Growth, Innovation + Investing
from A Round to Apple Inc.

We’ve been delivering authoritative market analysis and perspectives, week-in and week-out for more than a decade. Sign up so we can update you with new releases of A2Apple and our other daily and weekly publications — sent straight to your email.

And make sure to keep a close eye on our research and commentary arm, GSV Tomorrow, where you’ll find original GSV insights, plus curated content revolving around our key Growth Themes. Just complete this form and they’re yours to use and share.

GSV's weekly perspective on Growth, Innovation + Investing...
from A Round to Apple Inc.
General Commentary
October 1, 2017

Dow 1,000,000

Save to PDF

Market Snapshot

Indices Week YTD

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.

— Albert Einstein

Last week at a Forbes fête celebrating the magazine’s centennial, Warren Buffett predicted that the Dow Jones Industrial Average would be over one million in 100 years, up from the near record 22,400 today.

Crazy? No. In fact, by Buffet’s standards, it sounds Bearish.

The roughly 3.9% compound annual growth rate needed to get from where the Dow is today to where Buffett predicts it will be in 2117 is actually lower than the 5.5% CAGR from the beginning of the 20th century when the index was founded.

To understand the magic of compound interest, consider the story of Dutchman Peter Minuit. He purchased the entire island of Manhattan for $24 worth of trinkets from the native Wappinger people in 1626. In other words, for less than the cost of a Soul Cycle class, Mr. Minuit acquired the entire Big Apple.

While there are many outside of Gotham who would look at neither as a bargain, the point is to demonstrate the power of compound interest. So, did he get a a good deal?


Source: New York Historical Society

Obviously, the key variable to determine the answer is the interest rate that we would apply to the $24. What would the earnings have been on an alternative investment?

The difference between a 5% return and a 10% return isn’t a simple doubling but a compounding that becomes staggering over time. If the $24 had been invested at 5% interest over the past 390 years, it would have grown to $4.4 billion today, implying a good price given that Rockefeller Center alone sold for $1.9 billion in 2000.

At a 10% return, a $24 investment would be magnified 83 million times to an incomprehensible $333 quadrillion.


Source: GSV Asset Management, World Bank

GSV’s fundamental investment philosophy is that growth drives enterprise value. As we’ve demonstrated, over time, share prices are nearly 100% correlated with earnings. Hence, our objective is to build a portfolio that has the highest and most sustainable growth rate.


In 2015, GSV launched the GSV 300 Index, which we believe is the best representation of what is truly going on with growth companies, their valuations, and performance.

It is an index of 300 of the World’s fastest growing companies, selected systematically based on key fundamentals, including revenue and earnings growth, geography, valuation metrics, and market capitalization. Because the companies are not handpicked, the GSV 300 doesn’t look at all like the typical indexes that people use to analyze growth companies and growth investors.


Source: Yahoo Finance, GSViQ

The most relevant index for Institutional Investors to date has been the S&P 500, which is a good proxy for broad Market dynamics. But with a 7% long term growth rate, it hardly reflects conditions or performance for fast growing companies.

The fact that the S&P 500 is solely a market cap weighted index is problematic in that a $100 Billion Market Cap Company has 100x the impact on the Index as a $1 Billion Market Cap Company… not realistic in that a portfolio manager who viewed two portfolio companies as being equally attractive would have 100x more of that company in their portfolio.

The most well-known index, the Dow Jones Industrial Average (DJIA), is created with an even more bizarre rationale in that it is weighted by share price. So in other words, if one stock was $30 per share and another was $300 per share, the $300 stock would have 10x the influence on the DJIA as the $30 stock.

The Definitive Barometer for the Global Growth Company Ecosystem

Source: GSV Asset Management

The GSV 300, by contrast, is constructed using a systematic three-step process, which is summarized below: Screening, Ranking + Scoring, and Index Weightage. For a full description of the GSV 300 construction methodology, please click HERE.


The average market capitalization of GSV 300 constituent companies is $8.2 billion, with a median of $1.7 billion. The 10 largest companies account for 25% of the index. By comparison, the top five companies in the 2,500-company NASDAQ Composite — Apple, Microsoft, Amazon, Facebook, and Alphabet (Google) — account for over 30% of the index alone.


