STRS: The Economist Ignores Vibrant Startup Ecosystem To Take Shots At Leading Tech Services
The latest issue of The Economist features an article that blames America’s leading tech services for allegedly quashing tech start-ups. The piece misses the mark in five key ways:
1. Investment in the sector is at a 20-year high, driving 57 startups to unicorn status last year — but only one in Europe. A World Economic Forum study found that in 2017, there were “57 startups that crossed the unicorn threshold, and they range from well-known companies, such as Reddit or Quora, to rapid-risers like China’s Toutiao (now valued at $20 billion), which has seemingly come out of nowhere.”
2. Although venture capital trends have evolved, total funding continued to rise for seed and Series A through D financings last year with total VC-back start-up financing hitting a record of $71.9B. The Economist news story doesn’t explore the shift to larger, but fewer deals, focusing exclusively on the potential role of leading tech services.
—As Sapphire Ventures partner Elizabeth Clarkson recently said, there “is no shortage of capital available to invest in early-stage companies. … What seems to have changed, however, is that investors are moving to concentrate their capital in fewer and hopefully higher quality deals.”
—Victor Basta, venture capitalist and founder of Magister Advisors, writes: “Arguably, post-implosion, early-stage VCs have become more ‘rational’ and we are unlikely to see the ‘spray and pray’ approach that dominated a few short years ago.”
—Indeed, The Economist recently reported on Softbank’s $100 billion tech fund “giving new opportunities to entrepreneurs and forcing Silicon Valley’s best to stay relevant.”
3. The Economist’s alleged “kill zone” focuses on email but fails to note enterprise solutions like Slack that are disrupting it. As ComputerWorld’s Matthew Finnegan recently noted, “Slack effectively created the market for team-based chat tools when it debuted four years ago, and has since seen a slew of competitors launch rival products. According to the latest user adoption stats released by the company, Slack now counts 8 million daily active users across more than 500,000 organizations. That’s up from 6 million last September, when the company touted $200 million in annual recurring revenues.”
4. Acquisitions and buyouts are an incredibly important aspect of the technology sector, and limiting these transactions would reduce innovation. As Bruce Hoffman, Director at the FTC’s Bureau of Competition, recently said, “To the extent exit strategies for startups involve acquisitions, if such acquisition opportunities are constrained the capital available for startups may fall. That, in turn, could result in fewer startups.”
5. Competition in the tech sector comes not just from startups, but other leading tech services as well.
—As David Evans notes, leading tech services compete against each other in at least 27 different categories.
—Just this week, for example, Apple was revealed to be expanding its digital advertising business. As The Wall Street Journal wrote, “Tech giants increasingly are elbowing into each other’s turf seeking new sources of growth.”