An interesting piece of news came out yesterday. It made me think about how when ideas permeate they can thrust markets participants to jockey for position. You can see this all the time out in public usually by actions rather than words. An acquisition, a new product line, feature or divestiture and sometimes it's the size of a fundraise.
Flashing to the conclusion: In Its First Funding In 14 Years, Toronto’s 1Password Raises $200M Series A Led By Accel.
Why does this seem to me like an odd development? Well lets back up and ask the natural question how did we get here.
There used to be a colloquialism that the law of internet properties was that over a long enough time horizon everyone eventually sells ads.
If we were to make the law today the new law of internet properties would state that over a long enough time horizon everyone becomes a fintech.
Weirdly we're seeing this play out in the password manager category.
First, we should set the stage by understanding what an investment thesis is and why it can be important and it’s relevance in this story.
They can come from anywhere, you or I can think about the future development of a company, market or country and write out our thoughts. Some VCs like to use this as an exercise on how a category will potentially play out and work backwards on the strategic implications, resource allocation, competitive positioning, product roadmaps and ultimately the probabilistic destiny for companies.
A push back to this would be that obviously, new categories emerge, they merge, existing categories grow, and you need to keep updating as the winds change but the exercise isn’t futile.
An idea by itself is useless, but an insight that drives real execution that can preserve or grow the competitive advantage, in my opinion, can be very powerful and valuable.
Some people give out their insights publicly, but generally, companies extoll their mission, the systems that they have created but keep their insights close to their chest.
Only really once their product/service/offering becomes public does it reveal another data point about the implicit strategy and the clock then starts for competitors to examine and adjust.
It could be seen as a subset of Keith Rabois question: What “secret” is the company predicated on?
Now back to the password manager sector. The thesis for the category has changed.
In my opinion, the penny dropped when the new up and coming company Fast (https://fast.co/) hit the scene, their aim is to combine the password manager with Amazon’s capability of the one-click payment. If played out they would become one of the internet’s most used components. Full disclosure, this could be my bias coming through since the founder is from my hometown of Brisbane in Australia but in fairness, they publicly stated their thesis and are recruiting and raising against this which is a differentiated story to the public stories of competitors in the space.
The insight (1) and changes (2 + 3):
Macro - Password usage is growing astronomically, this is a large channel for hacking attacks all better spelt out here.
Amazon defence- Backing companies who are giving tooling to existing companies to compete with Amazon
Fintech play- Passwords and payments can be intrinsically linked (touch the pipes and get a slice of that action)
The Fast homepage
Now if you are an existing player in this category and you believe this new thesis, and if true this could grow your economic pie substantially what would you do?
The French economist Jean Baptiste Say writing around the turn of the 19th century said: “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.”
Entrepreneurs create value, they move their resources.
For example, as mentioned above you’re Dashlane who just raised $110 million in May of this year from Sequoia and you think to yourself you already do that core as apart your offering, you have a greater chance of grabbing this new value chain and you can also stop a competitor in the process. It’s a no brainer, add in the Fintech pipes.
This is the part of the story where it gets interesting.
Pure speculation but put yourself in the shoes of a VC at Accel and you see all of these moving pieces, you think there is still an opportunity to win big here and you want in. What if you could partner with a company upstream and back that bigger player who also already does this, has many more touchpoints with enterprise customers, has cash flow and the employees to that could execute against this.
Well, they found someone who met all those criteria and who also wanted in.
1Password raised a $200m Series A after never raising capital for 14 years.
You might think it’s all conjecture above, and it is! But there is some grounding in my thinking. This is the CEO and founder of FAST Domm replying quickly after the founding announcement yesterday.
That is one way to reply, and I kinda like it, the challenger has been recognised and the gauntlet has been set.
One player not mentioned in these moving pieces but could end up owning a large chunk of this space is Google. They announced this week that they are going to offer a fintech product in the form of initially a checking account.
Now reading between the lines they want your financial transaction data and they also want to touch the pipes. Once again, owning the customer relationship by being the central point of your finances, they will use that platform to offer their internal product and services or create market places with third party providers and take a slice of the action. Similar to what they are doing to travel providers at the moment which is well covered by Ben Thompson, they will do this to financial service providers.
They also have a password manager product and a huge incumbent advantage of being able to make that the default manager for Android devices and Chrome users. I’m sure they’re not sleeping on the idea to combine any products and services they own to back their new Fintech ambitions.
That’s it for now, an interesting bit of news, markets and VC fodder all in one.
If you have any ideas on future trends or are working on interesting projects — get in contact I’d be interested in hearing from you.
Also, look out for future posts.