The World Has (Finally) Gotten Flatter

I am a huge Thomas Friedman fan. As someone who has cousins from both Lebanon and Israel (thanks to the messiness of WW II and its impact on our family history), I simply adored From Beirut to Jerusalem. And he has been all over the impact of climate change and the world’s obligation to shift to renewable energy (see Hot, Flat, and Crowded). So when he published The World Is Flat in 2005, I lapped up his utopian vision of an integrated, globalized world. 

But in retrospect, Friedman’s book was quite a bit ahead of his time. When reviewing the actual data, his description of a flatter world where ideas and capital freely flow, knowing no boundaries, simply did not pan out. Or at least, until COVID. After decades of stubborn roundness, the world has dramatically shifted – particularly in Startupland – to finally becoming remarkably flat.

A Flat World: Delayed Reaction

Friedman’s predictions, and those of other globalization enthusiasts, faced strong skepticism after the book’s publication. As economist Pankaj Ghemawat wrote in Foreign Policy in 2009 in an article titled “Why the World Isn’t Flat”: “The most astonishing aspect of various writings on globalization is the extent of exaggeration involved. In short, the levels of internationalization in the world today are roughly an order of magnitude lower than those implied by globalization proponents.” Examining a range of data sets — from global migration to foreign direct investment (FDI) — Ghemawat showed the extent to which globalization had, in reality, stalled.

In the decade since Ghemawat wrote this criticism, many of these important measures have only gotten worse. FDI, for example, has actually gone down rather than up, as the chart below shows. As can be seen in the sharp dip in 2020, COVID may have accelerated digitization around the world, but it also slowed foreign investment and globalization.

Surprisingly, Foreign Direct Investment has been flat to down for the last 15 years.

In a recent article in The Economist covering the auto industry and its shift to electrification, I was struck by the fact that GM — still a powerful symbol of American industrial power — still derives 80% of its revenue from the domestic market, recently divesting its struggling operations in India and Russia. Hardly the outcome Friedman acolytes would have predicted 16 years after his declaration that a flat world would result in a “fundamental shift or inflection point” in how leading businesses would sit astride the globe.

Meanwhile, in Startupland: Flat, Flat, Flat

The odd thing, though, is that those of us in the venture capital (VC) industry are experiencing something on the ground completely different from what these figures and commentators suggest is happening in the mainstream economy. In fact, as VCs head into 2022 and continue to digest the implications of COVID on our operating model, I feel as if Friedman’s prediction of a flat world has finally arrived in full force in Startupland.

With the pandemic, geography suddenly no longer matters quite so much to either entrepreneurs or early-stage investors. Entrepreneurs can now easily access the investors who are the best fit for their venture in terms of specific expertise and value-add – and similarly, investors can now easily access entrepreneurs all around the world. Like many of our peers in the industry, the Flybridge partnership has become comfortable investing over Zoom in the last eighteen months.

Prior to making an initial investment decision, we often meet an entrepreneur only once in person to get to know them as a person and leader, and occasionally not at all. As a result, our geographic spread has changed dramatically. Previously, 40% of our portfolio came from each of NYC and Boston, where we have our two offices, while 20% of our companies were based outside these two cities. In contrast, in the last year, 75% of our new investments came from a wide variety of locations outside of these two centers, including the Bay Area, Denver, Los Angeles, London, Tel Aviv, Austin, Washington DC, Miami, as well as Cairo and Sao Paolo. Every single one of our colleagues in the VC industry is facing a similar, global expansion of geography — or dramatic “flattening”.

The vast majority of global venture capital is managed by US firms — according to the NVCA 2021 Yearbook, 67% of the $112B in global capital raised in 2020 was achieved by US firms (up from roughly 50% in 2015 and 2016). Thus, this greater comfort with geographic expansion by US firms is an important lever to drive more global startups to achieve success, which in turn will kick off a virtuous cycle and cause more global startups to attract more capital.

Global Unicorns: 2026

Although there has been a strong rise of global “unicorns” (i.e., a private company valued at over $1 billion), I would argue that this trend is only just beginning due to the shifting, COVID-induced investment patterns of VC firms. Because of the 5-10 year lag between when a company is first created and when it grows and matures to become a unicorn, we can expect to see a dramatic change in the number of global unicorns in, say, 2026. Comparing what the world looked like five years ago, in 2016, to today’s unicorn profile in 2021 might give us a few clues to help predict the 2026 outlook.

In December 2016, CB Insights indicated there were 183 unicorns (hat tip to the Wayback machine for helping me source this data), of which 55% were based in the US, 21% were based in China, and 24% were based in the rest of the world (ROW).

Today (in what is nearly December 2021), there are 848 unicorns (note: the CB Insights website indicates 887 but when one downloads their actual data set, they only have 848 categorized so there may be a data lag in the more complete categorization). Of these 848, 50% are based in the US, 19% in China, and 31% were based in ROW. Thus, a substantial, five percentage point increase in the share of “rest of the world’, despite the globalization trends remaining relatively tepid over the last ten years and despite the torrid pace of investing from the US-centric venture capital industry.

If we extrapolate five years from now into 2026 and assume that these trends continue, then we can posit that ROW will continue to gain in share and comprise of, say, 38% of the global unicorns. This figure is probably a very conservative one given the trends I highlighted earlier regarding the acceleration of US VC capital flowing outside the US. The chart below shows how this might play out in the coming years.

Rest of World is steadily increasing its share of global unicorns

On a percentage basis, this figure sounds relatively modest — another five percentage points in five years. But on an absolute number basis, the implications are profound. If we assume that the rate of growth of unicorns continues at a similar pace in the next five years as it has over the last five years, we will see a total of nearly 4,000 unicorns in December 2026. If the ROW share of unicorns does indeed increase to 38%, then the total number of unicorns from the rest of the world will be an astonishing 1,493 — an increase of 1,233. If the share actually accelerates a bit, then the total number of new international unicorns outside of China will equal that of the US — despite the fact that US VCs manage two-thirds of the industry’s capital.