Source: GSViQ

Looking at the GSV 300 by geography, 32% of the index weightage comes from U.S. companies. China is the second-largest geography at 18%, followed by India at 11%, and South Korea at 6% and the United Kingdom at 5%. By contrast, 95% of the S&P 500 and 85% of NASDAQ are represented by U.S. companies.

Countries of GSV 300 Constituent Companies as a Percentage of Index Weightage

Source: GSViQ
Countries of S&P 500 Constituent Companies as a Percentage of Index Weightage

Source: GSViQ
Countries of NASDAQ Constituent Companies as a Percentage of Index Weightage

Source: GSViQ

GSV 300 UPDATE: Q3 2017

The GSV 300 has soared 42% year-to-date, gaining 14% in the third quarter. While we were pleased with the strong performance, our objective in launching the index was to create a scorecard that reflects what is actually going on in the World of growth stocks. The real insight is in the metrics.

Segmented by country, second quarter growth was led by Chinese companies, which gained 17%. Indian and U.S. companies rose 5% and 10%, respectively.

Q3 2017 Performance of the GSV 300 by Country of Constituent Companies

Source: Yahoo Finance, GSViQ

Segmented by GSV investment theme, “Social/Mobile” enterprises recorded the highest gains, rising 13% for the quarter. “Cloud + Big Data” companies were up 10%, “Sustainability” companies were up 9%, and “Marketplace” companies were up 7%. “Education Technology” companies, by contrast, were down 16%.

Q3 2017 Performance of the GSV 300 by Industry of Constituent Companies

Source: Yahoo Finance, GSViQ

We will continue to root for strong performance. But our goal with each passing quarter is to develop a data set that becomes a barometer for growth, especially when comparing the fundamentals of the GSV 300 to traditional indices.

The T. Rowe Price New Horizons Fund, for example, has pursued a strategy of investing in small, high-growth companies since 1961. While it is actively managed, Peter Lynch observed in Beating the Street that the fund is, “as close as you’ll get to a barometer of what is happening to emerging growth stocks.”

Since small companies are expected to grow at a faster rate than large companies, they usually sell at a higher P/E than larger companies. Logic might suggest, therefore, that the P/E of the New Horizons Fund would be higher than that of the S&P 500 at all times.

This isn’t always the case, and at times when it isn’t, the New Horizons Fund can be a smoke signal for an undervalued or overheated growth economy. Over the last 50 years, for example, the New Horizons P/E has risen to double that of the S&P 500 only four times.

GSV 300 Valuation Metrics vs. Key Indices (As of September, 30 2017)

Source: Capital IQ, GSViQ

Currently, the GSV 300 has a P/E (forward) of 27.5, or 1.4x greater than the S&P 500. Our thesis is that at over 2x, it’s a warning signal for growth stocks, and at under 1.2x, it’s a buying opportunity. We will continue to monitor this trend, as well as the relationships of other key valuation metrics, to determine patterns over time.


Through the end of Q3, there were 103 IPOs — 41 VC-backed — generating an average of $209 million in proceeds. This compares to 102 total IPOs (40 VC-backed) in 2016. To date, 14% of companies priced above range and 67% priced in range. The average one-day pop was 13%.


Source: GSViQ

Finnish game developer, Rovio — the company behind the Angry Birds franchise — made its debut on Friday and traded flat. Rovio has launched over 15 games under the Angry Birds brand, which now includes a line of toys, theme parks, and animated feature films. Founded in 2003, the company raised $76 million from a syndicate that included Accel, Atomico, and Felicia Ventures.

Also going public this week was Roku, which creates media streaming devices and software. It popped 68% after its debut, finishing with a market cap of $2.2 billion. Roku surpassed 15 million users in the first half of 2017 who streamed over 7 billion hours of content. Founded in 2002 by CEO Anthony Wood, Roku raised $208 million in venture funding from investors including Fidelity, Hearst Ventures, Menlo Ventures, Netflix, News Corp, and Viacom.

IPOs & IPO PROCEEDS, 2012-2017 (P)

Source: GSViQ, Renaissance Capital

RYB Education, a Chinese early childhood education provider, went public on Wednesday, trading up 54%. RYB is focused on a segment of the Chinese education industry that is expected to surpass $30 billion this year.

