Who Are The Next Disruptors?That Was The Week

By Keith Teare • Issue #21 • View online

CNBC chooses the most disruptive companies each year. This year’s top 50 have been revealed. Who’s in and who’s out?

Content

Editorial

CNBC’s annual disruptors list is a trailing indicator of what is hot in the world of startups. It is way too late for normal venture investors to benefit from the news and usually too early for public markets to focus on them. But for the companies, it is a right of passage to significant amounts of private capital.

Here is this year’s list in an Airtable Database I made:

CNBC points out that the companies “have raised over $72 billion in venture capital, according to PitchBook, at an implied Disruptor 50 valuation of more than $388 billion”. 12 have already had public exits and four are involved in SPAC mergers.

A majority of the CNBC Disruptor 50 are already billion-dollar businesses. Thirty-four disruptors are unicorns that have already reached or passed (in some cases far surpassed) the $1 billion valuation mark — 10 of the companies on this year’s list are worth at least $10 billion.

So…no real credit to CNBC for “spotting” them then. But these are still great companies. Many more will go public and some will benefit from the new types of investment now making an impact in late-stage investing.

But these are the disruptors of the last 5 years, not the next 5.

The most interesting disruption happening in my world is the disruption of the old venture capital ecosystem.

Tiger Global, Coatue, Insight Partners, and others are disrupting venture capital by taking over late-stage private investing. SPACs are disrupting late-stage investing by opening public markets for slightly earlier-stage companies.

An educated scan of the CNBC list tells us just how much structural change is happening in Venture Capital and Growth Capital. It is no longer clear who is a PE Fund, a Hedge Fund, a Venture Fund, or a public markets investor.

This Week’s ‘That Was The Week’ has articles about Tiger Global, it also has Andreessen Horowitz’s testimony about IPOs, SPACs, and Direct Listings. Mark Suster writes about why venture is a long game and Saastr looks at acquisitions and concludes that only an IPO represents a good exit strategy for venture investors.

But the story of the week for me is the one about Facebook deciding to un-ban those who write about Covid being man-made. During the former administration, any talk indicating that the virus could have been made in a lab in Wuhan was censored. Now that the Biden administration has opened an investigation into that possibility Facebook has decided it is OK to imply it.

This story reinforces what I have said many times in this newsletter. Leave us humans to decide what we do and do not believe. If you think you know best and act on that instinct, you are both a censor, and probably wrong. Being wrong is forgivable. Being a censor is not. I personally have no evidence that the virus was or was not man-made. I do however think I can make my mind up over time. And I have no reason to be afraid of views on either side. I do not need protection.

Canceling people also backfired this week. A pro-Palestinian former Stanford University journalist, Emily Wilder was fired for views held while in college. Republicans rounded on her former views as a reason for dismissing her:

Wilder, who worked with the Arizona Republic upon graduation until this May, became a national news story after the Stanford College Republicans wrote a Twitter thread Monday highlighting Wilder’s pro-Palestine activism in college as well as some of her old Facebook posts. In one post, Wilder referred to the late Sheldon Adelson — who was a Jewish billionaire, Republican mega-donor and staunch defender of Israel — as a “naked mole rat.”
Wilder, who is Jewish, said she would not have used such language today. Not long after the thread started to gain steam on Twitter, Wilder says an Associated Press editor called her and said she would not get in trouble for her past activism and social media activity.
SF Gate – https://www.sfgate.com/politics/article/Emily-Wilder-Associated-Press-Israel-Palestine-AP-16192391.php

This is just one example that seeking to punish people for their views has no boundaries and that society itself will be the worse for it. Let’s talk, not ban.

The Next Disruptors

CNBC Disruptor 50

In the ninth annual Disruptor 50 list, CNBC highlights the private companies leading out of the pandemic with business models and growth rates aligned with a rapid pace of technological change.

Investors have taken notice that the companies on the 2021 Disruptor 50 list have become critical players in fundamental economic and consumer transformations. A majority of the CNBC Disruptor 50 are already billion-dollar businesses. Thirty-four disruptors are unicorns that have already reached or passed (in some cases far surpassed) the $1 billion valuation mark — 10 of the companies on this year’s list are worth at least $10 billion.

