Investment is all about managing your wins and losses. We have discussed the costliest failures of Venture Capital in one of our blog. In today’s blog, we will be focusing on three big wins. All the below discussed companies are illustrious in our current world but this wasn’t the case all the time. The VCs saw the potential and backed those companies which are now multi-billion dollar companies. All these companies had a great vision back then and are still evolving day by day. In this blog, we will try and decode the thought process of VCs while investing in these companies when no one was really interested in them. It is very easy to predict the future while retrospecting the past but damn difficult to make decisions in the present. Investment Acumen & Risk-taking ability is extremely important when investing in new-tech startups whose products are not well understood and established in the marketplace.
1. GitHub- As per Github, it is the platform “Where the world builds software.” It was founded in 2008 by Tom Preston-Werner, Chris Wanstrath, PJ Hyett, and Scott Chacon. Millions of developers and companies build, ship, and maintain their software on Github. It is the largest development platform in the world. At the point of writing this blog, it has 83+ million developers, 4+ million organizations, 200+ million repositories, and 90% Fortune 100. Github has become a giant successful company.
According to the Pareto principle for many outcomes, around 80% of consequences come from 20% of causes. If we apply this context in terms of VC investment around 80% of returns come from 20% of the deals. Github is one of those 20% deals. Andreessen Horowitz had invested around $100 Million Dollar in Github in 2012. Around 2012 Github was not such a big name. It was a tech company whose potential was highly misunderstood at that point in time. The firm placed a huge bet on the underdog but it was not a random bet. The firm was so convinced with the fact that collaborative social coding will be the future. To everyone’s surprise, the firm’s prediction was absolutely bang on. We now know how big Github is.
Andreessen Horowitz was not alone in the party, later in 2015 Sequoia Capital, Joshua Kushner – Wikipedia, and other VC funds invested in Github. All these funds had understood the real power of Github in the domain of Software as a service. Github grew exponentially in terms of developers, organisations and repositories. Microsoft has been a significant user of Github since 2012. In 2018, Microsoft acquired Github for $7.5 Billion.
The bet on Github paid off big time. This is the classic example of investment based on research, futuristic vision & strong conviction in the problem solving potential of a company. Github is a rapidly growing community and it has great use cases in the collaborative software development field. This investment is the epitome of the proverb “Fortune favours the bold”.
2. Dropbox- It provides file storage services. It saves the file online and syncs them to your devices. It was founded by two Massachusetts Institute of Technology(MIT) alma mater Drew Houston & Arash Ferdowsi. The company was founded in 2007. During 2008, the cloud storage space was emerging. Dropbox was testing an untested area with the help of young founders leading it. It was neither an instant hit nor a pioneer in this field. Other competitors had burnt their capital in this field in hope of revolutionising the cloud storage game.
In this Dropbox journey from zero to hero, we will get to know the value of VC. During the early years of Dropbox, other similar companies had failed. Dropbox in the start did not appear to be a winning material. In 2007, Sequoia Capital led a $1.2M seed round. Despite all the odds Sequoia Capital invested in Dropbox’s vision. Sequoia Capital again led a $6M Series A round in 2008, even though the company had not performed. The firm was pretty much aligned with the company’s vision. Sequoia was far-sighted unlike others. Between 2008-2010, Dropbox’s registered users increased exponentially from 100k to 4 mn. The revenue of the company sky-rocketed. Now, the company had got its base and due to word of mouth it spread like hell. The far-sighted Sequoia Capital bet was catching momentum and their decision of sticking with Dropbox was proven right.
Dropbox was valued around $12.7Bn during its IPO, in 2018. The journey from zero to billion dollars was somewhat impossible without the backing of Sequoia Capital. Yes, it is true that early-stage investments are risky. But we need to realise the fact that with risk comes reward. Risk and reward are the two sides of the coin, Sequoia Capital took their chance and made a good return.
3. Coinbase– Coinbase is a digital currency wallet and exchange platform. Here merchants and consumers can transact with new digital currencies. It was founded in 2012 by Brian Armstrong & Fred Ehrsam. Coinbase is currently the largest crypto exchange with 98+ million verified users, 13k institutions, 230k ecosystem partners in over 100 countries. It is building a crypto economy which provides a more fair, accessible , efficient and transparent system enabled by crypto. Coinbase mission:- “To increase economic freedom in the world.”
Cryptocurrency are relatively new to our world. It all started with a Peer-to-Peer Electronic Cash System – Bitcoin. It was introduced in 2008 through a whitepaper published by an anonymous guy named Satoshi Nakamoto. Cryptocurrencies are now seen as the future monetary system of our world. It is a major step in the direction of decentralisation of our world economy.
Coinbase founders were smart enough to find opportunity in this high potential sector. They were able to see the future of this sector. They were not alone in this VCs like Andreessen Horowitz, Ribbit Capital had also spotted this once in a century opportunity. They invested in the vision of Coinbase. These firms have great confidence that this sector will revolutionise the world economy. We are now witnessing the glimpse of that revolution and it has a long road to go. Their bets paid off big time. The user base of Coinbase sky-rocketed due to craze in the cryptocurrency sector. Coinbase is the first crypto exchange to get listed on Nasdaq. The company was valued at $65.3 bn during its listing. World rewards the visionaries. Those who can see the future and predict it to the nearest accuracy can amass generational fortune.
I’m glad that you read this blog. This blog should have given you a different perspective about investment in tech startups. Nowadays we are witnessing a lot of cutting edge high-tech startups. But a lot of them are failing, why? If you closely examine the above three case studies you will find a similarity. All of them were started with a unique vision in their respective field. It is not only about technology, the most important aspect is to imagine the future & try to predict it way beforehand. These companies imagined the future and worked towards it to make their imagination real through their tech products. Startups need to have their USP(Unique Selling Proposition) otherwise it would be extremely difficult for them to compete with well established ones.