Being in rapidly growing markets (or ones perceived as hot
) increases likelihood of success of a company dramatically. Being in a hot market increases the ability to hire great people, get press and awareness, raise money, and eventually exit via M&A or IPO.
The average startup exit takes 7 years. Market hotness increases the likelihood of a fast exit dramatically. In the late 1990’s the average time to acquisition or IPO was just 2-3 years due to Internet mania. The fastest exits usually come via M&A. Markets with the most natural acquirers will lead to the most exits in a segment.
To successfully IPO you usually need ~$50 million in revenue and a few quarters of profitability behind you. If you are in a hot market, the profitability constraint may lesson and you can even loose money for a while (see e.g. Hortonworks IPO and big data hotness).
Hot Market Sustainability.
Caveat emptor – about 50% of the markets that are considered hot at any given point turn out to be false alarms. Examples of past hot markets that turned out to largely be duds include First Wave AI (in the 1980s), Nanotech (as an industry in the early 2000s), CleanTech (early to mid 2000s) and Geo (smaller scale in late 2000s).
Hot markets that yielded huge companies and large exits include social networking (mid 2000s -Facebook, Twitter, LinkedIn), and mobile social (early 2010s – WhatsApp, Instagram). Some large market trends are still playing themselves out as per below including big data, sharing economy and other segments.
Hot Markets For 2015
Below is my view of both what markets are hot in 2015, as well as the likelihood of these market segments being medium term duds.
1. Gold Rush.
Markets That Will Yield Large Stand Alone Companies and Many Acquisitions
“Big data” as termed in the press has 4 subsegments:
(1) Dealing with large amounts of data (Hadoop, Spark, etc.)
(2) Smart data. I.e. doing something intelligent with the data you have regardless of the number of petabytes. This is more analytical tools or tools for data scientists.
(3) Data center infrastructure (sometimes this gets clustered into “big data”, sometimes not). Mesos (and Mesosphere) would be an example of this.
(4) Verticalized data apps (e.g. data store and analytics for medical insurance claims).
In general this market segment has a lot of legs and will continue to create both stand alone public companies, as well as has a large number of natural acquirers. Potential acquirers include the traditional enterprise companies (HP, IBM, etc.) as well as the earliest companies in the space who support liquid public Continue reading “Hot Markets For 2015”