The Cambrian Explosion Has Ended
Tech booms emerge like the Cambrian Explosion of life 500 million years ago — a period of rapidly filling every ecosystem niche with experiments. Or, if you like, like Microwave Popcorn. After heating up, the new ideas begin popping, more and more rapidly; then suddenly slow, down to an occasional pop, with some uncooked kernels left behind.
The iPhone and cloud software unleashed our popcorn, until practically every app idea had been tried, multiple times; and businesses had begun to feel SaaS fatigue of too many subscriptions. Now, past the boom, new ideas are slowing down, and the winners are beginning to consolidate the ecosystem.
Our own analysis at Bullpen, using Pitchbook data, indicates a 25% drop in the number of startups since the Unicorn Bubble burst last year. Other data shows later-stage valuations dropping quite dramatically, as much as 50% in some stages, although this hasn’t yet reached down to seed and A rounds as badly. The WSJ just reported that stock options are losing their appeal in new startups. Their data service, Venture Source — which we consider seriously dated as a reliable VC data source — reports an astounding drop in valuations of startups from $61.5m last year to $18.5m in Q1 this year. Nonetheless, it is directionally correct if grossly excessive in its magnitude.
So it has ended, and ended how tech boom throughout history have behaved.
We now enter the Consolidation Phase, where value flows not to the new but to the winners. In 1987, after the PC Boom plateaued, where hundreds of companies had been started, if you had invested in the top 40 winners you would have made 40 times your money over the next ten years. Something similar is starting today. We should see SaaS suites emerge, much as Microsoft Office sucked the lifeblood out of PC software decades ago. Smartphone apps will become their own versions of suites, as for example Google Maps begins consuming as features what used to be clever apps.
The next wave beckons, where a new explosion will emerge. Its contours are visible but not its genesis. Some are betting on VR as the new screen; others on IOT as going from a market of billions (of smartphones) to trillions (of Things). Some await The Singularity of AI and the Robo-Apocalypse. I think Digitization will be huge, as Industry goes digital and inventions like 3D printing transform trillions of dollars of trade flows across global supply chains.
But not yet. Now to consolidate the Smartphone Era.