Zebra

What is a zebra?

Zebra (also zebra company or zebra startup) refers to a profit-oriented company that pursues economic success and social or environmental benefit equally. For a zebra, sustainably financeable growth takes priority over the fastest possible growth. The black and white stripes stand in the image for the combination of profit and purpose, the herd for cooperation with customers, employees and other companies.

The term originates from the US market and arose as a counter-concept to the unicorn. This is the name for an unlisted company with a valuation of USD 1 billion or more that relies on rapid growth with venture capital, that is, equity capital from specialised funds. The aim there is a large exit, a sale or IPO in which the investors sell their shares at a high profit. Zebra is neither a legal form nor a protected designation. In Germany, the term touches the design of the articles of association (Gesellschaftsvertrag), models of steward-ownership (Verantwortungseigentum, the permanent binding of assets to the company), sustainability certifications and the selection of capital providers. For a funding round, what matters is whether the investors' return expectations fit the company's binding purpose.

Features of the zebra business model

At a zebra, the benefit is part of the product and not an add-on paid out of profit. An operator of reusable packaging systems for retail reduces waste with every additional customer, a provider of software for care relieves care workers with every use. Growth and impact thus run in the same direction. Profitability is pursued early because it secures independence from capital providers whose expectations could come into conflict with the purpose.

Typical features also include employee participation in success, fair relationships with suppliers and measurement of impact with dedicated key figures. Such impact metrics, for example emissions saved or people reached, stand alongside financial key performance indicators (KPIs) and are reported to investors with the same care.

Legal anchoring in Germany

A GmbH (German limited liability company) can set out its purpose in the articles of association. The object of the company, rules on the use of profit and consent requirements for transactions that contradict the purpose are suitable for this. The managing directors are bound by the articles of association and shareholder resolutions (Section 37(1) of the German Limited Liability Companies Act, GmbHG). Such anchoring, however, works only as long as the shareholders do not change it. Amendments to the articles require three quarters of the votes cast (Section 53 GmbHG), but for purpose rules the articles of association can also require unanimity.

Steward-ownership is more durable. Here, voting rights and profit rights are separated: the voting rights lie with people who run the company or are closely connected to it. The assets remain tied to the company and are neither freely distributed nor pocketed by the shareholders on a sale. In practice, this is implemented through articles of association provisions, foundations or shares with a veto right that prevent these rules from being changed. In such structures, capital providers can participate through non-voting shares or debt-type instruments with a capped return.

The non-profit GmbH is a different model. It pursues tax-privileged purposes under the German Fiscal Code (Abgabenordnung) and in principle may not distribute profits to its shareholders, which makes it unsuitable for return-oriented investors. B Corp certification, in turn, is a private certification, not a legal status. It does not change the duties of the management of a GmbH; the purpose becomes binding only through a provision in the articles of association.

Financing zebra companies

Classic venture capital funds fit only to a limited extent. Within the fund term they need an exit at a high multiple and value a company cautiously that deliberately grows more slowly or attaches conditions to its sale. Zebras therefore often combine several sources:

• Impact funds combine financial return and measurable impact. Funds that present themselves as sustainable are subject to EU disclosure obligations and therefore need robust sustainability data from their portfolio companies.
• Family offices and foundations often accept longer holding periods and weigh purpose and return together (see family office).
• Revenue-based financing (RBF) is repaid from a share of revenue and does not presuppose an exit.
• Subordinated loans and mezzanine capital stand economically between equity and debt capital and do not transfer voting rights.
• Participations by customers or employees are possible, for example, through crowdfunding or cooperative models.

The place of the exit is often taken by buyback models: after some years, the company or the founders buy back the investors' shares at an agreed price. A GmbH may acquire its own shares only if they are fully paid up and the purchase price can be paid from assets exceeding the share capital (Section 33 GmbHG). Buyback obligations must therefore fit the earnings plan.

How investors assess a zebra

With a zebra, investors first examine the same fundamentals as with any company: revenue quality, profitability, unit economics and team. The measurement of impact carries its own weight; it must be traceable and grow with the business. Investors also clarify whether purpose commitments restrict the circle of possible buyers and follow-on investors. Their return comes from buyback and distribution rules, the viability of which they therefore calculate.

In due diligence, sustainability claims are examined like other information. Unsubstantiated environmental claims towards customers are open to challenge under competition law, because unfair competition law (Lauterkeitsrecht) sets strict requirements for such advertising. A zebra that cannot substantiate its impact thereby loses precisely the advantage on which its equity story rests.