Looking ahead, the number of new unicorns from Rest of World could outpace the US in the next five years

Unicorns or Bunnies?

The bottom line? In the coming years, US VCs — even small, niche ones like my firm, Flybridge — are learning to invest globally. As we make our first few investments in any individual country or region, our networks expand, our contextual awareness improves, and our comfort level for making the next new investment increases. As a result, international entrepreneurs are going to be able to attract US VCs in the coming years more easily than ever before.

And one final prediction — for those pessimists who think the unicorn herd is going to thin out in the coming years, think again. The unicorns are going to multiply so quickly in the next five years that we may start to think of them more like bunnies.

A Spoonful of Rational Exuberance

A young VC, when his hair was less gray, hanging with the former Fed Chair

Many people forget that former Fed Chair Alan Greenspan’s now-famous reference to “irrational exuberance” was in 1996. At the time, he asked the provocative question: “How do we know when irrational exuberance has unduly escalated asset values?”

Investors are asking themselves this poignant question over and over again in recent months. When my Flybridge partners and I were preparing for this week’s annual investor meeting, we stepped back to reflect on how to balance the obvious exuberance we are seeing in the market with our robust optimism that there are sound, fundamental reasons behind this exuberance. We came up with the phrase, Rational Exuberance, as the best way to capture the moment that we find ourselves in. Yes, valuations have soared and we VCs are all paying more as we construct our portfolios. Yet, like other top firms in the industry, we are realizing that for our best companies, the scale of market opportunities has proven to be much larger than previously anticipated. Our entry price may be 30–50% higher, but we are investing in companies that are exhibiting 3–5x higher exit potential. That’s a trade we will take over and over again. Let me unpack why we — and many others — have come to this conclusion.

Rational Exuberance?

Valuations have soared to a record high in the last few years, particularly in the public markets. For example, the NASDAQ has increased 105% in the nineteen months since the COVID-19 crisis in March 2020. And from the public markets, those valuations have cascaded down to the later stage private market, where capital is pouring in at record levels.

As a result, the rise in startup valuations — particularly later stage startups — is dramatic. The chart below, drawn from Pitchbook’s latest data set, shows the sharp increase in the last two years. Later stage financing valuations have grown so sharply and on such a large scale that the magnitude of the change in valuations at Flybridge’s stage — the seed stage, labeled here the Angel stage by Pitchbook — is imperceptible.

But everyone in our small corner of the early-stage market has also seen substantial valuation increases. When we analyzed our seed-stage deals across three recent cohorts — 2017–2018, 2018–2019, and 2020–2021 — we saw that despite being located outside the ridiculously competitive Silicon Valley (our offices are in NYC and Boston), our post-money entry valuations have grown 56% and 33%, respectively (see chart below).

Interestingly, each of these cohorts raised more capital. The average seed round size for our portfolio companies in 2016–2017 was $1.7M while it grew to $2.6M in our 2018–2019 cohort and then $3.3M in our 2020–2021 cohort. Entrepreneurs are taking advantage of the higher prices to raise more capital in the seed round and thus make more progress before raising their series As — leading to dramatically larger series As at dramatically higher valuations. Crunchbase recently reported that the average Series A round has increased from $6M to $18M.

Come on Get Higher!

Why are valuations rising across the board across all segments?

The obvious answers are Economics 101 (thanks, Alan) and well covered in the daily newspapers: capital is chasing yield in a low interest rate environment, more capital drives up prices (simple supply and demand) and at the same time, when later stage and public investors do their future value math for growth companies, low-interest rates result in higher future value calculations — thereby valuing growth even more.

The less obvious answers are what we are seeing on the ground as we work with our companies day-to-day. First, technology innovation is affecting and disrupting the entire $23 trillion US GDP. We used to focus on a little small corner of the market called the IT industry. Today, every company is a technology company, and every industry — from healthcare to financial services to retail to real estate — is being disrupted.

Second, with a nod to Thomas Friedman, the world has gotten flatter. Global smartphones have now reached over 80% of the world’s population up from 25% just six years ago, increasing the potential market for all of our companies. And, finally, as we study technology adoption patterns, we are seeing a fundamental shift to more rapid, earlier adoption of new products and services.

I have written in more detail about this phenomenon that we are seeing of faster technology adoption, framing the situation in the context of Geoffrey Moore’s canonical book from 30 years ago, Crossing the Chasm. In short, every business on the planet is realizing that they need to be an early adopter and embrace new technologies or they will be disrupted — think Blockbuster and Barnes & Noble. And every consumer has been trained to rapidly embrace new apps that make their lives easier and richer. As a result, the pace of technology adoption has quickened and the potential market size that startups can address in their early years — even if their product isn’t perfect and their organization is still nascent — has dramatically expanded. That’s why a young infrastructure company like our portfolio company MongoDB can count over half of the Fortune 500 as their customers at the time of their IPO a number of years ago.

All of this is leading to our conclusion that market sizes are proving far, far larger than we had ever imagined — surpassing our most optimistic forecasts and prognostication.

Faster Than a Speeding Bullet

We can see these trends play out across the entire tech ecosystem. For example, by looking at the revenue growth rates that the Big Five tech companies reported last quarter. Each of these companies, worth over $1 trillion, is supposedly operating mature businesses at scale, and yet they are still reporting growth rates in the 20–60% range — as if they were VC-backed startups.

Speaking of VC-backed startups, Bessemer’s recent report on the top 100 private cloud companies was also astonishing. Their analysis showed that on average, the revenue growth rates for these large private companies — as an entire cohort — have risen to 90% year over year while the top quartile is growing 110%. Again, these are large-scale companies defying the “law of large numbers”.

