Competition in the VC and Tech Realm

Competition. It’s one of the more ubiquitous aspects of life; species of all kinds compete for some kind of scarce resource on this planet. Peacocks compete among other peacocks to find the most desirable female using their vivid tailfeathers as a sign of dominance and fitness. Sharks that are still in the womb (likely from different fathers) eat one another until only the biggest baby and its sibling remain. And of course, people compete in sports until only one team or individual remains standing at the end of the season.

This Darwinian notion can be seen across most industries and subjects. We are taught from the beginning that if we want to get into the best colleges, we need to have better grades, SAT scores, and extracurriculars than everybody else, even though that isn’t always the case. Even on the internet and through the use of social media, which fundamentally manipulates the Social Comparison Theory, people vie for the best digital life, even if it means portraying one that is completely different from their reality. It’s a sad but true state.

Although in most cases competition results in playing a zero-sum game, that may not always be the case in the Venture Capital world. In fact, a recent study discovered that competition in the VC industry doesn’t behave exactly as it would in most other industries. One reason for this is the fact that because the VC industry is not nearly as big in number as other industries are, the members of the community tend to know who most of the people and firms are, resulting in the culmination of strong networks and relationships. That creates an opportunity to know who everyone is and how each member can help one another. Even though each firm and individual is striving to find startups to invest in that will return the money back to the LPs, it’s not nearly as cutthroat as other industries might be, such as banking or healthcare. There’s a certain “you scratch my back” approach here that creates strong relationships. In fact, it’s not absurd to say there’s more of a cooperative nature in the VC realm than there is competitive.

Now that’s not to say competition is dead in the tech world, especially among startups. Far from it. Darwin’s Theory of Evolution doesn’t apply to just peacocks and sharks. Those startups that are best able to pivot and adapt to market needs are the ones left standing. The classic Netflix vs. Blockbuster case comes to mind. How often is the phrase “Kodak Moment” still being thrown around? Startups that have rivals or that compete in a crowded industry always have to look for ways to out-adapt their competition. That could mean having the best customer service, the best quality product, or the best sales team.

Competition in the startup world can be both an excellent and cautious thing. Competition usually spurs innovation, which tends to have a national, if not global, ripple effect. Companies that can innovate the fastest to meet consumer demand usually stick around longer compared to others in the same field. Having a rival or two can definitely intensify this because startups are even more motivated to go above and beyond to outperform their competition. However, going too far against a rival can lead to consequences that can be deemed irrational, like buying a company away from a rival, even though it’s a sinking ship. And irrational behavior has no place in companies trying to adapt and survive.

Competition can bring out the best and it can bring out the worst. Although some fields can be slightly cooperative in nature, others are heavily competitive, and Darwinism has its fingerprints all over them. To survive, startups (and sometimes VC firms) have to adapt to their market, competition, and needs to stay alive longer than their rivals. Even though rivalry is a subset of competition that can magnify performance, it is only helpful as long as it doesn’t go too far in a rational sense. In the end, competition is just as omnipresent as it is a driving force in the world.