Venture Capitalists goals to exit will drive winner-take-all growth

While watching a friend stream on twitch today, his radio station played a commercial from Audible an Amazon company. Which made me think about how Audible was a really up and coming company that a lot of people were interested in. Companies like Audible are funded by Venture Capitalists to help them in a few ways – pay for more developers, pay for access to content, hire marketing folks, or any other litany of things that a business needs. They come in at a stage when a company has little to no revenue.

These VC’s then put pressure on the companies to become profitable through new businesses, increasing the number of number of subscribers, or even changing markets or product types (pivots in their language). This is for a pretty simple reason, they make money in a boom or bust manner. If they fund 64 companies having at least one of them profitable means it needs to raise a massive amount of money to break even or to make all of those investments profitable for the company.

This means that whenever a company like Amazon approaches the leadership board of a company like Audible, the board will likely push for a higher price, but will likely be willing to sell. This is because Amazon, Google, Apple, and other companies similar in size, breadth, and depth in the market, offer absurdly deep pockets. For example, Facebook bought Oculus Rift, a company that’s only had a few prototypes released for $2 Billion. This is a huge amount of money which likely made the VC’s extremely happy.

Because of these market conditions we’ll likely continue to see a winner take all approach to markets that these players are in. Since most of these companies are competing in the exact same space, a company like Audible, that could offer a distinct advantage in the market place would be extremely valuable. It would actually have significantly higher value than if there weren’t 4 giant companies competing in the same space.

It’s likely we’ll see this continue to expand as Sony tries to figure out how to move into these spaces more adeptly, as well as Microsoft resurgence in consumer markets. Fully expect more and more of this to happen and greater and greater valuations for these companies in the coming months and years.