Recreating the Entire GDP of China…in 5 Years

As noted, these powerful forces driving accelerating revenue growth as a result of very favorable underlying market conditions and rapid adoption curves have led to unprecedented increases in valuation. We wanted to quantify this and so looked at the handful of Big Tech companies mentioned earlier along with the top 100 next most valuable tech companies and compared their change in market capitalizations from five years ago to today.

Even we were astonished to see the result. That cohort of companies has grown from $5 trillion to $20 trillion — an increase of $15 trillion. That is a staggering amount of value creation in tech in the last five years. To put that figure in perspective, $15 trillion is equivalent to the entire GDP of China.

Further, in our analysis of the top 100 most valuable companies, we noticed that 27 of these companies are newly public — that is, they were still private companies five years ago, invisible to the public markets and operating solely in the VC market.

Speaking of the VC market, these forces and favorable conditions have also led to the substantial growth in the number of unicorns (i.e., companies who have private valuations > $1 billion). Specifically, the number of unicorns has grown from 39 in 2013 to 842 today, a cohort worth nearly $3 trillion. Add that to the public growth and you have $18 trillion of market value creation in tech in the last five years.

Conclusion: Let the Good Times Roll

Thus, if we pull the camera back on the environment, it is clear it has been an exuberant period of time — but there are a good number of rational underpinnings to that exuberance. And with the advent of Zoom investing and remote work, the points of friction have been dramatically reduced and we are all operating at a velocity of 11.

No one can predict whether future public valuations and multiples will continue to soar or if we are heading into a market correction. But as I talk to my peers in the industry, there is universal confidence that we participants in startupland are on the right side of important secular trends. The shift towards global technology adoption for enterprises and consumers is a trend that is simply not going away. The rate of adoption of smartphones, apps, cloud, AI, data proliferation, and all the investment sectors that we and others have operated in successfully for the last two decades continue to dramatically grow on a global scale.

As a result, VC investors are finding our opportunity set to be as attractive as it has ever been in history. Of course, if everyone realizes that — and everyone does — more capital is coming. A lot more. I may not have Alan Greenspan’s economic wisdom or hubris about an ability to predict the future, but of that last point, I am quite certain.

special thanks to my colleagues for their insights and input — Matt Guiney, Chip Hazard, Julia Maltby, Justin Mead, Jesse Middleton, and Anna Palmer — as well as Asha Tanwar for her expert research and analytical assistance.

Why Entrepreneurs Should Slow Down

A few months ago, I wrote about the ridiculous increase in velocity that we are seeing in the venture capital market in my post, Velocity and Venture Capital: 11. Now that summer is upon us, I want to reflect on the subtle value of slowing down, particularly from the standpoint of an entrepreneur.

Summer has always been a time to take a breath and slow down. Now that the United States is entering into a post-pandemic phase, we have yet another reason to take things a bit slower and stop obsessing over efficiency and speed. One of my more popular tweets in the last year was:

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I was reminded of the value of slowing down in the last few days by one of my founders who is in the midst of closing a massive financing at a “unicorn” valuation. The company is on a tear, having grown 30x in revenue year over year. In a moment of candor, he confided to me, “I hope the new investors will let me slow down. We need to make sure we are building for scale and to do that, I need to be more deliberate in our growth.” Like the tortoise in the famous Aesop’s fable, sometimes we need to proceed slowly and steadily to win the race.

Here are a few of the benefits of slowing down, and where entrepreneurs may want to focus their energies this summer:

  1. Solidify Your Scalable Team. CEO coach Marshall Goldsmith has a brilliant book, What Got You Here Won’t Get You There, about successful executives hitting points of friction as they grow, requiring changes in their behavior in order to continue to succeed. I often coach my entrepreneurs to assess their teams with a similar lens. The team that got you here may not be the team that will get you there. Take the time to consider team additions, upgrades, and perhaps coaching or facilitation to ensure you have the right aligned senior team that is ready, willing, and able to scale to the next level.
  2. Think Different. When you’re running a fast-growing company, with all the execution demands and details involved, it is hard to take the time to be creative. Take the time this summer to do some offsites (yes, in person!) and brainstorm with your teams regarding the nonlinear growth opportunities that might be available to you. Consider transformative acquisitions, partnerships, new product launches, or international expansion in ways you might not have had the time and space to think through.
  3. Pay Down Your Organizational Debt. Every fast-growing startup incurs debt along the way. Those forms of debt include technical debt (paying the price for historically putting off building a robust platform in order to meet short-term customer needs), process debt (taking shortcuts for the sake of expediency to get things done without stopping to make core business process robust and repeatable), and cultural debt (not investing in the culture and values because you’re so busy trying to avoid drowning in work and the demands of the market). Take the time this summer to pay down all forms of organizational debt. Don’t let the excuse, “we haven’t had the time” stop you from cleaning up some of the messes that were left in the wake of past sprints.
  4. Build Enduring Relationships. Covid has made it hard to build authentic, deep relationships. Zoom makes everything more efficient, but more transactional. This summer, take the time to hone in on a few important relationships and make the effort to meet up face to face, spend unscheduled long stretches of time, and (gasp) just hang out. Personally, I’m terrible at slowing down. Zoom has brought out the worst of my tendencies in this regard and so am keen to heed my own advice here!

In Jim Collins’ book, Built to Last, he writes about the playbook for building an enduring company. Spoiler alert: slowing down to focus on team, culture, organizational design, business model and continuous improvement are all a part of the formula. So take a breath this summer and redouble your commitment to building a company and business that will endure.

Have a great summer!

