Remember when it was actually interesting to see a startup becoming a unicorn?
A company reaching the billion-dollar valuation mark used to be a rare event — hence the term “unicorn.” But by 2020 and 2021, it was anything but. Every week was like, “Oh, another crypto unicorn? Great. Wow, the fifth neobank this month. Amazing. Wait, wasn’t that company just founded last year?”
I’m not saying this to diminish the accomplishments of any of those companies, but the investing fever of 2020 and 2021 made that once-scarce milestone almost seem like late-stage table stakes.
But in today’s tougher funding market, unicorns are rare again. And there is a new entrant that shows us what unicorns might look like in 2023.
This week, Boston-based Gradiant said it raised a $225 million Series D round led by Centaurus Capital at a $1 billion valuation. The company builds tools to manage and treat wastewater for companies across industries such as food and beverage, pharmaceuticals and mining.
Gradiant’s co-founder and CEO, Anurag Bajpayee, told TechCrunch+ that the company has essentially doubled revenue every year, for the last few years. “If you think about the industrial revolution, and the global industry, we have been taking water from nature. We have an opportunity to turn the clock back on the state of water on this planet and give nature water back,” Bajpayee said.
Bajpayee said the company was based on his co-founder Prakash Govindan’s MIT Ph.D. research on desalination — the process of turning saltwater into freshwater — a decade ago. Since then, the company has taken in customer feedback and continued to build new products to service its potential customers’ water treatment needs. It currently has products for all kinds of fun things like zero liquid discharge, resource recovery and industrial water processing.
This deal is super interesting for a few reasons. For one, it’s a sizable chunk of cash for a capital-intensive startup in the midst of a serious late-stage funding slowdown. For context, the first quarter of 2023 recorded 894 late-stage deals, the lowest number of deals in the U.S. in nine quarters, according to PitchBook. Such companies also raised the lowest amount of invested capital, $11 billion, since the last quarter of 2017.
Gradiant’s deal is also an indicator of what unicorns could look like in 2023 and beyond. Gone are the days when a two-year-old, nondifferentiated fintech startup could get a billion-dollar valuation, or a company could become a unicorn without any meaningful revenue.
Gradiant has been building a tangible product for 10 years in a tough industry, it is solving a real problem that’s not just a pain point and counts the likes of Ab InBev, Coca-Cola and Pfizer among its customers.
The round’s backers are a sign of the times, too. Centaurus Capital and BoltRock Holdings are both family offices. As late-stage venture still feels largely frozen, I think this will be the first of many late-stage deals that don’t include a venture fund at all.
It won’t just be family offices, either. Late-stage companies are starting to reach out to sovereign wealth funds, too, according to a PitchBook article this week. Ibrahim Ajami, the head of venture at Mubadala, Abu Dhabi’s sovereign wealth fund, even told PitchBook that companies that wouldn’t speak to Mubadala before are now knocking on its door for cash.
Lastly, wastewater is not only interesting, it’s also a huge issue with a massive total addressable market. The importance of fixing this problem is a large reason why Bajpayee thinks the company was able to raise such a sizable round in this market — of course, in addition to the company’s strong growth and team.
“It’s testament to the criticality of our mission, what we do,” Bajpayee said. “Everyone can agree that water is a very important industry. For industries that use a lot of water, it is really critical to manage the water, treat it and recycle it if we are going to continue to grow without constantly harming the environment.”
At first sight, a wastewater startup becoming a unicorn doesn’t necessarily seem like a signal of where the late-stage venture market is headed. But I think it absolutely does.
The new unicorns of 2023 won’t resemble those of 2021. They will be companies that have done the work to get there, leaving aside those one-off AI companies we will see sneaking in.