Tech: Bigger Is Much, Much Better

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Tech: Bigger Is Much, Much Better

We came across three stories in tech-disruption land over the weekend that really hammered home the importance of scale across both fundraising and business execution. It is a theme that goes somewhat counter to the idea of “creative destruction” we all think is at the center of innovative disruption. Fast moving mammals are supposed to replace sluggish dinosaurs. Apparently T. Rex disagrees…

#1. Techcrunch had a great bit of analysis looking at the increasing frequency of $100 million rounds for venture capital-backed companies. Rather than seeding a forest of new competition, VC is increasingly focused on a handful of already large trees. The numbers:

  • Back in Q1 2017, 35% of VC rounds to individual companies were for $100 million or more.
  • In the quarter just ended, Q2 2018, that number grew to 61%.
  • The same trend holds true when you look at total dollars spent, with +$100 million deals responsible for most of the growth in total venture capital invested over the last 6 quarters.

Our take: now you know yet another reason why you can’t buy many of the world’s most exciting growth companies in the public equity markets. They are getting all the capital they need from VCs, and then some.

Source: https://techcrunch.com/2018/07/22/inside-the-rise-and-reign-of-supergiant-venture-capital-rounds/

#2. Case in point: SoftBank’s Vision Fund wants to put almost $1 billion into SenseTime Group, a Hong Kong artificial intelligence company with cutting edge facial and object recognition technology. SenseTime has already done several rounds, but SoftBank is aggressively pushing to give the company even more capital.

Our take: SenseTime is the single most important tech disruptor most public equity investors have never heard of. Their largest customer is the Chinese government, which uses their facial recognition technology and helps the company further refine its algorithms. A notable difference to how western countries view this technology, we would note. And probably one that yields a faster development cycle.

Source: https://www.scmp.com/tech/enterprises/article/2156135/softbank-fund-seeks-investment-chinese-ai-giant-sensetime

#3. At the other end of the spectrum, Facebook, Google, Twitter and Microsoft announced that they are working on something called the “Data Transfer Project”. The idea here is to give users open source data portability. This would allow you to move all your contacts to a new app or backup your list someplace besides Facebook or Microsoft Office.

Our take: the idea is only at the whitepaper stage, but it shows how Big Tech is trying to get ahead of obvious regulator concerns regarding users’ control of their personal data. And because the companies involved are global leaders, they will get to define the structure of this solution. Scale has advantages, and these companies know how to leverage it.

Source: https://techcrunch.com/2018/07/20/data-transfer-project/