After 30 Years, Crossing The Chasm Is Due for a Refresh: Why Markets Are Larger Than They Appear

When I was at Open Market in the 1990s, our CEO gave out the recently published book, Crossing the Chasm, to the executive team and told us to read it to gain insight into why we had hit a speed bump in our scaling. We had gone from 0 to $60m in revenue in four years, went public at a billion-dollar market cap, and then stalled. We found ourselves stuck in what author Geoffrey Moore called “The Chasm” where there is a difficult transition from visionary, early adopter customers who are willing to put up with an incomplete product and mainstream customers who demand a more complete product. This framework for marketing technology products has been one of the canonical foundational concepts to product-market fit for the three decades since it was first published in 1991.

Recently, I have been reflecting on why it is that we venture capitalists and founders keep making the same mistake over and over again — a mistake that has become even more glaring in recent years. Despite our exuberant optimism, we keep getting the potential market size wrong. Market sizes have proven to be much, much larger than any of us had ever dreamed. The reason? Today, everyone aspires to be an early adopter. Peter Drucker’s mantra, innovate or die, has finally come to pass.

A glaring example in our investment portfolio of market sizes is database software company MongoDB. Looking back at our series A investment memo for this disruptive open source, no SQL database startup, I was struck that we boldly predicted the company had the opportunity to disrupt a sub-segment of the industry and successfully take a piece of a market that could grow as large as $8 billion in annual revenue in future years. Today, we now realize that the company’s product appeals to the vast majority of the market, one that is forecast to be $68 billion in 2020 and growing to approximately $106 billion in 2024. The company is projected to hit a $1 billion in revenue run rate next year and, with that expanded market, likely has continued room to grow for many years to come.

Another example is Veeva, a vertical software company initially focused on the pharmaceutical industry. When we met the company for their Series A round, they showed us the classic hockey stick slide, claiming they would reach $50 million in revenue in 5 years. We got over our “is the market big enough?” concern when we and the founders concluded they could at least achieve a few hundred million in revenue on the backs of pharma and then expand, as the company’s initial name indicated, to other vertical industries from there. Boy, were we wrong! The company filed their S1 after that fifth year showing $130 million in revenue and today the company is projected to hit a $2 billion in revenue run rate next year, all while still remaining focused on just the pharma industry.

Veeva was a pioneer in “vertical SaaS” – software platforms that serve niche industries – which in recent years has become a popular category. Another vertical SaaS example is Squire, a company my partner Jesse angel invested in as part of a pre-seed round before he joined Flybridge. When Jesse told me about them — a software company dedicated to barber shops — I thought, “Nice. Sounds like a niche opportunity to get to $10+ million and then sell for a good profit.” When they graduated from startup accelerator YCombinator several years ago, they were barely able to scrape together a $1 million seed financing. As co-founder and CEO Songe LaRon shared with me, “Total available market size was the Achilles heel of our business in the eyes of investors.” Those prospective investors who passed ended up being dead wrong. Today, the company is doing hundreds of millions of dollars in transaction volume. A few months ago, Squire announced a $45 million financing at a valuation of $250 million.

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I can’t resist one more example that brings this point of expanding market sizes home – the compound annual revenue growth rates (CAGR) over the last three years for the largest tech companies in the world have continued at a torrid pace, as noted below:

  • Amazon: 30%
  • Facebook: 29%
  • Google: 18%

These companies are mature businesses with hundreds of billions of dollars in revenue, and yet they are still growing at CAGRs of 20-30% per year!

Why is it that in recent years, wild-eyed optimistic VCs and entrepreneurs keep under-shooting market size across the tech and innovation sector? Upon reflection, I think there are two problems: the Chasm is outdated and Marc Andreessen was right about software eating the world.

Market Size Definitions: TAM and SAM

To understand our persistent problem with market size forecasting, let’s first deconstruct what is Total Available Market (TAM) size. A company’s TAM is a simple formula of the number of potential customers multiplied by the total revenue per customer. TAM is a snapshot of the total dollar potential in the entire market.

Serviceable Addressable Market (SAM) is the portion of the market that is an actual fit for your product or service. For example, the total global database market is $150 billion. That’s the TAM. But the SAM for MongoDB is the portion of the database market that is a fit for their particular approach, no SQL. That is projected to be $22 billion in a few years. That’s the SAM.

Typically, we are trained to think that only a portion of the SAM is obtainable within any reasonable window of time because of The Chasm and so the trick is to focus on attacking and expanding the SAM.

The Chasm: 1991-2011

In characterizing why it was so hard for technology companies to introduce discontinuous innovations, Moore framed a technology lifecycle that described different types of customers. He observed, “Our attitude toward technology adoption becomes significant any time we are introduced to products that require us to change our current mode of behavior or to modify other products and services that we rely on.”

He divided up the different customer groups based on their psychographic profile and attitude towards technology adoption into a bell curve: innovators, early adopters, early majority, late majority, and laggards. In between the innovators and early adopters, there is a small chasm. In between early adopters and the early majority is a larger chasm. The chasm, Moore explains, is because early adopters are open to change; they aspire to “get a jump on the competition…and expect a radical discontinuing between the old ways and the new.” In contrast, the early majority is “looking to minimize the discontinuity with the old ways. They want evolution, not revolution.”

The image below from Moore’s book lays out the small and large chasms in the transition across all of the market subdivisions nicely.

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The Chasm: 2012-present

In recent years, this model for technology has broken down. The reason, I submit, ties to Marc Andreessen’s famous Wall Street Journal article, “Why Software Is Eating the World.”

Marc correctly voiced what many of us in the industry felt when he wrote, “We are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.”

Over the last 10 years since that article was written, businesses now finally “get it”. And this year, in particular, the pandemic helped accelerate a global appreciation that digital innovation was no longer a luxury but rather a necessity. As such, companies could no longer wait around for new innovations to cross the chasm. Instead, everyone had to embrace change or be exposed to an existential competitive disadvantage.

