Unicorns are setting up their own venture capital funds
bloomberg.com
bloomberg.com
Venture is one of the best ways to spot trends in your own market(s), and lead run any future competition with an acquisition, new product or product changes.
This is one of the major things that distinguishes major 21st century companies today from major companies in the past. If you know all of the up and coming competitors, or an entire new market that could threaten you, you can't be disrupted.
Yahoo knew everything about Google
Google knew everything about Facebook
Intel knew everything about ARM
Yet disruption ensued. “Can’t be disrupted” is foolish.
It assumes corporations will never get better at evaluating the market and their place in it, or have better information than previous generations.
That's a dangerous assumption, and doesn't seem to jibe with what we see in practice.
"- In 1965, the average tenure of companies on the S&P 500 was 33 years. By 1990, it was 20 years. It's forecast to shrink to 14 years by 2026.
- About 50 percent of the S&P 500 will be replaced over the next 10 years, if Innosight's forecasted churn rate holds. "
https://www.inc.com/ilan-mochari/innosight-sp-500-new-compan...
What are you seeing in practice that makes you think the truth is the opposite of what this data suggests?
Companies that have information advantage will continue to push into new markets and absorb or kill incumbents.
These are complimentary phenomenon actually.
The post you originally replied to mentioned Google and Facebook neither of which look like companies that have learned this lesson well enough to beat the trend. They both look to me like they have passed their peaks in many areas:
- Innovation
- Developer, public and political good will
- Creating (rather than buying at great expense) successful new products
- Self awareness
Precisely
What would that look like in the statistics?
Something like this: https://www.investopedia.com/news/5-companies-amazon-killing...
Are there particular companies that you think are doing this successfully?
FAANG are the examples here. Look at the top 10 most used apps[1].
5/10 are Google owned
3/10 are Facebook owned
1 is owned by Apple
Amazon in clearly leading here as it has 49% of the ecommerce market share.
Microsoft has the vast majority of the IT ecosystem.
Facebook the company is doing well in this area. Google is also doing well here.
Creating (rather than buying at great expense) successful new products
I'm not sure why "buying at great expense" is relevant here. At the end of the day it comes down to longevity. The longest lasting companies are ones which have bought themselves into relevancy. That's the whole point. They have the market capacity to buy out or crush their competition.
Facebook used Instagram to crush Snapchat in pretty much every dimension because Snap wouldn't sell to them.
All your other metrics are kind of random and I'm not sure if there is anything that says those things lead to longevity. The few companies who were good at this in the past (Standard Oil, Bell, Railroads) eventually got broken up by the government.
[1] https://www.businessinsider.com/most-used-smartphone-apps-20...
I think it's a little early to say whether Facebook or Google will have the kind of longevity of a GE, ExxonMobil or DuPont. Longevity on its own doesn't actually seem particularly interesting, what makes those three stand out is staying large and relevant for so long, not merely surviving.
> All your other metrics are kind of random and I'm not sure if there is anything that says those things lead to longevity. The few companies who were good at this in the past (Standard Oil, Bell, Railroads) eventually got broken up by the government.
My metrics were directed partly at that point. Microsoft was a more recent target of government. It looks much more likely today that Facebook, Google or Amazon would be targets of government action (with plenty of public support) than it did just a few years ago.
“Are the FAANGs the first perfect economic actors in human history?”
No. I remember people making the same arguments for mortgage back securities.
So much worship of so much snake oil.
That's a great way to put it, and my answer would be: Of course not, but they are probably the closest we've ever seen and are on a vector that keeps them getting closer.
Maybe Facebook the product is, but not the compliment of Facebook, Whatsapp, Instagram, Messenger, Oculus etc...
Now Facebook has risen a long way and has a lot of buffer to recover from missteps and challenges. I'm not counting them out yet or saying they're facing an existential threat soon but the shine has very clearly come off in the last couple of years. There's certainly room for debate about the magnitude of the challenges they face and how well placed they are to overcome them but I don't see how anyone can question they are already stumbling.
Look at the fundamentals [1]. Facebook (the product), Instagram, Whatsapp, and Messenger completely dominate the social web. Oh and in case you thought Snap was a competitor, realize that Snap pays Google $2B a year and Amazon $1B a year for Cloud Services. On Flat growth and relatively terrible network effects. FB doesn't have to pay anyone because it has it's own services.
No other collection of social networks or advertising networks are coming anywhere close to them. Nobody is seriously threatening their business model. The recent Frontline piece was really hard on them, but there's nothing there really tangibly. Here's the reality:
Facebook has the predominance of internet users across all platforms and still growing 11% annually.
Facebook still sells advertising that converts better than any other advertising platform.
Facebook has diversified and built information networks on par with Amazon and Google to prevent (as much as anyone has ever done) any competitor from surprising them.
The only possible thing that could happen is some government trying to shut them down. Honestly though without specific legislation against them and only them, it won't work. You can't kill the advertising model with legislation and you can't kill data collection (Like GDPR is trying to do) without it impacting all players - if anything it hurts small players more.