Alibaba and Foxconn-backed logistics company Best Logistics Technologies also listed last week, finishing up 20%. Founded in 2007 by Johnny Chou, the former co-President of Google China, Best Logistics provides a network of distribution services across China. The company previously raised over $788 million from a syndicate of investors including Cainiao Logistics, CDH Investments, CITIC, and IFC (the VC arm of the World Bank).

Also of note, in July, real estate marketplace Redfin completed a successful IPO, popping 45%. Based in Seattle and founded in 2004, Redfin previously raised $186 million from investors including T. Rowe Price, Madrona, DFJ, and Wellington. Redfin was last valued at $500 million in 2015.


by Luben Pampoulov

Nordics Power

With a population of just 26 million, the Nordics combined would rank number 3 among the largest cities in the World — slightly smaller than Jakarta, and slightly bigger than Delhi. However not a city, but a group of five countries — Sweden, Finland, Norway, Denmark and Iceland — the Nordics are one of the most innovative places in the World.

Clearly, Spotify has been the leading force for the past decade. It disrupted Apple, took over the World as the leading music service, and has become one of the top growth companies. As reported across the media, Spotify is nearing a public listing and could possibly do so by the end of this year. (Disclosure: GSV owns shares in Spotify).

Another one that’s been around for a while is Rovio — the Angry Birds maker. Based out of Helsinki, Rovio has had a rollercoaster over the past years. In early 2012, it was one of the hottest gaming company in the World, and it declined a $2 billion acquisition offer from Zynga. At the same time, speculation was the company could go public at a $6-9 billion valuation… But soon enough that year, Facebook had its infamous IPO and had the private market went crashing thereafter — which also meant Rovio’s IPO plans were put on hold.

After several years of declining growth, Rovio found its “mojo” back and saw strong revival of its business. In the second quarter this year, it generated €86 million of revenue, up an impressive 94%. That growth was driven by both, gaming revenue and brand licensing (Angry Bird movie). Last week, Rovio priced its long awaited IPO on the Helsinki Stock Exchange, with its stock finishing the week flat, and the company now valued at $1 billion.

Meanwhile, a handful of Nordics startups are gaining momentum.

Take KRY for example. The Stockholm-based startup lets you find, and have a video call with, the right doctor…within 20 minutes. It’s all done through the app, and it eliminates the need to call, to schedule, and to actually go to the doctor. It is a no-brainer, in my opinion, that this will be the future.

Users pay about $30 per call, and the state insurance also pays a contribution. On the supply side, KRY pays doctors on an hourly basis.

The KRY Way

KRY was founded by Johannes Schildt and Fredrik Jung Abbou in 2014, and has raised $29 million from top VCs Creandum, Accel, and Index. The service is available in Sweden, Finland and Spain, and will be expanding into new countries soon. Some of the investors believe KRY can become the “next Spotify.”

Another emerging star could be Tempere-based HappyOrNot. (Tempere is a 360K people town in Southern Finland). Its product is as simple as it gets — it’s one of those button boxes you find right after the checkout counter or cashier in supermarkets, airports, or fast food restaurants. You press one of the 4 “faces” based on your immediate experience. HappyOrNot collects the underlaying data and provides instant customer feedback, and employee satisfaction reporting — highly valuable insights for any consumer facing business.

The company is growing fast and counts large global corporations as customers, including McDonald’s, Nike, RiteAid, Ikea, United, Lego, Microsoft, to name a few.

Another emerging star could be NA-KD, a two-year old startup based in Gothenburg, Sweden. Called the “next generation fashion marketplace”, it feels like the fashion e-commerce-equivalent of Soundcloud. The platform is a mix of new fashion designers you’ve not heard of yet, and some more stablished ones like Tommy Hilfiger, Calvin Klein and the likes. NA-KD is seeing strong momentum, especially among millennials. Its founder, Jarno Vanhatapio, was previously the founder of another fashion e-commerce platform, To date, NA-KD has raised $21 million from Northzone, and others.

We continue to see innovation flourishing in the Nordics, and we will keep a close eye on a handful of startups that could be “the next Spotify” — the Stars of Tomorrow. 

