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Tony C.
··Ωf Jury memberThe Internet tailwinds that propelled Silicon Valley’s meteoric growth for decades are stalling out. The ripple effects will jolt the tech industry.
In the late 1990s, the tailwinds began when Internet usage surged from a nerdy hobby on the West Coast to a global household necessity. Since then, the Internet has consumed an ever-increasing percentage of consumers’ time and money. Smartphonesand social networks became ubiquitous.
These tailwinds swept businesses, too. Enterprises SaaS spend has skyrocketed by more than an order of magnitude. A Cambrian Explosion of cloud infrastructure and business tools shattered capex barriers to starting companies.
As market tailwinds grew at 20%+ CAGR, the market dynamics shifted so quickly that incumbents couldn’t react, leaving room for startups to emerge. When SaaS spend grew 50% per year, it was hard not to find green pastures as a new software startup. And consumers doubling their Internet spend and smartphone usage simultaneously every couple of years opened a massive window for new mobile applications.
The current exponential growth in VC fundraises, startup projections, and valuations for the past two decades all assume these tailwinds will continue in the 2020s. Many valuations are derived from expanding public multiples of next-twelve-month revenue, which in turn assume continued exponential market expansion. But if you look at these supposed tailwinds today, a gloomier picture appears: they are not exponential functions, but logistic functions with plateauing growth rates.
read John Luttig's full article here
In the late 1990s, the tailwinds began when Internet usage surged from a nerdy hobby on the West Coast to a global household necessity. Since then, the Internet has consumed an ever-increasing percentage of consumers’ time and money. Smartphonesand social networks became ubiquitous.
These tailwinds swept businesses, too. Enterprises SaaS spend has skyrocketed by more than an order of magnitude. A Cambrian Explosion of cloud infrastructure and business tools shattered capex barriers to starting companies.
As market tailwinds grew at 20%+ CAGR, the market dynamics shifted so quickly that incumbents couldn’t react, leaving room for startups to emerge. When SaaS spend grew 50% per year, it was hard not to find green pastures as a new software startup. And consumers doubling their Internet spend and smartphone usage simultaneously every couple of years opened a massive window for new mobile applications.
The current exponential growth in VC fundraises, startup projections, and valuations for the past two decades all assume these tailwinds will continue in the 2020s. Many valuations are derived from expanding public multiples of next-twelve-month revenue, which in turn assume continued exponential market expansion. But if you look at these supposed tailwinds today, a gloomier picture appears: they are not exponential functions, but logistic functions with plateauing growth rates.
read John Luttig's full article here