So no, I don't see them stumbling. In fact I don't see one example of Facebook, Amazon or Google being surprised by any challenging upstart in the last 5 years. They might have been rejected for buyouts, but they weren't surprised.
[1] https://investor.fb.com/investor-news/press-release-details/...
I see exactly this in practice.
Big companies are usually totally lacking in self awareness on so many things.
'Good companies' have a strong sense of where they are, and can manage direct threats - I think FB is a good example.
But more distant threats, I don't think so.
And most companies are not 'good companies'.
Nortel, Nokia, BlackBerry, Alcatel. Just to name a few.
On the other hand, Intel sold their ARM business about 20 years ago because it had lower margins than they liked (and in fact, axed a lot of relatively low margin business). But, as they are slowly discovering - someone WILL eat your margins, if it isn't yourself, it is someone else.
Microsoft at their core also wasn't disrupted by Google.
Google at their core also wasn't disrupted by Facebook.
They're all tech giants in the same (broad) industry, but they have widely varying products. Competitive BI certainly has its merits if you are trying to stay at the top of your field.
And, wrt the article, it’s not VC that gave Facebook the BI they needed to know it is happening, but rather Onavo - a BI/Spying startup masquerading as a vpn/compression suite, which Facebook purchased and which gave them insight into what their mobile users do on the internet other then facebook
It’s not illegal, but it should have been.
It's also still the youngest one of them, but yes, for a company in the social networking space they've showed a lot of staying power (they could've already fallen to what could've become out of independent WhatsApp & Instagram). Facebook (and Google) only exist as they do today because an acquisition by Yahoo didn't happen, and I think they've internalized that.
Windows used to be at the very heart of Microsoft strategy. They seem to have successfully managed to pivot away from it, but I still call that being disrupted.
Facebook and Google don't really compete either - again, related, but different verticals, Googles existing business model wasnt really disrupted by Facebook appearing on the scene.
The majority of mobile processors prior to arm, wasn't Intel (it was 68k actually), again, no real disruption to the Intel Business Model.
In almost every case you've presented, you act as if a major player was displaced from a market within which they were the incumbent leader - but in every case but yahoo - it was a new line of business opening up, due to changes in the market place - where a major player in a related marketplace failed to achieve dominance - in the case of Intel, it was quite by choice - Intel saw early on that it couldn't make the margins needed to sustain itself in the mobile processor world - and while there keeps being talk about ARM coming to the non-mobile marketplace, there has been little to no actual incursion there.
The exception here is yahoo - Yahoo was pushed out of its core markets by the rise of google, where they competed head to head.
ChromeOS ate a nontrivial part of Microsoft's OS business.
Android completely obliterated any chance of a market MS had for phones.
Chrome (and Firefox, which was effectively funded by Google for a long time) dethroned IE(and edge), almost to the point of irrelevance.
It did not disrupt Microsoft's business model - but it ate huge chunks of it. Where Google didn't venture (e.g. database & server software), Microsoft is still extracting monopoly rent. Where it did (mobile OS), no one wanted Microsoft's offering, regardless of getting free money with it.
Facebook and Google totally, completely, compete with each other. If you have on-line advertising spend, you decice on the facebook/google split. They are in exactly the same vertical - extremely directed and trackable on line advertising. Don't confuse "users" with "customers".
Intel's business model was expensive high margin CPUs to all. They still do for servers. It was most definitely disrupted in the consumer space because phones exist - many people for which it would have been unthinkable a few years ago to have no PC/Laptop today, only have a phone, or have a very loe end laptop (which Intel makes very little on).
> it was a new line of business opening up, due to changes in the market place - where a major player in a related marketplace failed to achieve dominance
You have just given the usual definition of disruption. I agree existing markets were not overtaken. Mobile phones disrupted the land line business, even though that one is still alive. Linux disrupted the proprietary OS bbusines, even though that one is still alive. Amazon disrupted commerce.
Facebook killed myspace, and yahoo participated in its own killing. And there's definitely disruption all over.
Corporate M&A can do many of those things already. They have cash. They don't need 'a fund' to do that ... and yet most corporate M&A is a disaster.
I wouldn't believe it until I saw it at a large company and then it all clicked and it actually makes sense.
M&A & VC teams are considerably more removed from the strategic impetus of companies than you might imagine - these are human organizations with a lot of individual self interest. M&A teams like making deals. They are opportunistic I find more than strategic ... which can be ok, but they find something cool and want to make a big thing out of it - but the product people in the company may not want them on board.
So company A acquires company B. Now what? Aside from new branding and T-shirts ... it takes a lot of effort to integrate these things. A new product that fits well into a product line, that does not need to be integrated technically, this might work.
Sometimes companies get bought because the CEO saw the website or met the CEO and 'liked him' and the product kind of makes sense. The head of M&A wants to please the CEO and goes gangbusters to make it work.
Legal, IP and financial due diligence are all the least important kinds of due diligence! Product and cultural due diligence are what matters, and they are weirdly not on the checklist - or not as intensely as they should be.
I think instead of VC, these companies should be focused in rigorous, objective oriented, well-managed M&A activity.