Using Moore’s framework and combining it with Andreessen’s observation, I would argue that the early market overall (which includes innovators, early adopters, and the early majority) has grown substantially larger than before and, further, that due to competitive necessity, the early majority has embraced change and jumped across the chasm. And the portion of the market that the late Majority and laggards represent is smaller than ever before. A pictorial description of this phenomenon can be seen below.

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This corporate imperative to embrace change, which extends to consumers who are more comfortable adopting technology products than ever before, coupled with the fact that software has become a more and more valuable portion of the world, is what is driving surprisingly massive market sizes.

The best companies are able to take advantage of this accelerated adoption curve by launching additional products once they have established an initial market toehold. Those additional products serve to increase their SAM – and do so at a rapid pace as they fly through the customer adoption process. Veeva, for example, today has 35 different products targeted at the sales and marketing function, regulatory affairs, and clinical. Squire, for example, has built upon their initial scheduling product to include payments and plan to launch additional modules to support banking and the online ordering of supplies. It helps that the rise of the cloud and advancements in software development tools and techniques are such that more rapid product development than ever before can be achieved. And, as noted above, companies are now more primed for rapid software adoption than ever before.


Looping back to our market size definitions, “software eating the world” has dramatically expanded the TAM while also catalyzing a compressed technology adoption lifecycle, which has dramatically expanded the SAM.

This trend towards rapidly growing and ever-expanding market sizes, and their signal as a leading indicator towards value creation, represents a promising development in our innovation ecosystem. Faster adoption cycles have a positive feedback loop on innovation: the more companies and consumers adopt new technologies, the more entrepreneurs can get funded to build the next new thing.

Venture Capital and Velocity: 11

“How’s work going?”

As we emerge from the pandemic, it’s the common casual question that many of us receive when we reconnect with our friends. I find I am struggling to answer it concisely. In my over twenty-five years in the startup and venture capital (VC) industry, I have never seen anything like this moment that we are in. To answer this friendly inquiry in as clear and open a manner as possible, the only word that comes to mind is velocity.

As everyone who took high school physics knows, velocity is the rate of change of an object’s position over a period of time as compared to a frame of reference. Entrepreneurs and VCs have a common historical frame of reference: we are all accustomed to moving quickly and dynamically in our collective journey to fund and build innovative, ground-breaking companies. That collective journey has created a series of routines and common practices over the many decades since the first venture capital firm, ARD, invested in Digital Equipment Corporation in 1957.

What’s changed in this pandemic is that the velocity of our activity has dramatically increased due to the systemic removal of any modicum of friction that might have existed in “the old days” up until March of 2020.

Startup Fundraising Process: 1957-2020

To get a sense of how this increased velocity is happening in practice, let me deconstruct the typical fundraising process for the last 60 years of venture capital and startups:

  • Entrepreneurs set up meetings with VCs and travel to their offices in SF, NYC, and/or Boston (this business is profoundly concentrated, with 85% of total assets under management in the US concentrated in just three states: California, New York, and Massachusettes).
  • A week or two later, follow-up meetings take place at the VC offices for broader exposure amongst the partnership and management teams.
  • Then, entrepreneurs host investors in their offices to provide the opportunity for a deeper dive into the business and a tangible sense of the culture as well as an opportunity to meet key executives.
  • Upon passing further due diligence to everyone’s satisfaction, the management team presents to the entire VC firm on Monday during the weekly partners meeting (which always, always happens on Mondays).
  • If the investment decision is made, negotiations on deal terms commence, and after some back and forth over a number of days and additional face-to-face meetings, term sheets are issued and signed.
  • Lawyers from both sides are retained to negotiate the definitive investment agreements.
  • Definitive agreements are signed, the investment is closed and money is wired.

Entrepreneurs would typically meet with 20-30 firms in order to secure 2-3 term sheets and select their chosen partner. This process typically would take 3-6 months end-to-end simply due to the logistics of multiple rounds of meetings, travel, scheduling, and negotiations. Hence, when we are coaching our entrepreneurs regarding “how long should I plan to be fundraising?”, 3-6 months is prudent having 6-9 months of cash cushion gives you a little wiggle room.

Startup Fundraising Process: 2020-2021

When covid hit, everyone’s world turned upside down and remote. VCs and entrepreneurs have adapted particularly quickly. As a result, the fundraising process for today’s entrepreneurs goes as follows:

  • Hold twenty to thirty Zoom meetings, each in 30-minute increments, over the course of a handful of days to meet prospective investors.
  • For deeper dives, 60 or 90-minute follow-up meetings are scheduled with a broader set of VC partners at the prospective firm along with various members of the management team — each of whom seamlessly Zooms in for their relevant portion of the meeting.
  • Like Flybridge, many VC firms have shifted their model from weekly Monday morning meetings to multiple meetings per week — after all, with zero travel and infinitely flexible schedules, it’s easy to coordinate the entire investment team’s calendars and hold more frequent, smaller time slots to meet teams and discuss investment opportunities.
  • Deal documents are now completely standardized and simple. For those of us who invest in the early stages, SAFE notes are the “currency of the realm,” which means there is very little to negotiate once an investment decision is made except for price and amount.
  • Any possible points of friction — meeting the entire partnership, meeting other members of the management team, negotiating deal elements, forming a full investment syndicate — have been eliminated or sharply reduced, easily squeezed in during the course of a day full of remote meetings over Zoom.

As a result of this reduced friction, fundraising — even for large later-stage companies — takes only a few weeks. Thus, velocity has dramatically — in many cases, breathtakingly — increased.

