We’ve got this awesome team and we’re doing <insert-cool-stuff-here>. None of <insert-public-companies-here> can do that. We’re light years ahead of them!
I love great teams. Which investor doesn’t. But just because you have not heard of any group within <insert-public-companies-here> doesn’t mean they can’t do it. In fact, any pitch about a unique technical skill set or competitive advantage is nice, but by itself not enough. It comes down to “market execution”: can you commercialize your <insert-cool-stuff-here> faster and better than a competitor (including public companies)?
Also, think about R&D budgets in public companies:
- In three months ending September 30, 2018, Twilio spent about $42.3m in product development.
- In three months ending October 31, 2018, Salesforce spent about $481m in product development.
- In three months ending December 31, 2018, SAP spent about $945m in “Forschungs- und Entwicklungskosten” (product development).
Sure, these are mostly people working on existing products. But someone is spending almost a billion USD a quarter on maintaining existing products or developing new ones. You are telling me that you only need $10m/$15m/$30m in this round to get you through the next 24 months — 30-80% of that might be R&D related expenses, depending on the stage, so together with your cash-flow call it $1m to $5m a quarter. Are you certain you know about every project and development of that size within SAP, Salesforce, or Twilio? You are sure that within the $481m Salesforce spent last quarter, you would have undoubtedly heard of that one group that spent less than 1% of that on a product that might compete with you? Wow. At that detail level and non-public information insights, maybe stock picking might be a more profitable career for you.
Maybe there is another reason why your competitor or a large incumbent is not yet pursuing your market full-steam. I am not saying I don’t acknowledge you’re phenomenal tech achievement or innovation. I just think there is always more to incumbents than what meets the eye.
