With the glitter of tech unicorns fading, venture capitalists and investors are looking for decidedly less glamorous startups to back — and those companies have a name to match. Cockroaches.
A cockroach isn’t as clearly defined as a unicorn, which are startups with pre-IPO valuations of $1 billion or more. The Irish Times describes the tech cockroach as “a startup consisting of hard-working founders who keep survival at the core of their business strategy.”
The cockroach has also been described as having the ability to quickly become frugal and run lean, although there are no financial parameters for that definition. David Cummings offered a list of characteristics that includes “little-to-no salaries for the entrepreneurs”.
Cockroach Mode for Startups https://t.co/PvUVu9Ziqs
— David Cummings (@davidcummings) November 12, 2015
So where did this term first gain traction online?
The earliest published reference we could find was from Dave McClure, founding partner at venture fund and seed accelerator 500 Startups in a Wired UK article from 2013. In the piece, McClure calls out entrepreneurs for “trying to build audiences without knowing how to monetise them.” The article goes on:
[McClure] “said that many people building startups think that engineering and design are the critical factors as to whether their business is successful. ‘I would challenge that. What’s missing in most startups is scalable, cash-flow profitable (costs you less to acquire the customer than you generate in revenue) distribution.’”
A SlideShare from McClure posted in June 2015 is the next reference to cockroaches, which has been shared 212 times across LinkedIn, Twitter, Facebook and Google+, according to Buzzsumo data. In the presentation, he reiterates his message from two years earlier that startups need to be lean and run “simpler, faster, smarter, cheaper.”
The Age of the Cockroach is upon us: https://t.co/RYqAWnw81t
— Caterina Fake (@Caterina) September 30, 2015
In her piece, Fake points to the then-looming funding crisis as the reason why unicorns will be replaced by cockroaches. She then offers this advice: “Companies that want to outlast the coming funding crisis will need to move fast, cut costs, and plan for a future without much money in it. They will have to lay off staff, move their pricy downtown office to the unsexy exurbs, pivot into revenue-generating business models, kill projects going nowhere, live with less.”
For the next six months, as investment funds continue their write downs and venture capitalists begin talking openly about a shift in their approaches, Fake’s column spread online. It has collected over 8000 shares across social media channels, according to Buzzsumo.
Finally, on February 11, 2016, the term cockroach surfaced in Business Insider‘s “Startups are realizing there’s no Plan B: They have to survive the bad times like ‘cockroaches’“.
— BI Tech (@SAI) February 11, 2016
We expect the term to continue resonating as VC funding tightens. Read Cockroaches Rise, Unicorns Fall as Venture Capital Plays Moneyball — our own take on this new phase in the tech startup space.