The flavor of the day
I was recently speaking with another investor about a potential e-commerce investment they’re looking into. While the investor really liked the startup, they were concerned by the threat that Amazon presents for the company. While Amazon has yet to focus on the company’s geography and vertical, the former is likely to happen within the next year and, given Amazon’s somewhat unexpected aggressive moves in the grocery space, it may also unexpectedly decide to focus on the company’s vertical.
While the threat presented by a large and well-funded competitor with a track record of strong execution is important to recognize, this threat alone isn’t sufficient to justify not investing in a team with a similar track record of strong execution with a singular focus on a large market.
The reason is that there is always a big and well-funded company with strong execution capabilities operating in or adjacent to a startup’s target market. Today, the flavor of the day is Amazon. Everyone is fascinated by the company. The respect is certainly deserved, but the fascination is excessive.
2 years ago, this company was Uber. A few years before that, it was Facebook. Before that, it was Google. And before that, it was Microsoft.
Despite Uber’s presence, competitors like Didi in China and Bitaksi in Turkey are clear market leaders. Despite Facebook’s presence, Snapchat emerged and is now a public company. Despite Google, DropBox is a leading player in the cloud storage space. And despite Microsoft, Google developed into the leading search engine.
While the presence or potential interest of a large company in a startup’s target market is a threat to the startup, it also validates the market.
And what the right startup has is talent and focus that’s very often not available to a large company. The right startup founder is at least as capable and more motivated than the division head leading a large company’s efforts in the startup’s market. And the startup’s singular focus on the market is different than the non-pole position which the market occupies on the large company’s priority list.
Sometimes the large company also has users or customers in its core market who it doesn’t want to risk alienating by aggressively entering a new market.
For all these reasons, know the flavor of the day. But also know that it’s just that.
Originally published at Thoughts of a VC.