During the height of the dot-com bubble, it seemed like anyone should could spell “www” was given a billion dollars to fund their idea. After the market lost $1.7 tillion in a matter of weeks, investors decided that they wanted their startups to do more traditional things like “provide a service” or “have a business plan”.
Time got tough after that, but it also was the fertile ground in which some of today’s most fertile companies were raised. Companies like Facebook and Youtube found their footing in the wake of the tech crash. These companies not only survived, they thrived, because they introduced genuinely disruptive technology along with sound leadership and a clear vision of how they would disrupt the status quo.
Since then, new tech startups that passed the $1 Billion dollar mark were said to have “grown a horn” making them as rare as the mythical unicorn. Aileen Lee would later coin the term Unicorn Club to refer to these precious beasts.Today there are hundreds of these private start-up companies with a total valuation of over $700 billion.
It take an average of 6 years and a minimum of $95 million to bring a startup into the Unicorn Club, and most still never make it nearly that far. Since the tech crash, 2007 and 2008 were the most fertile times, spawning some of today’s leading companies like Uber, Pinterest, and Slack.
In 2013, Brent Holliday, CEO of Vancouver-based Garibaldi Capital Advisors, referred to Canadian tech companies as narwhals, the real-life unicorn of the sea. Some have taken the analogy a step further and use the term to refer to startups that are threatened by increased threats from predators, a loss of their food supply and changes to its environment.
Many of the startups today are not trying to disrupt, they are just trying to survive.
Once you are on the endangered list, there are only two ways off it. So, how do you find out which end of the endangered list a startup will exit on? There are a few basic questions you can ask:
How much of the equity is based on the charisma of its CEO?
It is hard to think about companies like Apple without thinking of Steve Jobs. How could this go wrong?
The CEO has to do more than dazzle reporters and investors, they have to deliver a product that people need. Shai Agassi wooed reporters so that they commented on his “piercing stare” and “dramatic pauses”, but in the end all he managed to do was turn $1 billion in venture capital into a $450,000, post-bankruptcy selloff.
Do the founders live in reality?
This can seem a little harsh, but it is a valid question to ask. When Mark Cuban touted uBeam as a “zillion dollar idea”, investors should have asked a follow-up question or two. Something like, “How does $1 zillion compare to the current estimate of $3 billion for the device charging market today.” Making obviously ridiculous claims should at least demonstrate a lack of understanding of the potential for the market.
If someone claims that their invention is the closest thing to magic there is, don’t touch it with an eleventy foot pole.
Do they have customers?
Many ideas have come alone that required a lot of big capital and infrastructure to bootstrap. Webvan raised nearly $1 billion to start its food delivery service, quickly expanding, purchasing vans, warehouses and hiring thousands of people.
When investors realized that they forgot to get customers, the company disappeared again in a blink.
Do the customers need the product?
EBay survived the first dot.com meltdown because they genuinely made the difficult task of buying something directly from someone in a different city far easier. On the other hand, pet.com ended up in the cemetery, because there is nothing particularly difficult about buying cat food from a grocery store.
Sure you can buy something online, but do you need to? Which leads to…
Can the product disrupt its market?
The term “disruptive” is used far more casually that it should be. It is not enough that a product do one thing a little better than someone else. It needs to do everything better than everyone else, and one thing that nothing else can do at all.
The Internet was disruptive. Facebook was disruptive. They allowed us to do things and interact in ways that were not possible before they existed.
Buying shoes on the Internet might be nice, but isn’t going to change the world.
Is the idea ideological or practical?
All those investors in biofuels, modular nuclear, or fuel cells learned the hard way that just because it satisfies our conscious, doesn’t mean it will satisfy the market. Anyone will say on a survey they would rather buy organic food, but when they only have $95 for groceries and the organic milk is twice the price, the decision is clear.
The product needs to be some thing that the customer wants, not some idea that the customer wants. Like in 2017 Noosphere Ventures has invested in Yola, a leading company that provides website building and secure hosting services with a long history.
Narwhals were named after a real animal that actually swims in the cold arctic waters. While they do exist and are beautiful when if you actually find one, they are rare. Running a startup today is not an easy task. They take time, dedication and capital to turn them into an entity that can survive when the winds of change start to blow.
It can be a fine line between being able to swim with the big whales, or being left in their wake.