I don't even know who a good example would be - it used to be Cisco, I'm not sure anymore.
Having dealt with both, there is a difference. Corporate M&A is corporate finance. Their teams come from investment banking backgrounds and are not equipped to evaluate early-stage investments. They therefore don’t get pitched them.
Corporate VCs, on the other hand, exist to evaluate young companies and write small checks. The market know that, and therefore shows them early-stage deal flow. (Whether this be founders pitching directly, competitors mentioning them, or investors or their LPs or lawyers getting chatty.) This flow provides different investment and intelligence opportunities from the corporate finance flow.
Practical example: if you’re pitching corporate M&A, it tends to start with an NDA and a data room full of financial models. If you’re pitching a corporate VC, a one-pager and high-level deal terms can kick directly into negotiations.
Was Yahoo! buying tumblr an example of corporate VC? How about Facebook buying Instagram?
In my experience, the VCs themselves do. Their bosses say they do (hence why the corporation started a VC arm). But after a few failures, that tends to change. (Analog: why many corporate cultures try and fail at emulating Skunkworks.)
> Was Yahoo! buying tumblr an example of corporate VC? How about Facebook buying Instagram?
No, that’s M&A. Generally when one says Company A bought Company B, that’s corporate finance.
GM investing in Lyft is corporate VC. Tyson investing in Beyond Meat is corporate VC. Minority stakes, early-stage companies and a strategic motive describes corporate VC.
Also 'corporate VCs' are generally terrible VCs.
But yes, investing in is different than buying in.
Anyone care to indicate a corporate VC model that has actually worked well strategically? As far as I remember - could be wrong - even Google's VC arm is there to 'make money first' less so strategic. Or I could be wrong.
I think we're gonna look back at this in 5 years and collectively say, what were we thinking?
We did that after the housing bubble in 2008 (low down payments, flexible credit ratings, etc.)
The big question is: could this also be a systemic risk to the economy? No one liked bailing out the banks, but it was necessary to save the economy. It is not clear tech or crypto are similarly critical.
The total cryptocurrency market size is at 1/4th of what it was at the beginning of the year, and there haven't been any significant results because of that. I would wager that the remaining 1/4th could be wiped out and it's still pretty much the same. Crypto projects were always very removed from the real world, both in valuation and usage (so if crypto vanishes it doesn't impact other companies).
The biggest result of the crypto market correcting will probably be software engineer salaries becoming a bit lower again (outside of SF).
[0]https://www.coindesk.com/blockchain-startup-protocol-labs-an...
Protocol Labs grants are again a different thing since they are essentially traditional academic research grants.
Many of us are already thinking that :)
Yes, we've all met people who read about Bitcoin and Ethereum in the WSJ and felt incredibly smart when both declined from their highs.
But what about the ICO money raised in 2018? It's likely over 5 billion at this point.
Am I going to look at every MLM scheme or perpetual motion machine to explain in detail why this new one is just as bad as the rest? No. I looked at a bunch, formed a general impression and a reasonable theory as to why they're all bunk, and have stopped wasting my time.
If somebody has a specific one that they'd like to argue is different I'm willing to listen. But I'm not going to look at 500 supposed startups and figure out the flaws one by one.
[1] https://quoteinvestigator.com/2013/12/13/pony-somewhere/
"They ripped off over 5 billion dollars in cash, that means it's not a bubble." Well, doesn't that actually tell you the opposite? That people threw money at obvious scams just because the scams used fancy technology and a buzzword?
If you have proof that one of them is a) a real business, b) is likely to succeed, and c) is using a blockchain in some way where it's both necessary to the business and superior to other ways to store and verify data, then please share it. Otherwise you're the one making hazy, unsupported general statements.
You then respond by asking me to present proof to you as if your own ignorance is somehow compelling.
As I said, I'm not saying all of them are scams. Indeed, I specifically mentioned two other possible classes they could fall into. And as I think is clear from my initial comment, I'm open to the possibility that someone will find a use for blockchain that enables some sort of viable business that couldn't be done with other tech.
You of course don't owe me any explanations. But you're the one who jumped in with a variety of handwaving contradictions to my comments. So if you want to to be taken seriously, backing you agitation with evidence would be a good step.
I'll grant Bitcoin has some utility for light crime, like buying drugs or evading capital controls. And it's the technology of choice for ransomware and some kinds of electronic fraud. (It's bad for serious crime as it leaves too much of an audit trail.) But I don't think crime is a very good domain for running real businesses, so that doesn't count for me either.
How is this different from blowing your funding round at a blackjack table?
Not really.
If by “CDO” you mean “multiple assets in another asset,” then every company is a CDO. If by CDO you mean “tranching,” then pref stacks create (or for that matter, any company that issues debt is) a CDO. CDOs are differentiated by the kind of debt they buy and their tendency for having a tiny senior tranche and leveraged buyers of their riskiest tranches. That doesn’t apply here.
(The latter might apply, since the loss-making unicorns buying start-ups’ equity need to raise new money to stay alive, but that’s just classic leveraged buying.)
Good thing to look out for.
- Bernard Baruch