The 50 companies selected using the proprietary Disruptor 50 methodology have raised over $72 billion in venture capital, according to PitchBook, at an implied Disruptor 50 valuation of more than $388 billion. While technologies including AI, 5G, cloud computing and the Internet of Things are key to many companies making the 2021 Disruptor 50 list, the sectors they are upending are widespread, from financial services to health care, biotech, education, food, media, agriculture and transportation.

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The 2021 CNBC Disruptor 50: How we chose the list of companies

With 12 public exits and four pending SPAC mergers, competition for the 2021 CNBC Disruptor 50 was as wide open as ever.
For the fifth straight year, a record number of nominations were submitted:1,565 start-ups aiming to make the annual list.
In addition to quantitative information, companies were asked to include descriptions of their core business model, ideal customers and recent milestones, evaluated by hundreds who read the submissions and provided holistic qualitative assessments of each nominee.

A record 1,565 start-ups were nominated for the 2021 CNBC Disruptor 50. Here’s the criteria that ultimately set the list-makers apart from the field.

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‘All-Out War’ in Streaming

“It’s All-Out War”: WarnerMedia-Discovery Deal Ushers in New Era of Streaming Chaos

When AT&T swooped up WarnerMedia three years ago, there was consternation among television fans and critics. WarnerMedia was the home of HBO, after all; what horrors would the telecom company’s functionaries visit on the crown jewel of prestige television? John Stankey, the AT&T veteran who was to lead WarnerMedia, opened by telling HBO employees, “I want more hours of engagement” in order to monetize data and information — not exactly the kind of reassurance employees or HBO aficionados wanted to hear.

Under AT&T’s auspices, HBO nevertheless continued to turn out critically acclaimed series like Watchmen, I May Destroy You, and Succession. The company also successfully launched the HBOMax platform into an increasingly jam-packed streaming scene a few months into the pandemic. Yet there was no question that behind the scenes, a culture clash brewed.

“AT&T’s ham-handed approach to strategy over the last decade when it comes to media has just been a disaster,” Tim Hanlon, CEO of consulting company The Vertere Group, told Vanity Fair this week. The marriage of AT&T and WarnerMedia was a match made in hell. “It’s a completely different mindset, skillset, and imagination set,” he said, “collision of art and commerce. Telcos are the ultimate domination of spreadsheets and revenue streams where the movies and television [business] is very hit-driven, and much more qualitative in its success.”

Discovery and WarnerMedia have very different auras; the former company and its offshoots, including TLC, Food Network, and HGTV, are known for unpretentious and unscripted content, ranging from 90-Day Fiancé to Dr. Pimple Popper to Deadliest Catch. Still, Hanlon sees Discovery — which, as announced this week, will soon merge with WarnerMedia to create a brand-new venture — as a more harmonious partner for WarnerMedia than AT&T. “In essence,” he said, “these are folks who understand how to create television, how to create video, how to create content and maximize its distribution.”

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Opinion | AT&T’s Sorry Retreat From Digital Media — The New York Times

By Kara Swisher

On Monday, the wireless-telephone behemoth AT&T gave up the ghost in its pricey and ambitious plans to transform itself into a media giant by announcing that it was spinning off WarnerMedia into a merger with Discovery.

It was a complete about-face from its once-touted strategy to take on Big Tech and dominate the next phase of the information age. AT&T’s top executive tried mightily this week to make the deal look like a win for his company by painting a picture of vast sums of money well spent. It was anything but that.

What AT&T is getting back in the deal is well below the more than $85 billion that AT&T paid only three years ago to purchase Time Warner, which included media gems like CNN and HBO. That’s why some analysts have made a persuasive case that the AT&T chief executive, John Stankey — who spearheaded the 2018 deal, as well as AT&T’s disastrous acquisition of DirecTV three years before that — is the worst media strategist in recent memory.

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Amazon buys Hollywood studio MGM in $8.45bn deal

Battle for streaming supremacy hots up after acquisition of studio behind James Bond franchise

Amazon has bought MGM, the Hollywood studio behind the James Bond and Rocky franchises, for nearly $8.5bn as the battle for global streaming supremacy reaches new heights.

