Venture Capital in 2020/2021 and “The Postmates Effect”. I.e., It’s OK to Be #2 or #3 Now.

I was recently catching up with one of the top VCs of all time on what was new.  He said the biggest change in venture capital wasn’t investing over Zoom, or Cloud multiples, or even the pace of investing today.  No, the biggest change in Venture Capital in 2020-2021 is what he called “The Postmates Effect”.  That Postmates was arguably #3 to Doordash and UberEats, and still was worth billions:

Put differently, Cloud has gotten so big, that every winner is now a decacorn and no longer “just” a unicorn, i.e. worth >$10 billion.  And because of that, for maybe the first time, the #2 and even the #3 in the market can be worth $1b+:

VCs traditionally only want to invest in #1 in the market, on the assumption they’ll often obtain 50%-80% market share.  We’ve seen this with Salesforce, with Zoom, with Slack, etc. etc.  Winner doesn’t take all in software, but it often takes most.

But what if the winner is worth $30b?  Then even 20% of that is $6b.  That’s more than enough to be a huge win for VC, and for everyone, really.

So VCs now are more and more willing to fund the #2, #3 and even #4 in a very hot market.  Look at the dozen+ VC investments in second tier digital events software companies since Covid.  We didn’t even need any of them before Covid, not really.  Look at the massive investments in productivity software.

In SaaS product management, compare Asana to Monday.com to Clickup to Wrike.  Which will be #1 in the long run?  Who knows.  What is clear is they all are, or can be, unicorns.  All of them.

Or in SaaS call center, compare Talkdesk ($3b+) to Dialpad ($1b) to Five9 ($9b) to RIngCentral ($24b).  They are all unicorns.

In eCommerce, Shopify is worth a stunning $133b today.  That leaves plenty of room for BigCommerce (and others) to be worth $5b.

In email marketing, Mailchimp is at $1B ARR.  But that leaves plenty of room for Activecampaign, Klaviyo, and others to all be worth $1b+.

This is exciting news for SaaS and Cloud entrepreneurs.  It means more funding, and more exits, and more value.

Being #2 has never been more exciting.  Especially if you are growing as fast, or faster, than #1.

The Virtues and Opportunities in Being #2

Published on October 28, 2020

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