Size: it matters
June 19, 2018
It's hard to believe it's been 10 years since the subprime crisis; we've just lived through a decade of the lowest interest rates the US economy has ever seen. I (and many others, including Warren Buffett) aren't sure whether this rate environment is the new normal, or things will head back to how they were in the mid-2000s. One thing's for sure, though: a lot of money is splashing around in Silicon Valley.
I think that trend—more money, more startups, more successes, even more failures—is more secular than is widely acknowledged. It isn't "a bubble"; mobile computing and data is ubiquitous, growth is faster, and it's easier than ever to address a global audience.
However, not every company will reach tens of billions in enterprise value; that's just reality, but the danger is thinking every company will, like some sort of manifest destiny. Optimism (greed? hubris?) takes over, rounds get too big, and companies develop cost structures too big for their markets and revenues.
In venture, they call this "getting over your skis": raising too much, too fast, given the size of the opportunity or company's stage of growth. I think when people look back on this vintage of companies, a lot of investment losses will be attributable to companies getting over their skis.
Size matters because raising too much can kill a company. I saw this firsthand at Crittercism, where I worked for 3 years. I think there was a viable business there but it was smaller than it first seemed, and nobody wanted to hear that story.