The new moat is what speed can't copy

Matt Ober is a managing partner at Social Leverage. Matt was most recently the chief data scientist at Third Point, where he built the data analytics and technology platform used to enhance the firm’s investment capabilities in equity, structured credit, venture capital and cryptocurrency.

What makes a fast-growing startup defensible?

Raising is one thing; speed is another.

Founders are always focused on raising. How much, how soon, and what KPIs they need to justify the next move. At the seed stage, we are seeing more and more the need for speed. Go fast and execute. If $5 million is the new minimum in revenue you need to get to for raising your Series A round, then the speed at which you do it is just as important. For founders facing that expectation, the window can be as short as 18 months.

Years ago, you’d get to $1 million in revenue and you could go out and raise your next big round.

Telling the story, recruiting the best talent, raising money: These are all top priorities for the best CEOs. How quickly you can scale, how much you are growing annually and how additional capital will accelerate that growth are on everyone’s mind. Threefold growth is great, but what does it take, or what’s holding us back, from tenfold growth?

I have seen a lot of companies raise over the last 24 months, and I have heard their feedback from talking to strategics, VCs and family offices. The bar is getting higher and higher. Defense tech, AI labs and deep tech are in — everything else has to tell a damn good story. It’s not uncommon for a founder who just crossed $1 million in ARR to be asked, “How do we get to $100 million in revenue next year?” What was once a crazy thing to ask isn’t so crazy when there are companies doing this.

It’s also not uncommon for founders to be asked, how big is this idea? Is this something that could be worth a trillion dollars one day?

At Social Leverage, we are still investing at the early stage, typically at sub-$10 million valuations. But we see opportunities every day above $10 million in post-money valuation, and we are looking, especially when top-notch founders have proven traction and vision. Do we need every company to have a vision of being a trillion-dollar company? No. But the reality is that a lot of investors are chasing the next trillion-dollar IPO.

Investors’ demands for bigger outcomes make speed a fundraising priority. But founders also need to ask what that growth is building: an advantage competitors can easily copy, or one that becomes harder to replicate as the business expands?

What competitors can copy

At this point, is there any moat? Is a moat a thing of the past?

I’ve been hearing a lot lately from other investors that moats are gone; products and technology are too easy to copy, disrupt or replicate. AI is speeding everything up faster than we have ever seen. Michael Parekh recently wrote that every six months we have to rethink everything because technology is moving that quickly, especially with the spending on data centers and infrastructure making things that were never possible, possible.

That makes the connection between speed and defensibility more important. If competitors can build something similar quickly, founders need to use their head start to establish advantages beyond the product itself.

I still believe there are data moats. Proprietary data, point-in-time data, data that is captured during proprietary workflows or processes that can’t be easily replicated. In data, history is a moat, especially when records preserve what was known at a particular moment.

A competitor may be able to reproduce a feature. It cannot go back in time and collect the same historical data. For businesses that capture proprietary data through customer workflows, growth can help deepen that advantage.

Turning speed into a lasting advantage

The new moats feel like they are moving toward cash, the ability to recruit top talent, sales, and distribution.

Those are also the capabilities that help a company move faster. Capital funds hiring, talent helps the company execute, and distribution gets the product into customers’ hands. The question is whether founders are using that speed to build something harder to displace.

I think one thing that shouldn’t be discounted is the value of strong sales teams with distribution. As technology makes things easier and easier to build, sales becomes an increasingly important source of advantage.

The pressure to grow quickly is real. The opportunity is to turn that growth into proprietary data, stronger distribution and a team that can keep executing. Reaching the next fundraising milestone matters. So does what competitors will have to overcome once you get there.