Some Data

Pitchbook recently released their Q1 2021 report, demonstrating the frenetic pace that everyone in the technology and innovation world is experiencing. Investors deployed $69 billion into nearly 4,000 VC-backed companies in Q1, an increase of 93% in capital deployed in just one year. The amount of capital being deployed, never mind the surge of IPOs and SPACs, is simply dizzying. If you take the estimated early-stage deal count in Q1 2021 1,170 and annualize it to 4,680, it represents a 50% increase from 5 years ago.

To see this graphically, look at the chart below (again, using Pitchbook data). I took the annual overall deal value in Q1 and simply annualized it and chart it in comparison to the last 15 years. At a more granular level, the quarterly data shows that the climb in deal value has been dramatic since the pandemic.

A lot has been written about the rise of SPACs, another financial instrument that makes more capital available to entrepreneurs. The chart below shows that the SPAC market raised record capital in just one quarter as compared to previous years. Again, this surge would only be possible with a surge in velocity and the dramatic reduction of deal friction.

As venture capitalist, Everett Randle put it in an insightful blog post about Tiger Global’s strategy of high-velocity capital deployment (which is being replicated by many aggressive growth stage investors), “[Tiger and other fast-moving VC firms] have turned the velocity dial to 11.”


There are many obvious upsides to this increase in velocity, but there are many downsides. Forget that VCs and entrepreneurs are working harder than ever (whine away, my friends — I hear the violin music now). What really concerns me is the sloppiness that results in increased velocity. Faster due diligence, faster decisions, and fewer opportunities to slow down and build authentic, trust-based relationships can be dangerous when there are bumps in the road. The faster your velocity, the bigger an impact those speed bumps make on you and the organization.

Further, the famous “fraud triangle” of opportunity, incentive, and rationalization suggests this surge in velocity could yield both a surge in underlying incentive and opportunity. Fraud in entrepreneurial settings can range from the obviously illegal (see: Theranos and uBiome) to the slightly exaggerated.

When we are all vaccinated and back to meeting face-to-face, this unsustainable velocity will surely slow down. Right? Until then, everyone is operating at “11”.

Spinal Tap: Taking it to 11

Rocket Ship List: 2021 Edition

Picking the right place to launch your career is more important than ever

A year ago, in the wake of the pandemic, finding a growth-stage startup for graduating students hungry to dive into the startup community was about as hard as could be imagined. This year, thanks to arguably the greatest tech and innovation boom in history, graduating students have an abundance of opportunities to productively start their careers.

Each spring, I provide a comprehensive list of exciting, growing, hiring startups that are worthy of consideration as places to start or continue a career in StartUpLand. I try to be as objective as possible in creating the list, leveraging insider knowledge and input from VC and entrepreneur friends regarding who has real momentum. The objective criteria for being on the list is is a mix of fundraising (typically > $20m in the most recent round), scale (typically > 100 employees), momentum (typically growing users or revenue > 50%/year), and hiring (typically growing headcount > 50%/year, including a number of entry-level positions that would be a fit for recent college or business school graduates).

I try to include a few international startups each year, thanks to my VC friends in startup hubs like China, India, Israel, South America, and Western Europe. Pitchbook data is less reliable outside the US so I am particularly grateful to those who shared their local market insights.

Before listing the companies, I suggest checking out two of my posts where I give more detailed advice on how to select the right company for you and position yourself to secure a job — a playbook that is more important than ever in this competitive environment:

Once you have reviewed this framework for deciding what you’re looking for, review the nearly 400 companies (276 US, 115 International) below. As usual, the list is organized by location. Even in an era of remote work, I advise my students (borrowing a bit from David Brooks) to select a geographical particular community to invest in and contribute to over the long term. Similar to last year, the list is also organized by sector and we created an Airtable to make it easy to navigate.

I’m sure I made many mistakes and omissions and I thank you in advance for any feedback you might have — the wisdom of the crowd definitely makes this list better. Very special thanks to the indomitable Shreyas Nair of Harvard Business School and Sequoia, who spent countless hours helping me sort and resort the list. Without further ado:

Here is the Airtable link for the 276 US companies:

The geographic spread is as follows:

  • Boston: 24
  • LA: 18
  • NYC: 60
  • SF/Bay Area: 155
  • Other (Chicago, Seattle, Atlanta, Austin): 19

And here is the Airtable link for the 115 non-US companies:

The geographic spread is as follows

  • China: 13
  • India: 35
  • Israel: 14
  • South America: 28
  • Europe: 25

Disclosure: Among the listed companies, the following are Flybridge portfolio companies — Bowery, Chief, Codecademy, FalconX, Imperfect Foods, Infracommerce, MadeiraMadeira, NS1, and Splice

What Everyone Is Missing About 2020: Wealth Creation

2020 Has Been a Year of Incongruous, Unprecedented Wealth Creation

Inspired by Bill Gates, who calls the practice his annual “Think Week”, I try to read a few intellectually stimulating books during the final two weeks of each calendar year. This year, my book choices ranged from racial inequality (Caste: The Origins of Our Discontent), history (China and Japan: Facing History by my Uncle Ezra Vogel, a scholar and mensch who suddenly passed away a few weeks ago at 90), autobiography (Obama: A Promised Land), and fiction (Philip Roth’s Nobel Prize-winning American Pastoral). Added to this year’s mix was a book my 18-year-old son insisted I read as he recently declared it is his favorite book of all time: Hermann Hesse’s Siddhartha, a novel about the journey of a young Indian boy who gives up a life of privilege to search for truth, leading him to become the Buddha.

It was a nice respite from the mess that was 2020. In wrapping up our year and looking ahead, many pundits and politicians have emphasized the four crises that we face heading into 2021: the pandemic, racial inequality, climate change, and a wounded economy.

