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 Zenefits, 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.