Venture capital is the business of hitting home runs. But must a startup have the potential to capture the vast majority of market share in its category to earn an investment? I don’t think so.
A few days ago, the co-founder and CEO of Thumbtack, Marco Zappacosta, came on TechCrunch’s Found podcast to talk about building his home services startup. I asked him what was next for Thumbtack, considering the startup is 15 years old and was last valued at $3.1 billion. I thought he might talk about a potential exit, but his answer surprised me.
“For our industry, [the adoption of booking home services online on a platform like Thumbtack] is less than 10%. We are still in the very early days of this sort of transition in evolution. I think people don’t appreciate how big this category can and will be,” Zappacosta said. “It also speaks to what we’re still trying to do, because we think we’re still early in this whole sector.”
Thumbtack shares that 10% figure with a handful of other players in the space, including TaskRabbit, Angie’s List and other startups like Jiffy. In home services, a company only needs to grab a few percentage points of the overall market share to be a multi-billion-dollar business.
If you think about it, most established categories look more like a handful of winners than just one. In the travel sector, there is Booking.com, Trivago and Kayak. Even established categories like credit cards see both Visa and Mastercard dominating the market.
Even markets with a seemingly dominant player can support multiple winners. In music streaming, Spotify seems like the clear victor in its category, but it has only 31% of the global streaming market — that’s significant, but there’s still a good amount of market share left for its competitors like Apple Music, Tidal, Deezer, Pandora, and SoundCloud. And while some markets like treatments for rare blood diseases may not be large enough to support numerous successful players, most do.