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A new investment fund is taking on startups abandoned by venture capital investors


In the tech world, there's pressure on startups to get really big really fast. Those rare ones that do might earn the title of unicorn. But investors are getting more selective with where they put their money, and that is leaving a lot of non-unicorn startups in limbo. Wailin Wong and Adrian Ma of The Indicator From Planet Money looked at one investment firm that's offering another path forward for such companies.

WAILIN WONG, BYLINE: In the tech world, a unicorn is a private company founded in 2003 or later that's valued at a billion dollars or more. A venture capitalist named Aileen Lee is credited with coining the term almost a decade ago.

ADRIAN MA, BYLINE: According to one estimate, there's just over a thousand unicorns in the world today all trying to build the next great product or service and do it really fast.

LAUREN BONNER: Unicorns are companies that are growing at astronomical, magical rates.

WONG: Lauren Bonner is an investor with years of venture capital experience.

BONNER: They're doubling. They're tripling. They're 10x-ing year over year. And oftentimes they're spending at a comparable rate.

WONG: These companies are spending money on new hires and office space and marketing. And the money comes from venture capitalists, hoping that one company will achieve unicorn status and have what's called an exit. This could mean going public or getting acquired. And when that happens, the venture capitalists make such a big return on their unicorn investment that it makes up for the other startups in their portfolio that stagnate or fail.

MA: These unicorn dreams mean that venture-backed startups and their investors tend to prioritize explosive growth over everything else, including making a profit.

WONG: So as these companies expand, they raise more funding, all in the hopes of hitting that billion-dollar mark.

MA: Kathryn Minshew is CEO of The Muse. It's a jobs and career website that caters to millennials and Gen Zers. And she co-founded this business in 2011 and raised almost $30 million in venture capital in five years.

KATHRYN MINSHEW: We were on the classic venture path, which is, like, growth, you know, as high as possible, somewhat regardless of cost.

MA: But all of this activity also made Kathryn concerned about the relative inexperience of her team. Kathryn started to think, maybe we should slow down a bit. Let's aim for 2x growth, not 5x growth. That was Kathryn's pitch to her board of directors.

MINSHEW: And unfortunately, I had a board member who said, are you kidding me? I thought you had ambition. I thought I invested in someone who wanted to grow. You should be growing 5x again.

WONG: Kathryn and her investors had different visions for The Muse, but this meant no more big checks from her investors.

MA: And Lauren Bonner, the investor from the beginning of this episode - she says she's seen this scenario play out a lot of times in tech, and this could happen even more now that venture investing is pulling back.

WONG: And that means there are lots of non-unicorns just milling around the tech sector. Lauren calls these businesses workhorses or thoroughbreds. And last year she and a business partner launched an investment firm to put money in these kinds of tech companies. They invested $8 million in Kathryn's business, The Muse, after a venture capital investor introduced the company to Lauren.

BONNER: We have different expectations. We're trying to get 5 to 10x. We're not trying to get 100x.

WONG: Like, don't turn your nose up at a perfectly fine pony.

BONNER: That's right.

MA: Kathryn Minshew of The Muse - she says she hopes her experience opens the door for startup founders and investors to talk about outcomes that are not just unicorn or bust.

WONG: Wailin Wong.

MA: Adrian Ma, NPR News. Transcript provided by NPR, Copyright NPR.

Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.