Startups: the end of an era?
Recently, software engineer and novelist Jon Evans posted a rather thought-provoking story, that quickly made its rounds in the startup community, on TechCrunch about the end of the startup era.
The first point of Jon’s thesis is that incumbents in the tech world are gaining so much power it is easy for them to acquire new startups or erode their opportunities. It is worth remembering that currently the present value of the “big 5” (Apple, Alphabet, Microsoft, Amazon and Facebook) is bigger than UK’s GDP.
Secondly, he lists a series of new technologies, such as AI, VR or self driving cars, that will have increasing importance in the tech world in the upcoming years and notices how they are way less accessible than creating a webpage or an app and much more capital intensive. Furthermore, they will rely exponentially more on big databases accessible to internet giants rather than a garage based startup.
Lastly, he notices that even Y Combinator, the “gold standard” of startup accelerators, is finding it ever more difficult to find “the next big thing” compared to 6 years ago when it was funding Airbnb, Dropbox, and Stripe.
But what is exactly a startup?
Even though we have all heard this term, you could hardly find two people able to give you the same definition, and even between experts in the field there is some confusion. The best definition may come from Paul Graham, who stated that a startup is a company designed to scale up very quickly. This may give us a first clue of why Evans may be wrong. A startup is not just any newly born tech firm, it’s one that has the ability to grow in its market, and when a company has such prospective capitals it will race to come no matter what. As an example take Tesla which has not been able to generate a single dollar of profit since it was founded, but since the market-disruptiveness is all there, it has a market capitalization bigger than much more profitable and bigger companies such as Ford, BMW or GM.
Some numbers at first sight may actually seem to confirm Evans’ view, even though probably they are telling a different story. Startup Funding in America was down to 69 billion this year from a figure of 77 just twelve months ago and it is expected to go down to 53 next year. But at the same time, in Europe, funding has peaked to record 4,3 billion in 2016 and it is forecast reach 7 billion this year. In China start-up funding is expected to boom as well. If this trend continues in the next two years, China will overtake the US.
Around the world, an increasing number of cities are calling themselves the next ‘Silicon Valley’. But as America is falling behind, they should probably upgrade their ambitions to next Shenzhen, a city that in thirty years moved from being a small fishing village to one of the most important and startup intensive cities in the world and home of companies such as DJI.
Capitalism is strongly tied with Darwinism. The best carries on and the others fail. This is also true in the Tech world where failure is one of the main topics in all summits and it is vied as the first step towards a new initiative. Unfortunately, this principle may actually be fading on the other side of the Atlantic with Big Tech companies acting more and more as monopolists in their field and undertaking initiatives that prevent competition. The positive side of the story is that this changing pattern in the US may drive other countries in Europe, China and beyond to claim a more important role in the future of start-ups. At the recent Lisbon Web Summit, Margrethe Vestager, the European competition commissioner who recently fined both Google and Apple, said: "We have no objection to Google dominating the market with its search engine. We just don't want it to use that dominance to squeeze out competition,". A lack of competition, she said, can "end up closing the door to innovation. Companies like Google have a responsibility because they hold all these powers."
Another positive insight comes from Augusto Coppola, director of Luiss Enlabs (a start-up accelerator that recently moved to Milan, becoming the 42nd accelerator in the city that is already home of initiatives such as SpeedMiUp or PoliHub) who stresses how TechCrunch didn’t consider enough the real role of startups.
In fact, many take the view that the true role of start-ups is to solve local problems that one may find in a country or culture but not in another. Therefore, we could say that opportunities start-ups have in a country such as Italy are certainly not the same as the US or in China. Therefore giving plenty of scope for countries round the world to exploit those opportunities unique to them and possibly take the lead in the digital global arena.
WRITTEN BY NICOLA LIPARI FOR BESA
PLEASE DIRECT ANY INQUIRY TO AS.BESA@UNIBOCCONI.IT