February 4, 2021

Stop hunting for unicorns, start looking for green zebras

VCs, LPs and governments need to change their ways if they want to create and fund businesses that will make the world a better place. Here’s how they can do that.

When a Pulitzer Prize-winning journalist turns their attention to you in the New Yorker, you must have done something terribly right — or wrong. Back in November, a bunch of VCs found themselves in this situation. The writer, Charles Duhigg, chastised them for not only neglecting their oversight responsibilities on startup boards, but also for chasing the wrong kind of company: the mythical unicorn. 

From WeWork to Uber, it turns out that quite a few of these $1bn-plus businesses are in fact full of hot air.

Investors should stop hunting these mythical creatures and search for another one instead: enter the “green zebra”. 


How the zebra got its green stripes

The zebra model — a term coined by the now-international collective Zebras Unite in 2017 — is thought to be a more solid, more founder-driven alternative to building a unicorn. 

These are companies that, instead of seeking to blitz-scale their way to market dominance, fuelled by multiple venture capital fundraising rounds, prioritise profitability. Zebras also tend to be focused on equitable ownership and building sustainable businesses, and they seek to create a positive social impact, for example by providing solutions for underserved markets or prioritising employee happiness.

I believe the next generation of companies following this model will not only operate on zebra principles, but environmental, social and corporate governance (ESG) ones. They will be green zebras, and green in the widest sense of the word: more inclusive, ethical, thoughtful and sustainable. They will raise capital by showing that commercial opportunity goes hand in hand with sustainability and impact — and the current cleantech boom is only the tip of the iceberg here. 

Some of European wunder-companies, from electric air-taxi company Lilium to Berlin’s vertical farming champions InFarm, have been able to demonstrate this opportunity to investors. 

But what if we wanted to see a whole generation of these green zebra companies, which work on responsible and sustainable solutions to big problems? What in the structure of venture financing would have to change? 

How VC can nurture more green zebras 

Here are three suggestions:

1. VCs need to embrace ESG principles themselves

How are you going to properly support a portfolio company that is driven by ESG principles if you’re not putting them into practice yourself? At the moment, the number of funds that explicitly apply these criteria is extremely small. But there is increasing pressure from founders (of zebras and beyond), employees and consumers to do so. The forerunners — such as Antler, 500 Startups and Balderton, which have come out with explicit ESG initiatives already — will also be the ones that green zebras gravitate towards, and stick with. These initiatives are a good start in signalling that a firm is about more than just quickly maximising returns for stakeholders.

2. LPs need to set clear rules for VCs

Many VCs say they aren’t the ones setting the direction of the industry — it’s the LPs. Indeed, limited partners with institutional money can set incentives for VCs to behave in one way or the other. We are beginning to see what happens when LPs flex their power when it comes to improving diversity, equity and inclusion (DEI), with US LPs including the Mellon Foundation and the Princeton Endowment increasing the heat for the VCs. The same pressure could shift VCs away from unicorns and towards green zebras, with LPs asking their VCs not only about DEI, but also about how they manage ESG and impact.

3. Governments could get more involved

It is in the interest of governments everywhere for LPs and VCs to work together on important solutions and make the world more sustainable. I believe the government should not only see itself as a regulator of last resort — the policeman that steps in when big tech becomes destructively large — but as another powerful incentive setter.  For example, while the UK’s Future Fund was set up as Covid-19 aid package, it could become a strong force in the VC world going forward by expanding its remit and responding to different societal challenges. Similarly, the European Innovation Council supporting the European Investment Fund’s fund-of-fund strategy with equity investments could funnel money into strategic focus areas: sustainability, healthcare and deeptech should be among them. More broadly, they need to find ways to get private funds into the right and sustainable green zebra companies. All of this would be in the public interest and has so far likely been prevented by risk aversion. 

It is time to go beyond thinking around risk-mitigation and start looking more strongly at the opportunities for all three actors involved. A shift of attitude driven by state actors into the LP structures, right to the heart of the VC landscape will help us to prepare the soil for the green zebras we so desperately need. 

It is in the public interest to finally take a step in this direction away from the often fake unicorns to the much more down-to-earth green zebras. 


Dr. Johannes Lenhard is a research associate and centre coordinator at the Max Planck Cambridge Centre for Ethics, Economy and Social Change. He is writing a book about the ethics of venture capital and is also the co-author of Better Venture. He tweets at @JFLenhard