With venture capital (VC) funding going through a dry spell in
the first quarter of 2016, investors appear to be changing their
preference of companies to invest in. If 2015 is considered the
year of the "unicorn" in the VC world, then 2016 is
likely to be remembered as the year of the "cockroach,"
according to Tim McSweeney, a director at merchant bank Restoration Partners in London, England.
A unicorn – a popular buzzword in the VC
community – is characterized by extremely fast growth and is
generally funded by easily-accessible VC investments and lacks any
profitability in the short-term, such as Uber. A cockroach, on the other hand, is a business
that builds slowly but steadily from its inception and is generally
better suited to handle dips in the funding market. It's
unclear who initially coined the term cockroach, but it seems to
have existed in VC parlance for at least a few years. Caterina Fake
wrote a blog post on the idea and concept last September entitled
"The Age of the Cockroach."
According to McSweeney, cockroaches have risen in popularity due
to their minimal risk and ability to survive a "nuclear war" and then come back to fight
another day or pivot to do something different. McSweeney is also
convinced that unicorns are going out of fashion for many investors
as VC funding begins to recede on account of increasing interest
rates and uncertainty in the global economy. In 2015, interest
rates were at a record low and many startups were able to take
advantage of investors who were looking for the next unicorn.
However, many of these companies lacked solid business models,
including legitimate ways to monetize their concepts. Companies
once considered unicorns, such as Twitter, Birtchbox and
have been making significant layoffs this year and, in the case
of Zenefits, completely imploding.
With Canadian VC investment relatively picky already, perhaps
this trend won't have as big an impact in Canada as in some
other jurisdictions where VC money has been more easily accessible,
like in the UK and the U.S. Stay tuned to find out.
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