What Did Billion Dollar Companies Look Like at the Series A? | Hacker News Reader

What Did Billion Dollar Companies Look Like at the Series A?

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102 pointsmadmax10837 comments

Unless we know how many companies looked like these and fell flat on their face, this article is useless as a predictive model.

Example: Most of the successful ideas seemed flawed. I'm sure a great many flawed ideas also seemed flawed. Does the author really believe "this sounds stupid" is a predictor of success? Because if so I have a bridge startup in Brooklyn to sell them.

> Some startups that seem poised for greatness go on to crash-and-burn, while others that are slow to get off the ground surprise everyone with their triumph. There is no formula, expectations are often wrong, and each success story is unique and unprecedented… but that doesn’t mean there are not patterns worth paying attention to.

> Our analysis did reveal one clear, underlying theme:

> There are large companies to be built by offering new, innovative and superior customer experiences to large markets, regardless of how competitive the sector already is or how successful the founders have been before

Looks to me like the author understood the limits of his investigation perfectly well.

I'd hardly call it an investigation.

Also, were the ideas really that outlandish? Staying in other peoples' homes has been around basically forever. Vacation rentals was even a totally mature market.

You can still derive some information from this kind of analysis.

We can conclude that "this idea sounds stupid" or "this is a first-time founder" are not good reasons to dismiss an investment opportunity. In other words, the mentioned traits don't appear to be strongly negatively correlated with startup success.

Suppose, 50% of all successful companies had first time founders (which sounds great!), but 51% of all companies where started by first time founders. Well, now being a first time founder is a small negative indicator.

As to stupid idea, I think the black and white nature of the question is an issue for analysis. A scale where people suggest how likely it is to make money could be a more useful indicator. I suspect people may call long shots 'terrible' even if they think it might work, but that does not discount really dumb ideas. Google was a long shot, selling a highly toxic playdough substitute is just not going to work and may get people killed.

I call "baloney" on the "stupid idea" tenet. Somehow folklore has us believing that AirBnB, for example, sounded crazy at the time but does anyone really believe that? Staying in homes has been around as long as homes and vacation rentals was a mature market.

It didn't sound crazy at the time. It sounded crazy at the time to investors - old, rich white guys (I'm generalizing, of course). These guys didn't need to or want to stay in an AirBnB, or at least didn't before it had already become commonplace.

Younger folks though, traveling on a budget, interested in meeting other people while away from home - it's a no brainer. We all stay on friends couches, in guest rooms, share cars.

Put another way, couchsurfing and ride sharing have been around forever. What wasn't obvious is whether there was enough money in intermediating these as commercial transactions to make a business that would be interesting to VCs. (And, arguably, the current valuations of these businesses is higher than the market will ultimately support.)

Is that even true? I'm familiar with the recent story about everyone supposedly passing on AirBnB. But the real reason is that it was an odd way to try to raise that amount of money. When raising a few 100,000s pre-product you go to a much smaller circle, not cold-ish intros to "pros".

> We can conclude that "this idea sounds stupid" or "this is a first-time founder" are not good reasons to dismiss an investment opportunity.

No we can't conclude that. These companies are immense outliers in a marketplace where over 90% of startups fail due to being stupid ideas.

Even without the control group, it's not a useless observation. Many investors only invest in ideas that don't seem flawed (which seems reasonable on its face), but they should realize they're missing a large fraction of the good opportunities.

What you are missing is that there is no way to determine what "flawed" means.

No, unless the model has shown at least some consistency with the real world, it is useless as a predictive model.

The whole conclusion of the article is there is no "predictive model". Why isn't this comment -4?

No one read the article?

I found a rereading of "Crossing the chasm"[1] of enormous value recently. Many of the patterns this article "uncovers" were stated already in 1991 in the book.

[1] http://www.amazon.com/Crossing-Chasm-Marketing-High-Tech-Mai...

Outcome bias, anyone?

How about comparing those to 32 low-value companies (or out of business companies) to see if those traits are really important or not.

Well, that was just a random writing that was meant to promote their VC firm. If they had some "smarter" way to do do things, they would keep it to themselves :)

In other (more direct) words: we have no idea how to look for companies that will become extremely successful in the future.