The scale of the deal far exceeds the $5bn (£3.5bn) price tag suggested when the studio put itself up for sale in December, as the fight to secure must-watch programming fuels fierce bidding wars for owners of increasingly scarce “crown jewel” content.

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Anti-Trust Confronts Amazon

A New Antitrust Case Cuts to the Core of Amazon’s Identity

“I FOUNDED AMAZON 26 years ago with the long-term mission of making it Earth’s most customer-centric company,” Jeff Bezos testified before the House Antitrust Subcommittee last summer. “Not every business takes this customer-first approach, but we do, and it’s our greatest strength.”

Bezos’ obsession with customer satisfaction is at the center of Amazon’s self-mythology. Every move the company makes, in this account, is designed with only one goal in mind: making the customer happy. If Amazon has become an economic juggernaut, the king of ecommerce, that’s not because of any unfair practices or sharp elbows; it’s simply because customers love it so much.

The antitrust lawsuit filed against Amazon on Tuesday directly challenges that narrative. The suit, brought by Karl Racine, the Washington, DC, attorney general, focuses on Amazon’s use of a so-called most-favored-nation clause in its contracts with third-party sellers, who account for most of the sales volume on Amazon. A most-favored-nation clause requires sellers not to offer their products at a lower price on any other website, even their own. According to the lawsuit, this harms consumers by artificially inflating prices across the entire internet, while preventing other ecommerce sites from competing against Amazon on price. “I filed this antitrust lawsuit to put an end to Amazon’s ability to control prices across the online retail market,” Racine said in a press conference announcing the case.

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How a small antitrust lawsuit against Amazon could mean big things for Big Tech

Amazon CEO Jeff Bezos testified before the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on July 29, 2020. | Mandel Ngan/AFP via Getty Images

DC’s attorney general is suing Amazon over a controversial policy.

Another attorney general is boarding the Big Tech antitrust lawsuit train: Washington, DC, Attorney General Karl Racine is suing Amazon for engaging in anticompetitive acts that he says have raised prices and stifled innovation.

The complaint accuses Amazon of abusing its market position by requiring, in practice, that third-party sellers offer their products for the same price that they sell them elsewhere. This has raised the price of goods overall, the complaint says, which means DC residents are paying more than they otherwise would.

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You’re Canceled Too

The trouble with inventing new forms of warfare is that your opponents eventually adopt them. Now conservatives are getting people canceled too.

Eric Ting, SFGATE

Emily Wilder, a journalist and 2020 graduate of Stanford University, started a new job as an Associated Press news associate based in Maricopa County, Arizona, on May 3.

Two weeks later, she was unceremoniously fired by the news outlet after conservatives resurfaced old social media posts that drew attention from Republicans as prominent as Arkansas Sen. Tom Cotton. In Wilder’s eyes, her firing is the latest example of right-wing cancel culture.

“There’s no question I was just canceled,” Wilder told SFGATE by phone Thursday afternoon. “This is exactly the issue with the rhetoric around ‘cancel culture.’ To Republicans, cancel culture is usually seen as teens or young people online advocating that people be held accountable over accusations of racism or whatever it may be, but when it comes down to who actually has to deal with the lifelong ramifications of the selective enforcement of cancel culture — specifically over the issue of Israel and Palestine — it’s always the same side.”

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You’re Un-Cancelled

Facebook lifts ban on posts claiming Covid-19 was man-made

Facebook has lifted a ban on posts claiming Covid-19 was man-made, following a resurgence of interest in the “lab leak” theory of the disease’s onset.

The social network says its new policy comes “in light of ongoing investigations into the origin”.

In February, Facebook explicitly banned the claim, as part of a broad policy update aimed at “removing more false claims about Covid-19 and vaccines”. In a public statement at the time, it said: “Following consultations with leading health organizations, including the World Health Organization (WHO), we are expanding the list of false claims we will remove to include additional debunked claims about the coronavirus and vaccines.”

Anyone posting claims that Covid-19 was “man-made or manufactured” could have seen their posts removed or restricted, and repeatedly sharing the allegation could have led to a ban from the site entirely.

