that they’ll have a higher chance of becoming financially successful and socially celebrated if they follow sustainable business practices. They lack heroes to emulate, so they default to the “growth at all costs” model. Imagine if every fund allocated a small percentage for zebra experiments. The investing firm Indie.vc has bravely stepped into this space, but it shouldn’t stand alone.

4. Zebras are stuck between two outdated paradigms, nonprofit and for-profit. For young companies pursuing both profit and purpose, the existing imperfect structures (hybrid for-profit/nonprofit, Public Benefit Corps, B-Corps, L3Cs) can be prohibitively expensive. The expense comes not only in legal fees, but in the consumption of a founder’s most precious commodity: time. Months are lost searching for aligned, strategic investors who are both familiar and comfortable with alternative models. This presents a chicken-and-egg problem for foundations, philanthropists, and investors alike. They are spooked by unproven alternative models, but companies can’t prove their models work without experiments to fund them in the first place. Moreover, the current tax system doesn’t reward — or even acknowledge — anything other than for-profit (tax) or nonprofit (deduction) strategies. From the IRS’s perspective, there is nothing akin to a “50 percent financial return, 50 percent social impact” investment. This leaves many potential investors in a straitjacket.

5. Impact investing’s thesis is detrimentally narrow and risk-averse. Much of the $36 billion in impact investment funding is restricted to verticals like clean technology, microfinance, or global health. This immature market limits innovation in other sectors — like journalism and education — that could desperately use it.

“So how will investors turn a profit and mitigate risks?” you may be asking. Dividends? Equity crowdfunding? We don’t have all the answers. But we’ve seen how a company’s business model and values can negatively affect the bottom line (#deleteuber). So what if the opposite is also true? What if more-enlightened dollars invested in more-enlightened companies led to stronger returns? What if companies that stood for something were in fact more profitable? Patagonia, Warby Parker, Zingerman’s, Etsy, Mailchimp, Basecamp, and Kickstarter are a start — but the world needs so much more.

MAKE ZEBRAS: JOIN US

If you believe technology and capital must do better, if you are building a zebra company or want to help carve out a space for them to thrive: join us

Our goal is to gather zebra founders, philanthropists, investors, thinkers, and advocates to meet in person this year for DazzleCon (November 15–17 in Portland, Oregon)— a group of zebras is called a dazzle! — to learn from one another and pool resources, ideas, and best practices, to collectively advance this set of ambitions. From this gathering, we will capture and share the unique patterns that zebra founders and funders are finding, and we’ll turn a loose network into a powerful, cohesive movement.

Are you in? Go here.