
What Did Billion Dollar Companies Look Like at the Series A? - madmax108
https://medium.com/@todfrancis/what-did-billion-dollar-companies-look-like-at-the-series-a-e53ea8043a85
======
IIAOPSW
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.

~~~
jhuckestein
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.

~~~
pbreit
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.

~~~
lberlin
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.

~~~
ghaff
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.)

------
kabouseng
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...](http://www.amazon.com/Crossing-Chasm-Marketing-High-Tech-
Mainstream/dp/0060517123)

------
rwmj
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.

~~~
carterehsmith
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 :)

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

~~~
danharaj
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.

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

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

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

------
notahacker
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?

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

~~~
notahacker
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.

~~~
aaronbrethorst
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.

------
puranjay
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

------
madebysquares
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.

------
rgovind
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."

------
cookiecat
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](https://en.wikipedia.org/wiki/Texas_sharpshooter_fallacy)

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

------
djabatt
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.