It makes you wonder if the idea that capitalists are rewarded for being good at allocating capital is incorrect. It sounds like a post hoc rationalization of the fact that some will be winners and some will be losers. Enough monkeys allocating enough capital makes the markets operate.

There is lots of evidence of this in stock markets across the world. Markets are mostly efficient and investors are mostly rewarded for being invested. Blindfolded monkeys outperform professional stock pickers - http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-...

Specialized investors are mostly rewarded imo for their specialized knowledge (e.g. taking airport revenues and slicing that up into bonds, MBS, CDS, etc.) than in actual investment prowess. Sand Hill's abysmal venture returns are a testament to this.

Of course it is a post hoc rationalization. Have you seen a proof that capitalists are rewarded for being good at allocating capital?

Oh, I was being rhetorical. I think capitalism is terrible and incoherent.

As a statement of non-violence, it is an excellent goal. However, we should be trying to ensure that violence isn't happening.

The other interesting point is that some of them don't appear to actually look any more impressive now...

As far as I can see Nextdoor is a zero-revenue me-too social network with <1million daily active users after four years, whose main distinction is that they've raised >$200 million. Maybe it's the slickest thing on the planet, fantastic at engaging its relatively tiny number of daily users and it'll take over the world once people like me are able to join. But could it also be a VC mugpunt on either growth or a flip to Google/Facebook with some serious liquidation preferences underpinning that valuation?

Regarding nextdoor, I've been amazed to see the level to which city/local government is using it, at least in my city. Perhaps the most effective civic engagement tool to hit the streets since Ward Heelers (who were of course much better).

I think Nextdoor is still very likely to become a mainstay of the web. It's served as a great way to find plumbers, get used stuff, meet neighbors, learn about civic projects, complain about local businesses that do bad things, etc...

It's well on it's way to replace things like Yelp and even Criagslist or AngiesList. It has a lot of potential, which is why they've been able to raise so much. I'm also pretty sure they have much much more than a million users.

Where'd you get the stats on Nextdoor? Really thought they'd have more than 1mm DAU's.

It's largely a guesstimate (open only to around a third of neighbourhoods in a country with population <300M; assume less than 1% of potential user base of ~100M is active on a daily basis) and so entirely possible I'm wrong, though I think my penetration figures are reasonable for this type of network, particularly with the company afaik purposely not announcing any impressive engagement metrics or milestones for user numbers.

I live in Seattle's Capitol Hill neighborhood, which has about 50,000 people in 3-4 square miles, depending on how you count it. I just signed up for NextDoor (and I find it incredibly creepy that they publicly display my address by default), and found that there are 1200 people who have signed up out of 50,000 possible users. 2.4% is probably a high water mark for signups, and it looks like only a couple hundred people participate on here regularly.

I don't like how the author has included companies that have gone through a liquidity event (Twitter, WhatsApp) with those that are worth $1B+ just on paper

While there are some insights to gain I think it is most telling that most companies are Series A are hit and miss.

> Paraphrase: Some of the ideas are thought of as crazy, most are in established/competitive markets.

This propels the Valley idea of disruptors? Right, pretty common ideology that you should want to disrupt an industry.

As someone else mentioned this tells me about some approx. 25 companies that are now valued at approx. $1B. What about companies that went bust, what about companies valued at $500M, I'd want to invest in those as well.

This comment from the article is very interesting to me

"Most of the billion dollar companies we examined are in highly competitive markets. Take messaging for example. There were plenty of ways to communicate before Snapchat or WhatsApp, but these startups still managed to experience breakout success despite the stiff competition. The social and communication sector actually had the highest concentration of billion dollar companies in our survey."

I hope the author can follow up with more evidence to reduce the possibility of these inferences falling victim of the Texas Sharpshooter Fallacy: https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy

Nice article, but the whole thing can be summed up by "read Blue Ocean Strategy".

Solid insights. Perhaps seasoned entrepreneurs become to smart and loose the simpleness of solving real problems or delighting users with a killer product. Killer products that have market fit tend to make shit happen.

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