Artificial intelligence, blockchain, cybersecurity.
Startups working in these hot areas of the technology industry take more than half of the spots on this year’s Wall Street Journal listing of 25 technology companies to watch. The list identifies startups that show signs of becoming emerging leaders in the tech industry.
“Those three make a lot of sense,” says
a general partner at Foundation Capital, a venture-capital firm in Palo Alto, Calif. “These are the areas we are most focused on,” he says.
Artificial intelligence has benefited from advances in processing power and analysis that are opening myriad new ways to create products. Meanwhile, growing attention to cryptocurrencies has helped persuade a crop of highly skilled entrepreneurs to work on putting the underlying blockchain technology to various uses.
As for the third: “Cybersecurity should be a perennial anchor on the list,” Mr. Moldow says. “So long as there are black hats, there will need to be white hats.”
The Journal 25 isn’t a ranking of every company working in the hot corners of tech. Nor does it consist of companies with billion-dollar valuations; far from it. Rather, the list spotlights young companies—all founded since the start of 2013—that have attracted the attention of the tech community, and cash from venture-capital investors. These are companies that have expanded their workforces and, in some cases, have prominent backers and founders with prior entrepreneurial success.
Outside of the three predominant technology fields, companies on the list include those working in areas such as health care, financial services, education, and business solutions such as drones.
Tech Companies to Watch starts with a survey of technology-industry watchers. Nominations were taken in an online survey conducted by the Harris Poll among executives and others who make technology purchasing decisions for businesses, as well as a survey that included readers of certain Wall Street Journal publications and attendees of Journal technology conferences. Survey participants were asked to identify young companies that are innovative, growing fast and expected to continue to grow fast. Only those with valuations of $50 million to $500 million were considered for the list.
From there, a data analysis was conducted to assess the experience of the companies’ founders, the investments the companies have attracted, the prior success of their biggest investors, the growth of their workforces, and the buzz they have begun to generate in traditional and social media. Equal weight was assigned to these five criteria to calculate overall scores for the companies.
From all of that, the top 25 companies emerged.
Top of the list
At the head of the list is Bitglass Inc., a Campbell, Calif., cybersecurity company formed in 2013. No. 2 is Blockstream Corp., based in Montreal, which is four years old and one of five startups on the list whose work is tied to blockchain. Highest on the list among six companies working with AI is Spoke, No. 7, whose formal name is Townsend Street Labs Inc. It was formed in 2016 and is based in San Francisco.
Bitglass focuses on securing a company’s data when it is used with so-called cloud applications like Salesforce, Microsoft Office 365 and Amazon Web Services. The prior entrepreneurial work of co-founder and Chief Executive
helped lift the company to the top of the list. Before co-founding Bitglass in 2013, Mr. Kausik was a founder of Arcot Systems Inc., a payments-security company, in 1997. In 2010, Arcot was sold to CA Technologies. In 2000, Mr. Kausik co-founded a network-security company called FineGround Networks that five years later was sold to
The Journal analysis rewards companies for having founders who created or helped run other startups; they could draw on past experience in developing their business.
a general partner at Battery Ventures in Menlo Park, Calif., says past experience is especially relevant if the entrepreneur has previously launched a successful business in a similar market, with the same team.
Many of the most successful investments by Foundation Capital are in companies created by repeat entrepreneurs. “We love them because they bring a level of focus and discipline,” Mr. Moldow says. “There is much more intellectual honesty. If they are screwing up, they are the first ones to say ‘We need help.’ A lot of first-time entrepreneurs think our expectation is that they are infallible…and that leads to bad decisions.”
Who’s on board?
The value that investors bring to startups is another component of the analysis. Credit is given to companies for having on their boards firms that have made sizable VC investments overall and that have invested in companies that have later gone public or been sold. Credit also is given for the number of investors the startups have and the amount of money the companies have raised. This analysis used data from Dow Jones VentureSource.
For instance, Spoke, which developed a chatbot for businesses to respond to employee queries on human-resource, IT and other issues, benefited from having on its board representatives from firms such as Accel Partners and Greylock Partners. Blockstream, the blockchain company, benefited from having among its investors Khosla Ventures and Innovation Endeavors, a firm that includes as a founding partner
the former chairman of Alphabet Inc.
Startups looking for funding are finding a receptive market. VC-backed companies raised $223.8 billion in total investments in 2017, up from $165 billion in 2016, based on major countries and regions reported upon by Dow Jones VentureSource. Through the first quarter of 2018, these startups raised $63.7 billion.
“If you look at the capital markets, it’s a relatively good time to find money. You just need a few key partners who can work with you,” says
chief executive and co-founder of DataVisor Inc., the No. 16 company on the Tech Companies to Watch list. The Mountain View, Calif., company, which uses machine learning to identify fraud, has raised more than $50 million from investors including Sequoia Capital China.
Entrepreneurs should focus on finding investors who can offer skills that complement the expertise of the management team, says
who is based in San Francisco and is a general partner at venture capital-firm Canaan. “You want a board with a good set of skills and a good set of perspectives. [Entrepreneurs who] focus on just getting a check at the highest possible valuation…are taking a shortsighted view of what it takes to build a great company.”
Mr. Lee of Battery Ventures says, “Ultimately there has to be a level of respect and mutual understanding about the partnership. It’s easier to get divorced than it is to get rid of your investor. You are going to be stuck with this person for the duration of the company.”
Finding investors is quickest in the earliest stages of a company, says Mr. Kausik, the CEO of Bitglass and repeat entrepreneur. The company raised $10 million in its first round in 2013 and, to date, has attracted $80 million in investments. “In the first round of funding, we had only 10 slides and pitched them to a handful of investors—and we got a commitment from two of them,” he says. “All babies are attractive.”
Recruiting, hiring and retaining workers can be tougher.
CEO of Digital Asset Holdings, says hiring is challenging for tech entrepreneurs, whose companies are growing rapidly and whose job candidates are widely courted.
Even though New York-based Digital Asset works in the realm of blockchain, prospective employees are in demand from companies in a host of hot areas, including artificial intelligence, robotics, quantum computing and mobile technology, Ms. Masters says. Digital Asset, No. 11 on the list, has 150 employees in six locations globally.
Competition for employees based on compensation is difficult for companies outside of Silicon Valley, says
CEO and co-founder of Monzo Bank Ltd., which runs a mobile-phone-focused bank in the U.K. and is No. 14 on the Journal 25. Mr. Blomfield has found that in London prospective employees see less opportunity in stock options than do people in the U.S. “If you come from a bank to work for us, you are taking a pay cut,” he says. “We currently are a loss-making company. We can’t compete on pure cash.” To address this issue, as part of its most recent fundraising Monzo sold equity valued at £11 million ($14.8 million) owned by employees. Those who were at the company from its early days were able to convert up to 10% of their equity into cash.
Mr. Boyle of Canaan says startups need to maintain discipline in spending on hiring and in otherwise managing their growth. “It is easy to raise money right now, and the problem is that it becomes easy to build up the cost structure of your company,” he says. “The risk for companies is to get loose and to lose focus, and that kills startups.”