Incongruously, in the face of these four crises, the stock market ended the year at a record high, largely driven by a surge in tech stocks. In fact, the hidden secret of 2020 is that it has been a spectacular year for wealth creation. A review of the numbers shows the staggering amount of new wealth that was created during this horrific year of death and disruption. A few examples of note:

  • The collective wealth of America’s 651 billionaires grew $1 trillion since the start of the pandemic: from $3 trillion to $4 trillion.
  • Jeff Bezos and Elon Musk alone have seen a surge of $200 billion in new wealth.
  • The IPO market had a banner year. Three recently public companies alone — Airbnb, DoorDash, and Snowflake — are now worth over $210 billion in value.
  • The combined market capitalization of Bitcoin and Ethereum grew from $140 billion to over $680 billion, a gain of $540 billion in value in just one year for their holders.
  • Even in my hometown of Boston, the degree of wealth creation has been stunning. Just look at five companies that have benefited from the pandemic’s digital acceleration and life sciences boom: DraftKings, Hubspot, Moderna, Thermo, and Wayfair. In March, the combined market capitalization of these five companies was approximately $130 billion. At the market close on 12/31/20, the combined market caps had soared well over 100% to nearly $300 billion, creating $170 billion of new wealth for their executives and shareholders.

All of this in a year where the country’s GDP is forecasted to contract by almost 4% and unemployment is nearly 7%. Economists and historicans will try to deconstruct this disconnect between Wall Street / Silicon Valley and Main Street, between the Winners and Losers, for years to come. What I want to reflect on, though, is what are the implications of this unprecedented situation.

How will this staggering amount of new wealth be applied in the midst of our four parallel crises? What will these few thousand individuals do with their newfound wealth in the coming year? Will we slip into a greater sense of malaise over the vast inequality and unfairness in our society?

Looking ahead, I predict three things will happen:

  1. A surge in philanthropy. I believe we are about to enter a golden age in philanthropic giving. The wealthy feel both a strong sense of obligation and a dash of guilt. The popularity of the billionaire’s Giving Pledge that Warren Buffett and Bill started is a strong indication of that — more are joining on (seven new ones signed up this year alone) and these (mostly) men and women are beginning to reach an age where they are ready to focus on their philanthropy. Jeff Bezos’ ex-wife MacKenzie Scott, quietly donated over $4 billion alone to charities in the final months of 2020. We are entering a golden age for nonprofits.
  2. A surge in money in politics. It’s hard to imagine more money in politics, yet that is what is about to happen. Every one of these billionaires and multi-millionaires has an agenda or cause they are passionate about — fighting climate change, protecting democracy, reforming public schools — and therefore they will seek to influence policy, and the politicians who make that policy, at an unprecedented level. The Georgia Senate race has seen well over $300 million raised, making them the most expensive and second most expensive seats in history. Get ready for more of the same: so long as money can continue to influence policy, money will influence politics (or is it the other way around?). Anand Giridhadaras covers this well in his book as well as this NY Times article on the Billionaire’s Election.
  3. A return to populist rage. Occupy Wall Street gave us a taste of it but I believe we are going to see more protests and populism tied to inequality in addition to people taking to the streets to protest against socialism (from the right) or racism (from the left). Occupy Wall Street was sparked by a single unpredictable incident — as was the Arab Spring, as were the George Floyd protests — and so we may see another unpredictable incident lead to another round of protests in 2021. When President Obama admonished the CEOs of banks in a 2009 White House meeting that he was the only one standing between them and the pitchforks, it was a foreshadowing of what can happen when the American people no longer believe their institutions as being fair. The handling of the pandemic, the vaccine distribution, and the way trillions of dollars are being pumped into the economy are all ingredients that suggest we may see an unpredictable ignite populist rage in America over inequality in 2021.

2021 will be defined by what we as a society do with this newly created wealth — how it is divided up and deployed? In a year where our system of both capitalism and democracy have been challenged to their core (something I was deeply worried about this time two years ago, as described in my Think Week blog post of 2019), I hope we can figure this one out. I am an optimist at heart and so will be rooting for all the good that can come from this — and hoping that our civic and business leaders are thinking deeply about these critical questions heading into the new year.

Happy new year to all!

Startup Lessons From Zen and The Art of Motorcycle Maintenance

Over the last few weeks, I was inspired to re-read Zen and The Art of Motorcycle Maintenance, a book I read in my late teens and remember enjoying.

At the time, I embraced its emphasis on Quality (hard to define, easy to discern) as an organizing mantra for living a purposeful life. The book was published in the 1970s at a time when many young people were waking up from the hangover of the 1960s and feeling aimless and unfocused. What was the meaning of life and how should a good life be lived? Author Robert Pirsig does a brilliant job trying to address these big questions with a ranging review of Buddhism, Socrates, Plato, Kant, and other philosophers all told through the prism of an autobiographical journey on a motorcycle through the great expanse of the West with his young son. It has since become the best-selling philosophy book of all time.

Reading Zen decades later, though, gave me a new perspective on the book and its lessons for the art of startup building. Pirsig spends time highlighting the limitations of the scientific method and those limitations are ones that I’ve been thinking about recently in the context of startups.

The scientific method is a process for experimentation that rests on the belief that hypotheses should be sharply defined and then rigorously tested through well-constructed experiments. Eric Ries popularized applying the scientific method to startups through his book, The Lean Startup.

At Harvard Business School (HBS), in both my class and the entrepreneurship department more broadly, we teach the importance of treating startups like experimentation machines. But HBS and other entrepreneurship programs and startup accelerators typically fall short when giving guidance as to how to determine which experiments to run. I have written in the past that for founders, test selection is all about strategic choices.

Entrepreneurs need to be thoughtful and disciplined regarding test selection, design, and prioritization. In short, entrepreneurs need to analyze their business model critically and select the tests that matter the most at each phase of their journey.

