Announcing: StartupQ8 Event for June 2016

Mark your calendars for a new StartupQ8 Event!

You really don’t want to miss this one!

The first part will be an open discussion panel on how Kuwait can become a regional tech hub. The panelists will be Abdullah Al-Zabin (Lumba, Inc.), Mohammed Jaffar (formerly of Talabat), and Abdullah Al-Shalabi (fishfishme). The panel will be open and interactive with the audience.

Following that, we have Alvarro Abella-Managing Partner at BECO Capital, one of the leading Venture Capitalist firms in the Middle East. Alvarro will talk about how startups should choose an investor, and what VC’s look for in startups.

The event will be held Wednesday (June 1) @ 7 pm at @Mefazec (Alhamra Tower, 16th Floor). Here is the schedule

7:00– 7:15 Welcome
7:15 – 8.15 Startup Panel
8:15 – 9:00 Choosing the Right Investor
9:00 – 9:30 Networking + pizza

As always, the event will be in English and it is open to everyone (no need to register). Follow our social media accounts for more info (@StartupQ8 on Twitter and Instagram).
See you there!

Did The Technology Industry Reach Its Plateau?

The Technology Hype

There is too much hype around staggering technology startup valuations, unicorns, Apple’s cash position, Alphabet’s vision, and many more. Most of what I hear and read is whether or not the technology industry reached a plateau. Partly the reasoning is the exaggerated valuations, sometimes lavish life style of few technology entrepreneurs, and whether we really want so much new features in our mobile devices, or augmented reality?!

The Scope of the Research

That’s a very broad subject, and I spent time researching various angles that can tackle some of the questions that arise towards the technology industry. In essence, I decomposed the questions I want to answer based on different stakeholders:

Venture Capitalists: Should we raise a new fund? Should we continue investing in more startups? Is there enough room for mergers and acquisitions activity so we exit our positions?

Entrepreneurs: Should I start a new tech startup? Doesn’t it seem a bit too much crowded now to start yet a new startup? Would the big boys with big bucks have any interest/capital in the next 5 years to buy out my startup?

Executives of tech companies: How much more room we have for growth? Can we still play the acquisition game to grow our market share?

Methodology

Obviously, those questions cannot be answered in a one page blog post. However, a simple yet data driven approach can give us amazing insights into answering them.

Business Consolidations

Industries go through four stages until they become so called “mature” or “stable”. Based on the article “The Consolidation Curve” in Harvard Business Review, the four stages are Opening, Scale, Focus, and Balance and Alliance.

Briefly describing, the article tackles the consolidation curve of industries by measuring the market share of the top 3 players of the industry.

  • Opening: A monopoly that soon vanishes and the top 3 players control between 10% to 30% of the market due to an influx of competitors.
  • Scale: Major players emerge and buy up competitors. Top 3 players control between 15% to 45% of the market.
  • Focus: Top 3 players focus on aggressive growth and control 35% to 70% of the market. Still 5 to 12 major players are around.
  • Balance and Alliance: The top 3 players control about 90% of the market and form alliances between themselves.

Current Market Analysis

So if we take that segmentation as a basis to find out how much the technology market has emerged, and how much growth can it still absorb, then what we need to find out is how the top 3 players of the technology market stack against the entire market.

Unicorns and Listed Companies

My assumptions going forward would be the following:

  1. The basis of the research is the United States market.
  2. Listed Technology companies in the NASDAQ market comprise all the publicly traded technology companies. Link to the list.
  3. Private technology companies that matter are the Unicorns, i.e. startups that reached beyond the $1 Billion valuation. Link to the list.

Total Addressable Market

Screen Shot 2016-05-26 at 10.59.44 AM

Top 3 Players of the Tech Market

Screen Shot 2016-05-26 at 10.59.54 AM

Scale Stage

Sum of the top 3 players’ market shares is: 27.9%. This puts the Technology industry into the second stage of scale based on HBR’s article.

So What Does This Mean?

To answer the questions we addressed at the beginning, we need to take a look at the scale stage. Here’s how it’s described based on HBR’s article:

Because of the large number of acquisitions occurring in this stage, companies must hone their merger-integration skills. These include learning how to carefully protect their core culture as they absorb new companies and focusing on retaining the best employees of acquired companies. Building a scalable IT platform is also crucial to the rapid integration of acquired firms. Companies jockeying to reach stage 3 must be among the first players in the industry to capture their major competitors in the most important markets and should expand their global reach.

This describes the rapid M&A activity by large players trying to acquire as much good startups as possible to ensure their own survival. In summary, the answers to the questions would be:

Venture Capitalists: Should we raise a new fund? Should we continue investing in more startups? Is there enough room for mergers and acquisitions activity so we exit our positions?

Answer: In short: Yes. There is still room. However, funds should predict the estimated timing of stage 3 of the market. VCs should focus on growth startups in the industry’s transitioning phase into the third stage. Reason why is that the big players won’t have enough time to buy out startups at early stages and can only accommodate growth startups that will immediately add to their top lines and make fast synergies with their businesses.

Entrepreneurs: Should I start a new tech startup? Doesn’t it seem a bit too much crowded now to start yet a new startup? Would the big boys with big bucks have any interest/capital in the next 5 years to buy out my startup?

Answer: While entrepreneurship is always encouraged, and one should be dedicated to growing his/her company, I think with the tech scene becoming too crowded, tech entrepreneurs should have a solid idea regarding their possible exit strategy to one of the major players in the technology scene. That may seem trivial but from personal experience, I see lots of startup founders tackling legitimate problems but not having an idea about their exit strategy. Also, it does not necessarily mean that the exit synergy should ONLY be with Apple, Google, or Microsoft. Although these three are the giants, other major players are still very legitimate options since the industry hasn’t gone through the third stage yet.

Executives of tech companies: How much more room we have for growth? Can we still play the acquisition game to grow our market share?

Answer: Yes. There is plenty of room to grow. 27.9% of the market is way behind the 90% mark. However, acquisitions should be targeted smartly in various verticals in the sense that not only adds to the top line directly, but also makes it harder for the competitors to join that specific vertical. In short, release products and acquire startups revolving around the product to make the barriers for entry in that product’s vertical harder bracing for an aggressive competition in stage 3.

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