On Wednesday, the company said: “In light of ongoing investigations into the origin of Covid-19 and in consultation with public health experts, we will no longer remove the claim that Covid-19 is man-made from our apps. We’re continuing to work with health experts to keep pace with the evolving nature of the pandemic and regularly update our policies as new facts and trends emerge.”

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Does Tiger Have Teeth?

Tiger Global: what happens when ‘normal’ returns? — Sifted

Not a day goes by without a new European startup announcing a large fundraising round co-led by US hedge fund Tiger Global. Some say it’s a radical change of approach in the venture capital industry, while others suggest that it’s a fad. But how can we explain the rise of Tiger Global in the VC landscape? And what difference will it make from a European perspective?

In truth, it was only a matter of time before hedge fund managers turned their attention to tech startups. By definition, hedge funds (or rather “alternative asset management firms”) have the most flexible approach to allocating capital across asset classes, and those who manage them are constantly chasing the highest returns possible. Therefore in a world that is becoming more digital by the day, hedge funds had to set their eyes on tech at some point.

The issue with tech startups and tech companies is that relatively few of them are listed. This arguably is a challenge for hedge funds, which are used to making bets on public markets where they enjoy abundant information, a broad range of potential targets and liquidity.

Follow the (VC) money

The approach that Tiger Global has embraced to deploy capital in tech is best understood through this lens.

It has to renounce the liquidity because we’re talking about companies that are still mostly private; but it can still diversify with a large portfolio and use the information that’s available to make fast and sound decisions. In this case, the information is not the detailed figures that you can find in a public company’s quarterly report or the alternative data sets you can buy from a broker (the occupancy rate of supermarket parking lots as measured by satellite imagery is a classic example), but rather the information revealed by what tier-1 VC firms are investing in. As soon as a founding team enters advanced discussion with one of these firms, it is time for Tiger Global to use that information (which they typically learn from the founders themselves), step in and make an offer.

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How to Exit in Venture

The Only Exit “Strategy” Is IPO

At least a few times a week, I am sent a deck or exec summary that includes an “Exit Strategy”. The slide sometimes references a nice acquisition by an adjacent company, or a prior competitor or player in the space. It’s all fine and good, though I recommend just passing on making one of these slides. They often suggest you aren’t really Going Big. Which is OK … but it’s not what VCs and investors want to see.

But there’s a more important point here. Exits are rare in general. Big acquisitions don’t happen every day, no matter how it may seem on TechCrunch.

For a particularly visceral summary of that, looks at Dan Primack’s summary of Apple’s top acquisitions from a while back. There ain’t many big ones for a company as big as Apple:

The post The Only Exit “Strategy” Is IPO appeared first on SaaStr.

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On Going Public: SPACs, Direct Listings, Public Offerings, and Investor Protections — Andreessen Horowitz

Editor’s Note: This testimony was delivered by a16z managing partner Scott Kupor to the U.S. House of Representatives’ Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets (Committee on Financial Services) hearing on “Going Public: SPACs, Direct Listings, Public Offerings, and the Need for Investor Protections” May 2021. You can see some of his previous writings on this topic here and previous testimonies from him in here.

“…thank you very much for the opportunity to submit written testimony regarding capital formation and the state of the U.S. IPO market. By way of background, I am the Managing Partner for Andreessen Horowitz, a $16.5 billion multi-stage venture capital firm focused on IT-related investments…

I also serve on various investment committees, including for the St. Jude Children’s Cancer Hospital and the Stanford Medical Center, and teach entrepreneurship and venture capital at the Stanford Graduate School of Business. I previously served as the Chairman of the Board of Directors for the National Venture Capital Association, during which time I had the privilege of meeting many of you and your colleagues. Prior to joining Andreessen Horowitz, I held several executive positions in a publicly-traded software company and was previous to that an investment banker.