What is less well-understood is the process for determining which experiments to run and how to sequence those experiments. Given that founders have a discrete envelope of time and money before they need to produce positive results, experimentation selection is one of the most critical factors in startup success.

Pirsig speaks to this point in a more general sense. Written in the 1970s, Zen could not have anticipated the impact of his words on tech startups. But his argument applies beautifully to tech startups when he states that test selection must come from intuition. At one point late in the book he observes:

“You need some ideas, some hypotheses. Traditional scientific method, unfortunately, has never quite gotten around to say exactly where to pick up more of these hypotheses…Creativity, originality, inventiveness, intuition, imagination…are completely outside its domain.”

The problem for entrepreneurs, then, is how to build up this intuition. How should an entrepreneur best navigate the Idea Maze (a lovely metaphor from Chris Dixon)?

As with the elusive definition of Quality in Zen, the answer is subtle and not easy to deliver or communicate. We think we know how to identify a quality entrepreneur, a quality business plan, a quality consumer value proposition, a quality initial product, and a quality go to market plan. But is there a rule set that entrepreneurs can follow to know that they are on the right path? The sad answer is no. But founders can do a few things to help in developing that critical entrepreneurial intuition required to navigate the Idea Maze:

  1. Customer Development. Immerse yourself in the customer problem set (i.e., perform deep customer development in the classically defined manner of Steve Blank and Four Steps to the Epiphany) to develop an intuition on the customer’s pain points to hypothesize compelling value propositions.
  2. Domain Knowledge. Study the domain through both direct research (i.e., be an autodidact founder, defying the myth of Founder-Market Fit) and by surrounding yourself with domain experts to develop an intuition on the market dynamics and trends.
  3. Strategy 101. Apply rigorous strategic thinking to the market dynamics, the value chain, substitutes and complements to develop an intuition on where profit pools may lie.
  4. Built a Test Machine. Build an organization that is able to run tests rapidly and efficiently so that your testing throughput is faster than your competitors, building a startup organization that is a learning machine as well as an execution machine.

Follow these steps and, hopefully, you will find your path to Quality experiments, execution, and company-building.

HBS Class – Launching Tech Ventures (LTV)

My Harvard Business School class, Launching Tech Ventures (LTV), begins in just a few weeks. I have taught the class for ten years across over 1000 students and it remains a joy and privilege to engage with our brilliant, ambitious students in the study of startups as they seek to achieve product-market fit.

This year, there are a number of changes happening at the school and in the course. The pandemic has forced us to deliver the course online for the first time and so my colleagues and I have tried to reimagine the course to optimize it for the new medium. I created a few videos to describe that reinvention, and give everyone a “behind the scenes” look at what the course will look like. My faculty colleagues this year are Sam Clemens, Donna Levin, and Reza Satchu. Each of them are accomplished entrepreneurs and investors who bring a wealth of practical experience into the classroom.

Below are the two videos and here is the class website. Enjoy!

Underrepresented Founders and Flybridge’s New Website

I have written about the cultural dysfunction in the venture capital industry before and, six years later, there have been some encouraging steps in the right direction. That said, we as an industry have a long way to go still. A few years ago, we decided to focus more intentionally on diversity and inclusion in our investment practice. Like many, we are appalled by the lack of capital and support for underrepresented founders and are eager to contribute as best we can to address this critical issue.

Over the last few years, we have co-founded and supported three major initiatives to improve diversity and inclusion in our innovation ecosystem:

  • XFactor Ventures:  a pre-seed fund focused on investing in female founders with billion-dollar ideas. My partner, Chip, co-founded the fund with our friend Anna Palmer (founder/CEO of Dough) and they recruited a team of twenty spectacular female CEOs to serve as the investment partners. One of the XFactor Ventures partners refers to her experience in XFactor as a master class in venture capital. Since inception a number of years ago, the fund has invested in over 40 female-founded startups.
  • Hack.Diversity:  a non-profit program to identify, support and train young engineers of color and help them secure jobs at the top innovation economy companies. Since inception a number of years ago, Hack.Diversity has helped nearly 200 fellows find jobs at 20 participating companies, resulting in an average increase in salary of $65,000. It is not unusual for the fellows to go from a minimum wage job as a dishwasher to a software engineering job paying $100,000 at firms like Drift, Hubspot, Rapid7 or Wayfair. Jody Rose of the NEVCA has been a terrific partner and leader in this work. Our recent impact report is here.
  • Global EIR:  a non-profit dedicated to helping immigrant entrepreneurs secure visas. Since inception a number of years ago, the program has had a 100% success rate in securing H1B visas across over 70 entrepreneurs. Those entrepreneurs have founded companies that now employ 1000 people and have raised over $500 million in venture capital. Brad Feld of Foundry Group has been a terrific partner in this endeavor as has Bill Brah at UMass Boston and Craig Montuori.

We are proud of these initiatives and continue to work hard to further their missions. At the same time, we know our core business of investing needs to evolve. We believe that diversity in thought and background is key to the success of our ecosystem as a whole as well as individual companies. In other words, we aspire to develop even more of an edge and reputation in backing diverse founders because we think it will yield better investments.

In the spirit of holding ourselves more accountable to this goal, we decided to highlight the underrepresented founders in our portfolio as part of the redesign of our website. Many firms allow you to sort their portfolio by sector or geography. We have added a category for “Underrepresented founders”, using the standard industry definition of those founders that belong to a group that the venture industry as a whole underinvests in relative to the percent of the overall US population.  This definition includes founders that are women as well as people of color, including those of African, Latin American, or Native American descent.

We have a lot more work to do as individual partners, as a firm, and as an industry as a whole in this area. Hopefully, by providing a bit more visibility towards this work, we can continue to make steady progress. And we welcome any support or ideas to get engaged and help advance these initiatives.

Finally, if you know great founders we should be talking to, particularly underrepresented founders, please let us know!