Battle for Survival - Unicorn vs Cockroach

Last year was the year of "Unicorns" characterized by free and easy funding for startups. But for 2016, with VC funds and investments drying up, there is a new beast in the market “cockroach". This new characterization has captured a widespread mood in the investment community.

A unicorn is characterised by superfast growth, fuelled by VC money. They're not profitable but the idea is that the business will reach "scale" first, before concentrating on making money once it's won plenty of market share. Uber is a prime example.

A cockroach, by contrast, is a business that builds slowly and steadily from the get-go, keeping a close eye on revenues and profits. Spending is kept in check so that it can weather any funding storm.

"Everything is about resiliency now to weather the storm," says Tim McSweeney, a director at technology-focused merchant bank Restoration Partners. "Unicorn, it's a mythical beast, whereas a cockroach, it can survive a nuclear war."

Speaking to Business Insider, he further mentioned, "For the investment side, it's minimizing the risk. Let's find a company that can survive a nuclear war and then come back to fight another day or pivot and do something different — it has the right team, the right customer base."

For many unicorns and other fast-growing tech businesses, most of which rely on easy VC money to fund their growth, “bubble in the market is just sloping off.” Businesses like Twitter and Birchbox have all been making layoffs, and Fortune's Dan Primack recently noted that both private-equity and venture capital performance declined in the first quarter of 2016, for the first time in years. Zenefits, one of the 2015 inductees to the unicorn club, has imploded pretty spectacularly.

McSweeney says, "In terms of chasing growth and growth and growth — it's not about sustainability. It's just trying to grow as quickly as you can without looking at the fundamentals of the house. That's what I feel a unicorn is — chase growth so investors give you money. It's kind of a reinforcing cycle. Google didn't growth hack. They just provided a service to the internet and build a business around it."

"I still think there's capital out there but the application of it is more judicious. People are looking for smarter businesses to apply their capital to," he added.