The Force Awakened In 2015 Startup Tech
Star Wars is all the rage now, as it should be. As I was reflecting on 2015, indeed, the Force (of the market) awakened. Turns out there are a lot of problems in the world to solve and lots of money to fuel those experiments, but there aren’t as many markets (yet) to play in, and the value of those markets are now in question. So, here’s your 2015 round-up — Wait, what just happened? Well, a lot happened in startup tech in 2015, but I tried to boil down a much longer list into the largest them which I believe have the most impact on what we do, day to day. Here goes, and please share other huge themes you think I’ve missed. (I’ll try to look out to 2016 later this week.)
1/ Big, Public Consumer Tech Co’s Got Even Stronger: Amazon is surging with Prime Now, the huge value in its AWS business; Google reorganized to Alphabet is performing well; Apple is the most revered tech company in the world, despite the Watch not being ready for prime time; Facebook is the best-run company in the world right now and on a march (I believe) to be a trillion-dollar company; Netflix is everywhere and a leader in original (and damn good) content programming; even Microsoft, almost 40 years old, is making smart buys, playing mobile well, and has lots more cash on hand to make things interesting; Uber and Airbnb, while still private, are surging into global networks which can continue to grow as the rest of the world gets on to social networks with mobile phones. Given this surge, it’s becoming an even more precise art for founders and investors to find new markets to create or exploit. (Related posts: Makings Of A Third Haystack Fund)
So, where did some of the most creative founders end up looking for opportunities?
2/ Text As A Command-Line Interface: Magic, the text-based startup, is a poster-child for this new wave of services being rolled out on SMS rails without every shipping a native app. As mobile native app distribution continued to choke, founders exploited a channel that was sitting under our noses the whole time — texting and chat apps, which on mobile take the place of browsers. Facebook then announced M for Moneypenny, an assistant which would reside inside Messenger to help a user find information and complete tasks. Other variations of this have sprouted up in text apps and for email, many touting AI capabilities to offer more cost-effective, API-driven services to users. (This trend, among other great moves by the company, has helped (1) Slack penetrate deeper into the workflow of newer companies and (2) newer startups like Operator provide a command-line interface for commerce, powered by Uber’s underlying logistics.) (Related post: Hacking Mobile Distribution And Deployment Via SMS)
3/ Subscription Models, Even For Consumers: As the market has turned (see below), many investors have sought sanctuary in business models traditionally suited for VC: subscription. SaaS companies bringing new, novel tech to the market can see $100M valuations in ultra-competitive rounds even while the product is in a closed beta. This drive to subscriptions has spilled over to the consumer, as companies like Netflix, Spotify, and others have demonstrated, consumers are willing to pay on a monthly basis if they see the value and ease of the model. Startups like Classpass (and even Slack, given its consumer-whimsy bent) exemplify this. (Related post: The SaaSification Of Consumer)
4/ User-Generated Live-Streaming Media: Decades ago, CNN launched a campaign for iReporters, individuals who would go out and act as volunteer reporters to then give their content back to CNN and be part of a story, if one broke. Fast-forward to 2015, the launch of Meerkat and Twitter’s acquisition and integration of Periscope catapulted the category to real-time. There’s also YouNow. While the infrastructure isn’t there yet, it’s easy now to imagine a world where anyone can watch a live Periscope of some event that isn’t broadcast on TV or some other paid channel. My belief is that live-streaming is a very important development, but it’s a feature of a social network, because a user needs a network to provide context before jumping into a livestream. Nevertheless, here we are and it’s a big consumer thing. (Related post: Meerkasting In A Brave New World)
5/ Publishing Into New Media Like Instagram, Vine, and Snapchat: Ages ago, only select few people could have enough resources to create a short movie or show and have it broadcast on TV. YouTube started to democratize that, but now with Instagram, Vine, and Snapchat (and even Facebook Video) on our phones, there’s a whole cottage industry of big-time apps and tools available to help everyday users around the world lip-sync to popular songs, create collages, sell merchandise, and so forth. Instagram, Vine, and Snapchat are the new MTV and Home Shopping Channels, except at a scale we could never imagine.
But, as Obi-Wan Kenobi said to Luke aboard in the Millennium Falcon in “A New Hope“: “I felt a great disturbance in the force, as if millions of voices suddenly cried out in terror — and then suddenly silenced.”
6/ The On-Demand Chill: With some high-profile closures, the private markets began to realize not every good and service needed to be on-demand and funded with venture capital dollars. I see this as a healthy sign in that VCs didn’t keep these companies alive and they were high-profile enough so that everyone saw the damage with their own eyes. This allowed the industry to self-correct a bit, and that’s a healthy thing. Those dips aside, the on-demand sector was definitely a huge trend in consumer behavior (powered by mobile and labor market shifts) and will make many investors who picked the right startups a fortune. (Tangentially, people assumed the “gig economy” would become more of a political issue as we get ready for the race of 2016, but that hasn’t really happened…yet?) (Related post: The Chilly Freeze For On-Demand Startups)
7/ YC and AngelList Shake Things Up: AngelList raised a $400m seed fund, and YC created a full-stack funnel and engine to fund startups. This puts more money into the already bulging seed ecosystem, but also puts more long-term pressure on traditional venture models which haven’t cultivated their own funnels. Building and/or accessing a good funnel is very time- and money-intensive, and most firms can’t afford what it costs to make it. (Related post: AngelList and YC Continue To Shake The Trees)
8/ Market Shift and Multiple Compression: Around Labor Day in 2015, there was a big shift in global markets, which affect the U.S. public markets, which then shined a light on the late-stage private market which has marked-up many tech startups, and fear began to spread among private investors. Yes, VCs are still investing, but the bar has been raised (which is a great thing) and everyone in the system has had to down some corrective medicine. One particular effect has been on “multiples,” the premium some investors would pay for a business or access to a company’s shares. Those multiples have compressed to the point where many of the seed deals I see now are priced around the sane territory of $4m, give or take. Everyone has seen one of their best companies now be effected by this multiple compression, so if (1) someone tries to tell you it doesn’t exist or (2) you think you’re the exception, you’re likely getting or giving yourself poor advice. (Related posts: The Big Chill In Seed; A New Kind Of Draught In The Valley)
In the 2015, The Empire struck back. The force of the market awakened. But in 2016 and in technology in general, I firmly believe there’s so much hope in building and financing new technologies, so much value to create and invest in — depending on where you look, what you read, who and what you pay attention to. More on that and more on 2016 in another post later this week.