Gary Fowler, co-founder and CEO of GSD Venture Studios, a Silicon Valley serial entrepreneur and investor with 17 companies, two unicorns and a successful IPO, shared with us the keys to creating a unicorn company.
What is a unicorn?
In the venture capital industry, the term unicorn is used to describe any startup that unlocks and surpasses $1 billion in valuation.
The term was first used by Aileen Lee, the founder of Cowboy Ventures when she was discussing the 39 startups that reached a valuation of over $1 billion as unicorns. The term was created to underscore the rare sight of a startup that could scale up to such impressive numbers in valuation; since its first introduction to the industry, the term has retained its meaning and is still used to describe exceptional success cases in the startup industry. The only thing that did change was the total number of startups that have reached this milestone in their respective growth careers.
The benefits to becoming a unicorn.
Behind each unicorn isn’t simply a great idea — even though that seems to be the most common assumption. In reality, a unicorn provides a good solution to a problem that has been around for a while. Creating a relevant solution, rather than an attractive idea, is what makes up a unicorn.
Becoming a unicorn can mean a lot of different things — especially beneficial ones. For one, unicorns define their own markets or create a space for themselves within mature markets ready for disruption — and for a while, they can be the strongest player in the space as other competitors attempt to catch up with the new type of disruptive innovation. This gives the unicorn a big advantage in raising funding, building connections and a loyal following, and growing quickly.
Building trust and a strong reputation is another big advantage — as a unicorn’s influence grows, so does the strength of its position within its network and its trustworthiness in the eyes of the consumers. Unicorns are essentially machines that set themselves up for a successful exit, and along this path, they surpass competitors, increase their value, and strengthen their web of investor and customer relationships.
The disadvantage of being a unicorn.
As unicorns head towards the exit they plan for, they need to understand that the perfect “window” for an IPO is quite small and hard do identify accurately. On one hand, the expectations of the startup industry put immense pressure on startups to grow fast and scale at a quick pace, which creates the risk of an IPO that is too soon. In this case, a unicorn won’t have achieved the full potential of its valuation and position within the industry, cutting its run short.
On the other hand, it has been the case that unicorns take their time in raising funding from private capital and extending their journey until the IPO. For public investors, its crucial to see the unicorn reach the point of IPO while it is still growing rapidly in order to avoid the risk of losing market share and the strong leadership position achieved through the initial disruption and innovation. As the race for defining markets and product categories accelerates in the venture capital industry, unicorns cannot rely exclusively on raising capital. It’s crucial to go public at the right time — neither too soon nor too late. Otherwise, the long-term success of the company will be in jeopardy.
You have produced two unicorns, so please tell me about the two unicorns.
The first unicorn I produced was ClickSoftware. At the time, I was the VP of Marketing and Business Development and managed the team that led the company to a successful Nasdaq IPO in 2000. ClickSoftware was sold to SalesForce last year for $1.35 billion dollars in 2019. At ClickSoftware, we developed software is used by service companies to schedule and dispatch field service employees.
The North Star of the technology was to help managers streamline their business practices and achieve higher levels of productivity through increased calls over time.Their software contains advanced decision-making algorithms that help managers optimize their business practices, helping them complete more calls per day, week, month, and year. The increased efficiency in operations enabled by our technology allowed companies to keep costs low while improving customer service.
The second company is Yva.ai, which I co-founded with David Yang. Yva is a one-of-its-kind AI solution designed to help companies unlock their productivity potential and retain their best employees with the help of advanced neural networks and artificial intelligence. Yva analyzes corporate communication to improve employee productivity and wellbeing and conducts continuous surveys to inform managers about the remote well-being of their employees. The solution also allows employees to coach one another and constantly improve their skills across a wide range of areas.
Two unicorns that Garry Fowler helped produce
What factors does a startup need to become a unicorn?
Becoming a unicorn is no walk in the park. A variety of factors have driven the scaling and success of different startups. There are, however, certain qualities that are among the most common factors driving unicorn success today.
First and foremost, each unicorn disrupted the industry they operate in, and this disruptive nature is what made it stand out. Among the most traditional examples are Uber, which completely redefined how people rely on transportation on a daily basis. Airbnb belongs to the same camp as well: it completely shifted the travel industry and how people find accommodations during their travels. If the industry is not the same after the startup’s establishment, you are potentially looking at a unicorn.
Another way to seek a startup is to identify a one-of-its-kind experience they introduce — and with that, also change people’s habits and behaviors. Unicorns know how to constantly generate demand for their products and services and create a space where users constantly feel the need for them. Whether it’s carving out a unique niche or introducing a whole new direction within an existing market, unicorns define their space and continuously innovate to stay ahead of the competition.