Practical example: zebra financing with a buyback model

A company operates a reusable system for food packaging in retail. It generates revenue of EUR 6 million, has been profitable for two years and grows by around 25% a year. It needs EUR 4 million for a second cleaning plant. The founders have anchored the purpose in the articles of association: the transfer of shares to a manufacturer of single-use packaging requires the consent of all shareholders.

• Several venture capital funds decline because the pace of growth and the transfer restriction do not fit their return expectations.
• An impact fund takes new shares of 12% for EUR 1.5 million. This gives a post-money valuation of EUR 1.5 million / 12% = EUR 12.5 million, so EUR 11 million before the round.
• A family office grants a subordinated loan of EUR 2.5 million with a term of seven years; together, 1.5 + 2.5 = EUR 4 million is financed.
• After six years, the fund can offer its shares to the founders at eight times annual earnings before tax, pro rata for its 12%.
• For the sixth year, revenue of just under EUR 23 million (continued growth of 25%) and earnings before tax of EUR 2.5 million are planned: 8 × EUR 2.5 million = EUR 20 million business value, of which 12% = EUR 2.4 million buyback price, 1.6 times the amount invested and a return of around 8% per year
• The impact is measured by the number of single-use packages avoided and reported quarterly together with the financial figures.

The structure dispenses with an exit to a strategic buyer but offers the fund a plannable exit. In the sixth and seventh years, however, two large payments coincide. The founders pay EUR 2.4 million for the buyback, and the company repays the EUR 2.5 million loan to the family office. The structure is viable only if profits, distributions or follow-on financing cover both.

Distinctions: zebra, camel, bootstrapping and social enterprise

• Camel: a capital-efficient growth company without a necessary social purpose. Many zebras are also capital-efficient.
• Bootstrapping: describes financing from the company's own resources. A zebra can finance itself this way but does not have to.
• Social enterprise: umbrella term for companies that primarily address a social task, including in a non-profit legal form. The zebra is expressly profit-oriented.

Common mistakes

• Impact claimed, not measured. Without key figures and a method, the benefit can be substantiated neither to investors nor against the accusation of misleading advertising.
• Certificate confused with legal status. A private sustainability certification does not bind the management. If the purpose is to apply, it belongs in the articles of association.
• Purpose commitment without regard to the exit. Transfer restrictions and veto rights shrink the circle of buyers and with it the achievable price. Investors must know this before the round.
• Buyback obligations without financing. An agreed buyback that the company's profits cannot support burdens founders and liquidity at the end of the term.
• Profitability neglected. A purpose does not replace a viable business model. Without profit, the basis for independence and impact is missing.

Frequently asked questions

What is the difference between a zebra and a unicorn?

The unicorn is defined by a valuation of USD 1 billion or more, the zebra by its business model. A unicorn is unlisted, usually financed with a lot of venture capital and geared towards rapid growth and a large exit. A zebra pursues profit and social purpose equally and grows as fast as it can be sustainably financed.

Is a zebra a non-profit company?

No. A zebra is profit-oriented and can distribute profits. Non-profit companies pursue tax-privileged purposes and in principle may not distribute profits to their shareholders.

Is B Corp certification a legal form?

No. It is a private certification that a company receives after an assessment of its social and environmental performance. It changes nothing about the statutory duties of the management of a GmbH. It must not be confused with the benefit corporation, a legal form of individual US states; the certification does not turn a GmbH into such a company.

Can zebras raise venture capital?

Yes, if growth and exit prospects fit the fund's expectations. More common are impact funds, family offices and forms of financing without an exit requirement, such as revenue-based financing or subordinated loans.

What does steward-ownership mean?

An ownership model in which the voting rights lie with the people who run the company and the assets are permanently tied to the company. Profits serve the company first; the shareholders can neither withdraw them at will nor pocket them on a sale.

The Roemer Capital view

For companies with an anchored purpose, preparing a round from EUR 1 million begins with the selection of investors. Roemer Capital assembles a circle whose return expectations fit the growth plan and the purpose commitment, for example impact-oriented financial investors, family offices or strategic investors. Roemer Capital discloses purpose rules in the articles of association early, so that they are not first noticed in due diligence as a restriction.

Roemer Capital treats impact metrics like financial metrics: with a fixed definition, history and planning in the financial model. Buyback or distribution models are calculated in the cautious case before they become part of the term sheet, the heads of terms for the round. The legal structuring of the purpose commitment is the responsibility of the company's law firm.