There are a number of trends concerning IPOs and capital formation to note:

First, the raw number of IPOs has declined significantly: From 1980–2000, the US averaged roughly 300 IPOs per year; from 2001–2016, the average fell to 108 per year. With the benefit of increasing IPOs in the last few years, we are starting to see better growth: In 2020, there were close to 500 IPOs in the U.S., double the rate of the prior year, 103 of those being venture-backed companies.
Second, the characteristics of IPO candidates have changed: fewer small companies are making it to the public markets.
“Small” IPOs — companies with less than $50m in annual revenue at the time of IPO — have declined from more than 50% of all IPOs in the 1980–2000 timeframe to about 25% of IPOs from 2001–2016;
Companies are staying private much longer — the median time to IPO from founding hovered around 6.5 years from 1980–2000; companies are now staying private for 10 or more years from founding;
As a result of companies staying private longer, the average size of IPOs has also grown significantly: in 2020, the average IPO raised $353 million, with 18% of all IPOs raising more than $500m each; and
Special Purpose Acquisition Vehicles (“SPACS”) represented 50% of all IPOs in 2020, a five-fold increase relative to 2019. In the first quarter of 2021 alone, SPACs raised $87.9 billion, more than was raised in the entirety of 2020, an admittedly banner year for SPACs.
Third, the cumulative effect of these changes is a hollowing out of the broader US capital markets and a decline in corporate competition: the number of publicly listed companies in the US declined by 50% over the last 20 years, while other developed countries have experienced a 50% increase over the same time period.

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Playing the Long Game in Venture Capital

Silicon Valley and the media industry that surrounds it values youth. The culture is driven by the 20-something irreverent founder with huge technical chops who in a “David vs. Goliath” mythology take on the titans of industry and wins. It has historically been the case that VCs would rather fund the promise of 100x in a company with almost no revenue than the reality of a company growing at 50% but doing $20+ million in sales.

The Valley has obsessed with a quick up-and-to-right momentum story because we were thought to live in “winner take most” markets. Since funds were driven by extreme successes in their portfolios where just one deal could return 5x the entire fund while 95% of the fund may have done well but not amazing, not missing out on deals was critical. It literally drove FOMO.

But markets have changed and I think investors, founders and experienced executives who want to join later-stage startups can all benefit from playing the long game. Think about how much more value was created for all these constituencies (and society) by Snap staying independent vs. Instagram selling to Facebook.

Photo by Aaron Andrew Ang on Unsplash

Playing the Long Game in Venture Capital was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

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Out Of The Office?

Snowflake goes HQ-less

The data analytics giant said it no longer has a corporate headquarters during Wednesday’s earnings call. Instead, Bozeman will be its “principal executive office,” a disclosure that is required by SEC rules. Snowflake previously listed San Mateo as its headquarters.

Other tech companies, like Tesla and Oracle, moved their headquarters from California during the pandemic, but made the relocations more permanent by formally establishing new main offices.

Snowflake still intends to keep its San Mateo office, but no one location will serve as its central hub, a spokesperson told CNBC. The company opted for Bozeman because its where both the CEO and CFO reside, according to an SEC filing.

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Africa is the Next Big Thing

Venture capital investment in Africa predicted to reach a record high this year TechCrunch

Investments in African startups keep growing at a healthy pace ever since reports started keeping count in 2015. That year, publications Disrupt Africa and Partech released independently researched and contrasting figures showing that venture capital investments hit $186 million and $277 million, respectively. Those are ridiculously low figures for a continent when you consider that four-year-old Snapchat raised more than $500 million in one round that same year. However, while the disparity in funding between Africa and a single high-growth U.S. startup continues, the good news is that more money is coming into the continent.

In 2019, Africa’s venture capital investments rose to an all-time high, per Partech’s report. According to Partech, 234 African tech companies raised $2.02 billion in 250 equity rounds. This indicated a 74% increase from 2018’s figure of $1.163 billion raised by 146 startups in 164 rounds.

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“The amount of attention that YC has helped bring to our ecosystem is something that you can’t downplay. In terms of helping businesses raise money and think bigger, I think YC has done really well.”disrupt-africa.com/2021/05/25/rav…

The Internet is Good

A thank-you note to the net

I want to say something unpopular and provocative: I am grateful for the internet, especially this year, most especially amid the pandemic that still engulfs the world. In media’s telling — according to my sampling from just one newspaper’s and one magazine’s coverage of late — the net is singularly to blame for the polarization […]

The post A thank-you note to the net appeared first on BuzzMachine.

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