“Zebras,” Benno Hansen

January 11, 2019; New York Times

The venture capital (VC) business model, a major funder of tech industry growth, is a business finance model by which startups “raise piles of money from investors, and then use the cash to grow aggressively—faster than the competition, faster than regulators, faster than most normal businesses would consider sane,” writes Erin Griffith in the New York Times. In 2018, VC capital nationally raised $99.5 billion.

A number of “unicorn” companies—that is, companies with values over $1 billion—have emerged through this process. Some famous ones include Facebook, Google, and Uber. But for every unicorn, countless others grow too fast, burn through the money, and die.

Moreover, VC capital is distributed very unevenly. For example, a 2016 article in Inc. pointed out that women start companies at twice the rate of men, yet women CEOs get only 2.7 percent of VC funding. Women of color get 0.2 percent of VC funding.

Over the past two years, a counter-movement has begun to emerge. Writing in NPQ at the end of 2017, MJ Kaplan cited the emergence of a group called Zebras Unite. Kaplan noted that:

Zebras, mostly founded by women and people of color, favor quality over quantity, reward creation over consumption, and seek sustainable growth over quick exits. Zebras are about repair, not disruption… The Zebra network is committed to create a more just and responsible society. These companies will hear, help, and heal the customers and communities they serve.

In a manifesto of sorts that launched the Zebra Unite network back in March 2017, Jennifer Brandel, Mara Zepeda, Astrid Scholz, and Aniyia Williams outlined their vision:

  • To state the obvious: unlike unicorns, zebras are real.
  • Zebra companies are both black and white: they are profitable and improve society. They won’t sacrifice one for the other.
  • Zebras are also mutualistic: by banding together in groups, they protect and preserve one another. Their individual input results in stronger collective output.
  • Zebra companies are built with peerless stamina and capital efficiency, as long as conditions allow them to survive.

“The tool of venture capital is so specific to a tiny, tiny fraction of companies. We can’t let ourselves be fooled into thinking that’s the story of the future of American entrepreneurship,” says Zepeda. Zebra Unite members include startup founders, investors, and foundations dedicated to building a more ethical industry with greater gender and racial diversity. The group, Griffith reports, now has 40 chapters and 1,200 members around the world.

Gradually, an alternative market is developing. Griffith cites a number of firms like Earnest Capital, Lighter Capital, Purpose Ventures, TinySeed, Village Capital, Sheeo, XXcelerate Fund, and Indie.vc. “Many,” Griffith notes, “use variations of revenue- or profit-based loans. For example, Indie.vc, based in Salt Lake City and part of the investment firm O’Reilly AlphaTech Ventures, offers startups the option to buy back the firm’s shares as a portion of their total sales. That caps the firm’s return at three times its investment.”

A number of foundations have begun to back to the Zebra movement (and related organizations such as Brown and Black Founders, based in San Francisco.) Among the foundations supported Zebras Unite are the Rockefeller Foundation, the MacArthur Foundation, and the Knight Foundation.

“I think we should, as investors, take seriously our role in driving some of these destabilizing forces in society,” says Rukaiyah Adams, chief investment officer at Meyer Memorial Trust, a Portland, Oregon-based foundation known for its impact investing. “As one of the controllers of capital, I’m raising my hand and saying, ‘Wait a minute, let’s really think about this.’”

This is still early days and the new growth models represent tiny numbers that do not come close to approaching the $99.5-billion venture capital market. Still, the idea of investing for smaller (but more consistent) returns in more sustainable companies embedded in values of racial and gender equity holds promise.

As Gretchen writes, if financing changes, so might social values. Gretchen asks,

Would Facebook’s leadership have ignored warning signs of Russian election meddling or allowed its platform to incite racial violence if it hadn’t, in its early days, prized moving fast and breaking things? Would Uber have engaged in dubious regulatory and legal strategies if it hadn’t prioritized expansion over all else? Would the tech industry be struggling with gender and race discrimination if the investors funding it were a little less homogeneous?

NPQ, of course, has regularly covered these kind of challenges at tech firms. The “zebra” model, if it takes off, won’t fix every problem. But businesses that grow up with embedded social values may act very differently than many firms today.—Steve Dubb