Pioneer Notes

by Li Jiang

8 Questions I Ask Every Startup

As a kid, my grandparents bought me a ton of books. My favorite collection was called 十万个为什么, which roughly translates into “One Hundred Thousand Whys”.

That’s a lot of “Whys”.

So in most of my meetings with founders, I’m asking them “why does this happen?” or “why is this the way things are done?” and countless other annoying “why” questions. I’m still the kid who gets on people’s nerves by asking so many whys.

You get asked a lot of questions if you are fundraising, but I’ve distilled the list down to a handful of the essential and fundamental questions for founders raising venture capital.

“One Hundred Thousand Whys”

1. Why are you building this company?

Some people might call this “founder-market fit” or “founder-problem fit”. They are looking for the founder who has the right passion and background to build this startup.

But I think it’s even more basic than that. I get excited when I meet a founder who is doing their life’s work, like they would die (on the inside) if they weren’t building this. I cannot imagine Ryan Petersen working on anything other than making global logistics more efficient, I cannot imagine Lisa Q. Fetterman doing anything other than delighting people with healthy and delicious food, I cannot imagine Iba Masood doing anything other than making building products easier and leveling the global playing field for talented people.

The best reason to start a startup is you can’t imagine doing anything else other than to start that company.

2. Why do people want this more than any other product?

Startups go through 3 phases:

1. hard;

2. very hard and;

3. damn near impossible.

So they can’t just make 10% improvements on the status quo. Startups either create a new paradigm or make something 10X better. And it has to be a 10X improvement on something customers care about and want to pay for.

3. Why is now the right time to build this startup?

The country’s (or world’s) largest steel company was only built once, the handful of biggest automakers were created in the same era (until Elon screwed that up), the world’s dominant search engine was only built once. There are moments in time where the technology and customer demand aligns to give the conditions possible for a new monopoly to be created.

But don’t take it from me, Bill Gross at IdeaLab who has founded over 100 startups analyzed the biggest factor for startups to succeed and timing was the number one determinant of success, ahead of team/execution, funding, idea, and business model.

4. Why is your team the one to do it?

Hundreds of automakers in the US consolidated into 3, and the same happened for airlines, Internet portals, and so on. Facebook owns the three largest social networks.

What is it about your team’s creativity, hustle, approach, expertise, insight that will allow you to end up being that single dominant leader of the category?

5. Why isn’t everyone already working on this?

This is the Peter Thiel question. Ideas that are too obvious end up getting overcrowded very quickly. Dominant platforms are usually built in the face enormous skepticism, who wants to stay at a stranger’s house? Large companies have 100X more resources to pursue opportunities that seem obvious. What is your unique insight that very few people agree with you on? If they disagree with you, you’ll have a better chance of building your platform without the intense competition that obvious ideas face.

Most people think answering these 8 questions in this blog post is easy. I think it’s actually insanely hard, which is why most general partners at VC firms (Series A and beyond) meet hundreds of companies a year, but only write 1–3 checks.

6. Why does this platform get more powerful over time?

If there’s no network effects, that’s usually a sign of low barriers to entry and it increases the risk of the startup itself being disrupted by new companies or big tech platforms copying the product.

That’s probably why people aren’t making calculator apps and gaming startups have a hard time raising institutional capital.

This is also the “Why will you dominate this market?” question. How does your competitive moat, as Warren Buffett would say, get wider over time.

7. Why will you do this better than a bigger tech platform company?

Google, Facebook, Amazon, Microsoft and many of the largest tech platform companies are trying to avoid the fate of Kodak. They are competing very hard in new emerging technology categories.

How will your startup find the right segment of the market to build from so that you can gain an edge in that category versus a broader tech platform. Startups have the advantage of focus and speed, but they also have to channel that into the right problem to outrun Bezos:

8. Why Should I Invest in Your Startup?

This may seem like the most obvious. A venture investor only invests in 1 out of 100–500 startups they see.

Why are you ultimately the opportunity for an investor to generate the greatest returns out of the entire set of opportunities they see every quarter / every year?

Market Update

Week ending October 1, 2017

World Indices

U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales