The Decade in Technology and Venture Capital: Looking Back on the 2010s
We’ve reached the end of the 2010s, and with it we say goodbye to a transformative decade in the technology markets. And what a decade it was! One of the key characteristics that defined the decade was the ever quickening pace of technology adoption. As an example, while it took the landline phone almost 80 years to reach 80% penetration in the U.S. population, it took mobile phones less than 30 years, and will take smartphones only 15 years to reach this level. The result of this quickening adoption pace is that startups riding these waves can reach greater scale, much faster than ever before. Combined with the reduced cost of building a startup and more availability of capital, massive companies can be built seemingly in a short time.
To put a cap on the decade, I decided to create a list of the top events that had the most transformative impact on the tech and venture capital industries, focusing on the entrepreneurial economy, and resulted in scaling of massive companies. These are not listed in any particular order, and there are certainly major events that I’ve omitted.
- Software Eats Traditional Industries
In August of 2011, Marc Andreessen penned an article in the Wall Street Journal entitled “Why Software is Eating the World”. In it, he explained the drivers that were enabling what he called a “dramatic and broad technological shift in which software companies are poised to take over large swathes of the economy.” These drivers included the proliferation of mobile devices and the ubiquity of broadband Internet, combined with software developer tools and Internet-based services that drove down the cost of launching a startup.
Andreessen’s contention was that industries previously dominated by non-technology incumbents would eventually be ruled by technology companies. Nine years later, he has certainly been proven right so far. Google and Facebook generate more revenue than every newspaper, magazine, and radio network in the world combined. Streaming services such as Apple Music and Spotify comprise over 80% of the revenue of the music industry. Amazon became the world’s most valuable company in 2019, and is projected to exceed Walmart in retail sales by 2022. Netflix was the best-performing stock of the decade in the S&P 500, and amongst media content companies is now second to only Disney in market cap.
Over the next decade, what will be most fascinating is how software transforms industries that historically have relied on physical assets, large capital expenditures, and government regulation. These industries include telecom, energy, manufacturing, and financial services, to name a few. These industries are often characterized by poor customer service, inefficient supply chains, low levels of innovation, and lack of personalization for the customer. They are more difficult to win because the assets owned by these companies often have a barrier to entry, or are very costly.
Upstarts are nevertheless beginning to attack these industries, whether it’s fintech startups such as Wealthfront and Betterment; 3D printing companies such as 3D Systems and Proto Labs in manufacturing; or fixed wireless startups in telecom. These companies are competing differently, seeking to gain advantage through network effects, operating efficiency, and quality of service, rather than physical assets.
2. Gender and Race in Tech Comes to the Forefront
The issue of women and minorities in technology came front and center in the late 2010s. This was driven by multiple factors, including the emergence of groups that advocated on behalf of female and minority tech founders and investors, such as AllRaise, All Star Code, Black Girls Code, Culture Shift, and Code 2040. Prominent female and minority entrepreneurs, operators and investors became more vocal about the discrimination, pattern matching, and cognitive biases that have often excluded women and minorities in Silicon Valley. The statistics on women and minorities receiving venture funding have unfortunately been bleak for for too long. The tech industry finally woke up and took notice.
Women and minorities staked their claim as builders and operators of billion-dollar companies. These individuals included Katrina Lake (Stitch Fix), Corey Thomas (Rapid7), Julia Collins (Zume Pizza), Jenn Hyman (Rent the Runway), and Chris Young (McAfee). There was perhaps no more iconic photo than Stitch Fix’s IPO, where Katrina Lake rang the Nasdaq bell holding her young son, a symbol of women bringing change to the tech industry. Lake became the youngest woman ever to take a company public.
3. Cloud Computing Transforms the Enterprise
Amazon Web Services was officially launched in March of 2006, when the company released three cloud services: S3 Cloud Storage, SQS and EC2. Since that time, cloud computing has fundamentally changed how businesses store, compute, and share data.
The Infrastructure as a Service (IAAS) and Platform as a Service (PAAS) markets have grown exponentially, with Amazon leading the market, followed by Azure and Google. Amazon’s AWS business has grown to a $36 billion run-rate, an astounding figure for a business that didn’t exist fifteen years ago. While Amazon controls almost half of the public cloud market, Microsoft Azure and Google Cloud Platform are battling for market share.
Even more impressive was the growth of the enterprise SaaS market. A wave of SaaS newcomers established themselves as indispensable tools for business, ranging from Slack (team collaboration) to Zoom (video conferencing) to Box (data storage) to WorkDay (HR tech) and to ServiceNow (enterprise digital workflows). Vertical SaaS companies like Veeva, Guidewire and AthenaHealth dominated their industries, proving to be attractive for IPO and large M&A. Horizontal SaaS incumbents also thrived. Salesforce, for example, grew in revenue by almost 10x over the past decade.
The Bessemer Emerging Cloud Index, used as a benchmark for the growth of the SaaS market, reached $879 billion in aggregate market cap at the end of 2019, growing almost 500% since its inception in 2013. The big question over the next several years is whether public SaaS companies can justify their valuations, which imply significant continued rapid growth. Median public SaaS revenue multiples continue to rise, but are TAMs large enough to sustain this level of growth? We’ll find out over the next decade.
4. The Sharing Economy Arrives
The 2010s were a decade where the sharing economy reached prime-time. Whether it was lodging (AirBNB), financial services (Lending Club), personal transportation (Bird and Lime), or apparel (Rent the Runway), sharing companies changed how we think about ownership. Capitalizing on a combination of cost savings and convenience, these companies leveraged network effects to reach large scale. AirBNB in particular transformed how we conceive of accommodations, becoming larger than any hotel chain in terms of managed rooms in less than a decade.
But the most impactful category was ride-sharing. Of the largest four companies in the category, Uber was founded in 2009, while Didi (China), Lyft (U.S.), and Grab (Malaysia) were all founded in 2012. In total, these four companies were worth almost $170 billion in combined market capitalization by the end of the decade.
This market had a transformative impact on global society in several ways. It created a new class of workers around the world. There are now more than 3 million Uber drivers worldwide, which may seem like a huge number, until you realize that there are more than 30 million Didi drivers across China. It created convenience for the consumer, saving time and money and providing a transportation option where one often didn’t exist. And it impacted the taxi industry in many cities, spurring government action and litigation as regulated industries were disrupted.
Perhaps no individual better represented the ride-sharing wave and its impact on U.S. society than Travis Kalanick, the bombastic co-founder and CEO of Uber. Kalanick’s tremendous drive and willingness to question authority were critical in the company’s astronomical growth. However, the toxic culture he enabled, resulting in several incidents of sexual harassment, eventually led him to resign. Kalanick chose to sever ties with Uber at the close of the decade, December 2019, putting a coda on the decade of ride-sharing.
5. Facebook’s Impact on Data Privacy and Global Political Systems
Facebook achieved unprecedented scale in the 2010s, reaching 2.4 billion active users across its main platform plus its acquired platforms such as Instagram. The company went public in 2012, in the largest technology and Internet IPO at the time. The largest winner of the social media battles of the 2000s, Facebook exemplifies the power of network effects. When it couldn’t drive a competitor out of business or make it irrelevant (see Friendster, MySpace, and many others), it chose to acquire it instead (Instagram, WhatsApp).
Despite becoming ubiquitous in so many of our lives, Facebook’s enduring legacy may end up being how it helped to usher in two unfortunate new realities. The first is the loss of personal data privacy. Facebook suffered many data breaches through the decade, the most devastating of which was the Cambridge Analytica scandal, where data from millions of Facebook users was harvested and used for political advertising purposes. Mark Zuckerberg’s response to the scandal was tepid.
The second reality is how social media can be used to foment hate, incite violence, and undermine our political systems. As an example, Facebook played a key role in the ethnic cleansing which took place in Myanmar. Members of the Myanmar military waged a successful social media campaign on Facebook against the Muslim Royhinga ethnic group, which led to this ethnic cleansing. The second example was the role that Facebook played in the 2016 election, where the platform was used by Russia to spread fake information and to undermine the Democratic frontrunner.
Facebook’s unprecedented global reach, combined with its inability to effectively secure the rights of its users, may have serious long-term consequences on how we communicate and share information. It may also enable new platforms to emerge, in particular decentralized platforms that better secure data and ensure privacy.
6. Steve Jobs Passes Away, Leaving Visionary Legacy
Steve Jobs passed away at 56 in October of 2011, prompting an outpouring of grief and remembrance around the world. Perhaps no individual in technology impacted our lives more than Jobs over the last several decades. Apple’s products have become ubiquitous in our daily lives, transforming how we communicate, work, and experience entertainment. Jobs represented the computer revolution, beginning from humble roots in a garage in Los Altos and building Apple into the largest company in the world.
For tech founders, Jobs represents visionary leadership, an ability to dream, and an insistence on creating exceptional products. His legacy continues to impact entrepreneurs around the world.
7. Artificial Intelligence Enters our Lives
The past decade was the first in which artificial intelligence began to play a role in everyday life. Voice assistants, primarily Amazon’s Alexa and Apple’s Siri, began answering our questions and automating some of our daily tasks. The potential of voice assistants and voice-recognition technology is significant, in particular as thousands of app developers integrate voice as a key feature of their apps.
The self-driving car went from a futuristic concept to a logical reality that may impact or lives much sooner than we thought. Leading the way was Tesla Motors, led by brash CEO Elon Musk, one of the greatest entrepreneurs of our generation. Tesla and Musk pushed the envelope throughout the decade, proving that electric cars could be the highest-performing cars on the road. The company became the first to integrate self-driving elements into its cars, but is battling a range of competitors such as Cruise, Waymo, and others to build a fully self-driving car.
Finally, enterprise applications of AI began to become a reality. While the status quo has limited, as evidenced by poor-quality interactions with bots in customer service, the potential of enterprise AI adoption over the next decade is very large.
8. The Emergence of Developer Tool Companies
For a long time, the market for developer tools was perceived to be unattractive to venture capitalists. There were many reasons for this, including the perception that developers didn’t have meaningful budget or were unwilling to pay for software, as well as the fact that many developer tools were available in the form of open-source projects and wouldn’t be commercialized. Writing in TechCrunch in 2014, Danny Critchton asked the question, “Will Developer Tools Startups Ever Find Investors?”
There were several big changes that occurred in the past decade to alter the landscape for developer tools startups. The first is that software began to be deployed at scale in the cloud. The second is that software APIs enabled developers to integrate key components into their apps on a modular basis, rather than writing them with custom code. These included components such as voice communications (Twilio), payments (Stripe), email (SendGrid), or cloud databases (MongoDB).
The third is that these developer tools companies evolved their business models, typically leveraging open-source projects to provide free and commercial versions of their software. The final change was the growth and formalization of the developer community itself. As a prime example, over the course of the decade the Github community grew to over 40 million members and 3 million organizations, with over 10 million members joining in 2019 alone.
The impact of these changes was to enable developer tools startups to reach much larger scale than ever before. Major exits included Atlassian ($30B market cap), Twilio ($14B market cap), DataDog ($11B market cap), and Github (acquired by Microsoft for $7.5B). However, the developer tools wave might just be beginning, and the coming decade may bring even larger outcomes.
9. Exponential Growth of the Mobile App Economy
The exponential growth of mobile apps was catalyzed by the growth of smartphones. The Apple App store was opened in July 2008, followed by Google Play stores in October 2010. In just over ten years, the number of annual app downloads grew to 194 billion annually by 2018, according to App Annie. App Store consumer spending exceeded $100 billion in 2018, and was projected to be $120 billion in 2019.
The mobile app economy created several massive winners for technology VCs in the 2010s. Those included WhatsApp ($19B acquisition), WeChat (part of TenCent, valued at $470B), Spotify ($28B market cap), and Uber ($52B market cap), among others. What was most fascinating about these companies and apps is they reached tremendous scale very quickly, as a result of being able to rely on cost-less distribution via mobile phones. The app store also enabled startups to grow and scale with limited capital, and to leverage word of mouth and network effects.
Over the next decade, it will be very interesting to see whether the gatekeepers Apple and Google will be able to maintain control over these ecosystems, or whether alternatives will emerge. Apple has been subject to antitrust scrutiny in many countries due to how it ranks apps in the app store, and how it may be favoring its own app. In addition, there is the potential for there to be a decentralized app store built on the blockchain where a middleman does not take a large share of revenue, and where app selection and rankings is transparent and more democratic.
10. China Rises, and New Tech Ecosystems Challenge Silicon Valley
Alibaba’s IPO in September 2014 was the largest IPO in history, and ushered in an era of China’s growing dominance in the global technology market. Alibaba’s founder, Jack Ma, recognized the Internet wave very early, and specifically understood the power of the Internet to connect the millions of Chinese small businesses in China to end consumers. Starting from humble roots in an apartment in Hangzhou, Alibaba built the largest B2B (Alibaba.com), B2C (TMall), and C2C (Taobao) marketplaces in the world.
As of May 2018, nine of the world’s top twenty most valuable technology companies were Chinese companies. Companies such as TenCent, Meituan-Dianping, and Didi reached scale that often dwarfed that of their U.S. predecessors. And although Silicon Valley is still considered by many as the center of the technology universe, the reality is that Chinese companies can often grow larger than U.S. companies due to the size of their massive domestic market. The Chinese government has also placed major emphasis on growing its technology sector and creating incentives for local companies.
More generally, the 2010s were a decade where billion-dollar companies proliferated outside of Silicon Valley. Of the 10 U.S. IPOs of the 2010 decade described as most notable by US News and World Report, 5 of them were companies located outside of the Valley. Outside of the U.S., Europe produced companies such as Spotify, Adyen, and Supercell, while LatAm and Africa also made strides in growth of large tech companies. It will be interesting to see what the next decade brings in terms of tech company globalization.
11. New Players Transform the Seed Market
The seed-stage market was transformed in the past decade, fundamentally changing how startups raised their earliest capital. With a mantra of “$500k is the new $5 million”, seed funds such as Floodgate, First Round Capital, LowerCase Capital, and SV Angel invested in several of the largest exits of the decade. They realized that larger VC funds had not scaled down to meet the new seed opportunity, and capitalized by raising smaller funds. Many of these funds were started by “super-angels” who had exceptional access to top founders. Accelerators such as Y-Combinator, TechStars and 500 Startups also capitalized on the opportunity. Founded in 2005, by the end of this decade YC had invested in companies with a cumulative valuation of $155 billion, including companies such as Stripe, AirBNB, DropBox, and DoorDash.
The seed industry became a victim of its own success by the end of the decade. From a base of less than 100 U.S. seed funds in 2012, there were more than 900 seed funds at the end of the decade. In addition, the seed stage has become a new battleground for top Series A firms such as A16Z that are seeking to get involved with startups earlier. The next decade will likely witness a shake-out in the seed market, where the traditional model of leveraging a network and applying a “spray-and-pray” approach will not work.
12. Cryptocurrency Becomes Widely Adopted, But Everyday Applications Remain Limited
The first decentralized cryptocurrency was created on January 3rd, 2009, when Satoshi Nakamoto mined the genesis block of bitcoin. Nakamoto’s innovation was to devise a protocol that enabled money to be created, stored, and exchanged completely via software, as well as a ledger system (the bitcoin blockchain) to manage these transactions without human intervention.
From humble beginning within a group of hackers and anarchists, cryptocurrency eventually reached the mainstream by the mid-2010s. Due to its potential for fast appreciation, buying and selling cryptocurrencies became a craze, resulting in a full-blown bubble by the end of 2017. Billions of dollars were pumped into ICOs of new alt-coins. Then came the 2018 crypto crash, which led to cryptocurrencies losing almost 80% of their value between January and September 2018.
Despite the crash, bitcoin remained one of the best investments of the decade. $1 invested in bitcoin a the beginning of the decade was worth more than $90,000 at the end of 2019.
Despite widespread speculation as well as purchase of cryptocurrencies by investors as a store of value, everyday applications of blockchain and crypto applications are still in their infancy. The average American has not used cryptocurrency to make a purchase of any product or service, or used a blockchain application. Many startups are working to change that in the coming decade. There is tremendous potential for blockchain technologies to impact industries, due to aspects such as better security, greater traceability of transactions, better ability to reward industry participants, and decentralization. However, major strides need to be made in terms of infrastructure and business model innovation for blockchain applications to be ready for prime time.
13. The Era of Big Tech Arrives
In 2009, in the midst of the financial crisis and after the dotcom bubble burst earlier in the decade, there was only one technology company on the list of the largest ten companies in the world. That was Microsoft. Every other company was an old economy business.
By the middle of 2019, we had arrived in the Big Tech Era, and the list looked very different. The top five largest companies in the world, and seven out of the top ten, were all tech companies. Microsoft had been joined on the list by Amazon, Apple, Alphabet (Google), FaceBook, Alibaba and Tencent.
What spurred the era of big tech? I’ve referenced several of the drivers already: the rapid growth of mobile devices, the fact that broadband became ubiquitous, the network effects of social media companies, and the rise of cloud computing.
However, an additional key factor is that large tech companies consolidated their markets, and expanded into new markets, through acquisition. They were largely unchecked by regulators in doing so. Microsoft made several billion-dollar acquisitions in the decade: LinkedIn ($28B), Skype ($8.5B), GitHub ($7.5B), Nokia ($7.2B), and Mojang ($2.5B). With these deals, it expanded into online recruiting, communications, mobile phones, gaming, and developer tools.
FaceBook acquired Instagram, WhatsApp, and Oculus, consolidating the social media market while expanding into VR/AR, which may become a ubiquitous new platform of the future.
Alphabet made several large acquisitions, expanding into wearables with FitBit ($2.1B), smart home with Nest ($3.2B) and Dropcam ($555m), GPS with Waze ($966m), big data analytics with Looker ($2.6B), and AI with DeepMind ($625m). And Amazon, which has historically grown organically, made targeted large bets in grocery with Whole Foods ($13.7B), gaming with Twitch Interactive ($970m), robotics with Kiva Systems ($775m), smart home with Ring ($840m), and e-commerce with Quidsi ($540m) and Pillpack ($753m).
The result of these acquisitions is that incumbents consolidated their power in their primary markets, while angling to dominate the new categories of the future. Regulators were largely permissive of this activity in the decade, even where large tech companies already had large market share and were increasing it.
However, there is a growing sentiment that Big Tech companies have too much power, and need to be restrained. There are antitrust probes brewing against Amazon, Apple, Microsoft and Alphabet. President Trump, as well as 2020 Democratic challengers like Elizabeth Warren, have also indicated a desire to sue them on antitrust grounds. This coming decade will likely see heightened battles between regulators and the Big Tech incumbents, and one or more of these companies may be broken up.