This morning I covered three funding rounds. One dealt with the no-code/low-code space, another focused on the OKR software market and the last dealt with a company in the consumer investing space. Worth a combined $420 million, the investments made for a contentedly busy morning.
But they also got me thinking about startup niches and competition. Back in the days when inside rounds were bad, SPACs were jokes and crypto a fever dream, there was lots of noise about investors who declined to place competing bets in any particular startup market.
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This rule of thumb still holds up today, but we need to update it. The general sentiment that investors shouldn’t back competing companies is still on display, as we saw Sequoia walk away from a check it put into Finix after it became clear that the smaller company was too competitive with Stripe, another portfolio company.
But as startups get more broad and stay private longer, the space into which VCs can invest may narrow — especially if they have a big winner that stays private while building both horizontally and vertically (like Stripe, for example).
Does that mean Sequoia can’t invest elsewhere in fintech? No, but it does limit their investing playing field.
Which is dumb as hell. Nothing that Sequoia could invest in today is really going to slow Stripe’s IPO, unless the company decides to not go public for a half-decade. Which would be lunacy, even for today’s live-at-home-with-the-parents startup culture that leans toward staying private over going public.
So for a while at least, a great host of investors who put money into Stripe are now limited in where they can deploy capital, else risk the wrath of a huge private company and one that we saw — presumably, I should add — flex its muscles when it isn’t happy. Sequoia didn’t walk away from what looks to be an eight-figure check into Finix without a reason.
Past the Finix-Stripe dustup that will never, ever not be funny, I think the no-investing-in-competitors rule is losing its edge for another reason beyond the fact that it’s hard to avoid having late-stage startups rub up against one another. The rule is also losing relevance because the markets in question are simply bigger than most folks anticipated. Or at least bigger than I anticipated.
Take the OKR software space. When Gtmhub raised a huge Series B this year, this column compiled a list of growth results from other startups in its niche that were all growing like the dickens. And then today, Ally.io, another competitor in the OKR-focused corporate planning space, announced an even-larger $50 million round. Hot damn!
It grew 5x or something since its Series B, or about 15 months. Every startup in the OKR space is doing great, which suggests that their market is so enormous, there’s is room for them all, at least for the foreseeable future. Perhaps through Series D. Then we might see some consolidation.
There’s so much room in the OKR-genre of software, surely there’s room for investors to back other startups in some other realm of corporate software planning. The market is so vast, they would rarely even hear about each other. And they would only be somewhat related, right?
So much like the other rules of venture capital that ceased to obtain once VCs lost their stranglehold on power and had to become founder-friendly to remain competitive, I wonder if we’ll see the “no investing in competitors” rule gently ease over time. There’s just so much sea, why can’t you back two fish that like a related, if similar food chain?