At the Street Fight Summit in New York a couple of months ago, I moderated a panel that looked at the “Billion-Dollar Opportunities in Hyperlocal.” Our thesis in putting the panel together was that the personalization made possible by location-based technologies was still in its early stages of evolution, and that the “geo-web” will be spawning many of the billion-dollar exits that later-stage VCs crave.
The following week, Aileen Lee, founder of Cowboy Ventures, published a careful analysis of billion-dollar exits, which she termed “unicorns” for their rarity. Aileen’s analysis, which received considerable attention, identified exactly 39 U.S.-based tech companies that were started after 2003 and recently valued at $1 billion or more, publicly or privately. Out of all the VC-backed startups since then, that means the odds of backing a unicorn are .07%, or about 1 out of about 1,500. Rare, indeed.
I’ve since reviewed the 39 unicorns, and determined that three of them are true “geo-web” companies: Yelp, Uber, and Waze. In other words, almost 8% of the unicorns created in the last decade have geo-location, both web- and mobile-based, as part of their core. There are actually three additional unicorns (Home Away, AirBnB, and Climate Corp) which use geo-location as part of their business model — but in a role that I categorize as less than core. Even with the more conservative definition, a not-insignificant number of the unicorns created in the last decade have been built leveraging geo-location technologies.
One of the consensus points of the Street Fight Summit panel, which included Matt Turck, Managing Partner, First Mark Capital and Ben Siscovick, recently with IA Ventures, was that the geo-web was well on track to create more billion-dollar opportunities. While we agreed that local, original, digital content creation was a very tough business, the consensus was that the increased personalization made possible combining location with other indicators of intent and interest was a solid formula for growth.
One prediction that came from the panel: the next geo-unicorn will be Foursquare, valued around $600-700 million privately, and recently moving to more fully capitalize on its vast location/intent database by providing users with proactive recommendations — without a current check-in.
In the flurry of attention given to Lee’s analysis, I noted a couple of other reactions that I think are generally on target and worth highlighting. First, CB Insights’ own analysis of so-called “unicorns” pointed out that the more successful unicorn-creating VCs are actually increasing their share of investment dollars towards more early-stage investments. Having created two or more unicorns, these VCs are spreading their bets even more widely to increase their odds of growing more future unicorns.
Also, the bullish Silicon Alley investor Fred Wilson predicts that the rate of unicorn creation will increase substantially when startups of the last few years have time to mature, and the dataset grows more robust. While, on average, four unicorns were created per year in Lee’s dataset, Wilson predicts a fuller dataset will show 10 unicorns being created per year.
While a 2.5x increase in unicorn creation would be nice, it’s probably overly optimistic. Nevertheless, I do expect an increase in unicorn creation based on the capitalization on areas like location services and big data; continued gains in social and mobile; and generally improving capital markets.
Jason E. Klein is the founder/CEO of On Grid Ventures LLC, and investment and advisory firm focused on the startup and reinvention of businesses capitalizing on digital and location-based technologies. He is also a Managing Director at Empirical Media. Follow him on twitter @JKNews.