Models and Markets: Looking to 2020
I received some feedback on my last post pushing me to open up about the specific ideas and opportunities (noted in the last section) I’ve thought about recently. Rather than formatting it as “Request for Startups,” I’ll discuss business models and market spaces I’ve found intriguing over the past year, witnessed company formation and deal activity in, and want to learn a bit more about going forward.
Global Operations Management: The market opportunity for cross-border infrastructure companies is justified for venture scale. Earlier this year, FIS paid $34B for international payments company Worldpay. Broadly, my thinking on internationalization and localization buckets into questions: How can new companies scale and access global markets faster than ever? How do existing cross-border, multinational enterprises manage the “edges” of their business?
To the first point, Chicago-based Cameo (3 years old) has already expanded to reach India, connecting Bollywood stars and cricket players with mass audiences. SF-based Faire (3 years old) just announced an initiative in Canada. Companies that internationalize at this pace is fairly unprecedented, and I’m curious to find more tools that speed up and support that process even more. Looking to my second question, there are large, complex corporations managing business lines across many countries and geographies. Orchestrating global reach comes with a different set of challenges than scaling to it. There are countless contractors and counter-parties, payroll requirements (check out Papaya), legal entity creation, bank accounts, physical location expansion necessities (look at the playbooks of Luckin Coffee and Oyo Rooms), etc. The list could go on.
Often times, setting up global software infrastructure provider will require schlep work on the part of the founder. MessageBird spent years building direct integrations with telecom companies across the globe before Accel invested. However, the juice may have been worth the squeeze.
Next-Gen Technical Architectures: If you want to know why venture capitalists love enterprise infrastructure and IT companies, look at the current assets of the largest technology businesses. In July 2019, Cisco had almost $100B of total assets with $33B in cash. In May 2019, Oracle boasted similar numbers. It’s unlikely that major technology giants will innovate on their architectures in-house, but they do have a lot of acquisitive horsepower.
Computing platform shifts (mainframe, server-client, cloud, hybrid cloud) have brought new companies forth in core infrastructure (compute, storage, networking), data (management, backup, search), monitoring, and security. New components within infrastructure include observability (tracing, metrics, logging) and resiliency (penetration testing, site reliability engineering). Finding companies that serve these purposes within the constraint of a new architecture or paradigm has proven to be a winning formula in venture and will probably do so in the near future. And now, with open-source as one of the leading adoption models for mission-critical software, enterprise infrastructure companies can grow even faster.
Some of the things to pay attention include companies built in and around event-driven architecture / Kafka, data graphs, and hybrid-cloud.
B2B Commerce Enablement: Semil discussed B2B marketplaces in a post yesterday, but I’ll expand on this line of thinking we’ve done internally at Haystack. At a fundamental level, online B2B marketplaces are about large swaths of the global economy coming online — the world of atoms.
With these companies, it’s important to enter the value chain and capture part of the transaction, but take rates are tough. We’re seeing companies that look like marketplaces within specific verticals, but act more like operating systems. They connect multiple notes in the supply chain — producers, distributors, buyers — and monetize through value-add services that provide liquidity like lending, insurance, logistics, dispute resolution, messaging, and data. On messaging and data specifically, I think about what the Bloomberg Terminal for X would look like.
We’ve paid attention to industry-specific solutions, as well as B2B commerce infrastructure companies, where I love Chris Dixon’s old heuristic — making industries garage-ready for startups. He writes, “Tech sectors tend to get really creative when they become “garage ready”: a Steve Jobs and Steve Wozniak, or a Larry Page and Sergey Brin, can, with very little capital, change the world. It happened with semis in the 80s and happened in the 90s and 2000s for internet companies. Eventually every vertically integrated, capital-intensive sector becomes garage ready.”
Software Eats the Lab: I’d like to spend more time in 2020 with companies building software applications and tooling for the life sciences industry. I’ll be the first to admit I’m a relative novice in this market, but am eager to learn more. There have been a handful of interesting companies funded in recent years, such as Benchling (R&D cloud), Clora (talent marketplace), TetraScience (lab monitoring), and Transcriptic (on-demand bio).
I’m pulling on a few threads. One is engineering and workflow applications with native functionality for new drug discovery and analysis methods. Another would be the “Amazon warehouse” effect — how do you optimize robots and humans in a controlled environment with a higher level of efficiency? Dillon’s post from earlier this year will likely lead you down a few rabbit holes.
Workflows Tucked Behind an API: In this podcast with Patrick O’Shaughnessy, Elad Gil mentions pieces within a Fortune 500 company done over and over again as a mold for emerging startups (~29:30). In recent months, I’ve had conversations with other people where a similar concept has come up, so I thought I’d spend some time trying to unpack this business mechanic. I personally defined the heuristic as: “take a manual and often-repeated Fortune 2000 internal process, create a workflow and API for it, and self-serve to a growing segment of startups (an example would be the on-demand economy in 2015).”
Companies like Lob (direct mail), Middesk (business identity verification), and Checkr (background checks) have gained steam by following this playbook. And it’s no accident that Benchmark recently funded Modern Treasury (payment operations API) and Duffel (travel operations API).
If you enjoyed this essay, have feedback for me, or are building something in one of these spaces, feel free to get in touch with me on Twitter.