Startups wondering how to become a successful unicorn might have better luck landing in the “mighty middle” instead.
Mighty middle startups have more potential to scale up than mom-and-pop stores, but do it with a business model grounded in finding product-market fit and serving customers. Put simply: they grow by adding more customers, not more investors.
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Brice Scheschuk, managing partner at Globalive Capital, believes that the startup ecosystem has lost sight of this important focus in favour of the “vanity” of raising capital.
- Scaling up customers also fits better in sectors like fintech and B2B services, which make up the bulk of Canadian startups.
What they’re saying: Aaron Bast, managing director of Graphite Ventures, says mighty middle companies get to profitability faster and offer more stable investments that don’t get diluted when more investors come on in later rounds.
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U.S. venture capitalists like to pump funding into a company to drive growth, but Bast says the approach is unproven, aspirational, and risky in Canada.
- It also only pays off if the company hits unicorn status. And according to BDC, only 0.5% of venture-backed businesses in Canada topped a US$250 million valuation between 2000 and 2020.
Yes, but: Not chasing funding can deprive startups of publicity. That does help them avoid the pressure and pitfalls of hype, but it could also make recruitment harder in a time when tech companies of all sizes are finding it challenging to find talent.
Bottom line: Even if a company does hit a big valuation, it only pays off for founders or investors if they sell or exit the company. And the outlook for that is shaky right now, with an ice cold Canadian IPO market and big tech acquisitions facing a lot of scrutiny.