What sets unicorns apart is their deep roots in cutting-edge technology. In one way or another, the innovation they introduce to their respective markets is driven by the latest technology. From Uber’s smart application matching drivers with potential passengers, to Airbnb making other people’s housing feel like home to travelers, each innovation leverages technology to redefine the industry and optimize it.
Most unicorns are customer-obsessed. They put a strong emphasis on fostering strong emotional connections with their users and solve their pain points in easy, simple, and seamless ways. Simply put, unicorns make users’ lives better and gradually transform into integral parts of their lives. It’s hard to imagine getting anywhere without an Uber nowadays or streaming music on a platform that’s not Spotify.
And as a rule, these companies are privately owned, maximizing their valuation up until their official IPO.
How could a startup raise a lot of money?
The two key factors in raising capital are the following: have a solid case and know who you are going after. As I mentioned before, founding and funding a startup doesn’t mean having a good idea. It means having a tangible solution for a pressing problem and being able to illustrate the value add that your startup brings to the table.
The next element of the equation is knowing exactly who to connect with to find the capital. At the core, accruing capital is about building a strong network of investors and mentors whom you can show the value of your idea and the promise of the company. As you prepare your convincing presentation deck to make the case for your idea and impress your audience, do the homework on your audience as well. What are their pain points? What does their investment portfolio look like? How can you best approach your deck and design it with their needs in mind?
How could a startup become global?
Becoming global in a startup’s playbook needs to come after establishing a reliable revenue stream and a strong position in the current marketplace. Next, it will also require rigorous planning and strategizing. There are a few questions that startups can ask themselves when planning to go global.
How knowledgeable are we in the culture of the country we want to expand into? How well are we aware of the logistical difficulties (legal, institutional) of entering a new international market? What is the level of awareness of the local target audience about our product or service? And what will the infrastructure look like when launching in a new country?
Before anything else, the success of this type of venture will be rooted in the amount of research a company does on what countries to expand into and what to consider along the way.
How do you grow from startup to scaleup?
As a company that has overcome the initial stages of a startup and is ready to scale quickly, scaleups need to establish a solid product-market fit first. This will determine the consistency and pace of the growth — it’s the market you will choose to continue growing in.
Next, generate a steady revenue stream through funding to finance your rapid growth. Now that you have tested your product or service and found the right fit for it in the market, you need interrupted financial backing to continue your growth acceleration. As you grow and increase your revenue, make sure to invest in a tech stack that will facilitate and accelerate your growth, making the process of scaling measurable and frictionless.
Finally, begin defining more specific roles for your team. The company is not a group of generalists collaborating on every aspect of the project. Each professional needs a specific scope of work where their expertise will shine through and drive the growth further.
How do you grow from scaleup to unicorn?
Even a unicorn is defined by a $1 billion valuation, it’s not the profit focus that makes a scaleup a unicorn. All unicorns make their priority to grow fast — and profits come in second in this prioritization framework.
What’s important to keep in mind is, while investors invest in unicorns with good solutions, they also invest in teams that are promising and destined to drive growth. With this knowledge, and when preparing to become a unicorn, think of your hiring process as an investment of its own. Make sure you focus on hiring qualified candidates in areas where they can contribute the most, from product and engineering to sales and marketing. Build a solid talent pipeline to back your growth across all verticals.
When is the right time for a unicorn to go to IPO?
The right time for an IPO is different for each unicorn, but there are a few indicators that can help a company understand whether it is ready fr an IPO or not.
Before anything else, estimate your ability to make accurate financial projections for the company. When you reach a point in your growth when your predictions financially are stable and accurate, it’s a good indication that the company can begin considering a large step like an IPO. The same applies to your valuation expectations — make sure they are realistic and dependable.
Take a look at your C-Suite: while there are executives who have successfully led the company through its rapid growth, you need the expertise of a leader from the public space to plan for the readjustment. Your company also needs to have a solid track record of closing quarterly financial statements on time year-on-year. This will prepare you for the rigorous process of public reporting in the future.
To the next unicorn
Message to the next unicorn.
Act fast while the competitors are catching up, don’t IPO too soon, but also don’t wait too long before kicking the IPO off. Find the sweet spot and maximize your potential.
・Please visit Dream Gate for the Japanese version of this interview.
・Kojiro Moriwaka, CEO of Silicon Valley Ventures, appeared live on Gary Fowler’s program “Silicon Valley Tech & AI” and had a conversation on the theme of Entrepreneurship for Global Innovation.
A video of the conversation has been uploaded to YouTube.
Originally published in SiliconValleyVentures