As the “platforms” of cloud computing & mobile internet near maturity, competitive intensity in promising new startup markets has increased dramatically, and investors must cut through an environment saturated with noise to find & invest in exceptional companies. Everett Randle, partner at Kleiner Perkins, explores how to navigate increasingly competitive markets and identify startups that have a chance at becoming 'perpetual growth machines.'


Why is identifying perpetual growth machines such an important topic moving forward?

  • With high capital availability & low barriers to entry, competition in every category is increasing and companies are finding it harder & harder to separate themselves from the pack. “These days, as soon as a potentially meaningful software category emerges, it seems like 4-5 competing startups crop up within months of each other to vie for the category – all with strong teams and lots of funding,” says Randle. “Consider international EOR/payroll (Deel, Papaya, Oyster, Remote) or SOC2/compliance (Secureframe, Vanta, Drata, Tugboat) as recent examples.”
  • Investment ‘home-runs’ become increasingly scarce within tech markets as more players emerge and create ‘noisy’ spaces. “Exceptional companies become more scarce as a portion of the overall opportunity set when there are consistently more high quality competitors in each market. This both increases the level of distraction and noise that investors have to deal with, and decreases the probability of identifying and meeting a generational company,” he says.
  • Focusing on attributes that constitute long-term business quality can help investors cut through noise and increase their chances of partnering with an exceptional business. “Miles Grimshaw at Benchmark refers to these as the ‘genetics’ of a business which I think is another good analogy.”

What are some key attributes that Perpetual Growth Machines in tech exhibit?

  • “They’re serving a market that’s often not large now, but growing at a rate where it will become massive over a 10+ year period on an annual gross profit $ basis," says Randle. "Oftentimes this means they’re building technology that maps to a ‘directional arrow of progress’ (h/t Josh Wolfe; Acknowledgments 1.)."
  • They’re building & selling a product that customers flock to and are passionate about. "This can be indicated by things like low CAC, high retention, ‘3-sigma positive’ customer/community feedback, etc."
  • They’re on a path to clear category dominance or are already a ‘category killer’. "This is eventually measured by market share, but there are usually signs you can observe even early on: are the best/most innovative customers using their product or a competitor’s? Is feedback from their customers significantly more positive than feedback from competitors’ customers? Is their product velocity substantially higher than anyone else in the category?"
  • "They’re run by a founder and management team with clear extraordinary ability, meaning these leaders can attract & retain great talent, attract capital from great investors, are high energy and high integrity, are systems oriented with a strong grasp of operational details, and are missionaries (A 2.) about achieving their vision."
  • "They’re growing quickly with high revenue quality, (recurring, high gross margins, long customer lifetimes, high rates of revenue expansion from customers) & attractive unit-level economics which provide a clear path to profitability at scale."
  • "They have some form of product/platform extensibility that will enable them to continuously develop new products that greatly expand the value captured from current customers or, alternatively, open new market segments and/or entirely new sets of addressable customers.”

What are some of the potential roadblocks?

  • By nature, perpetual growth machines are longer-term investments, and often take time to hit stride. “I think the time horizon for any Perpetual Growth Machine (PGM) thesis should be a decade or greater," he says. "If you can’t envision 10+ years of exciting growth for the company, it’s not a PGM. One fun example is SpaceX, which my previous employer, Founders Fund, initially invested in in 2008. It is just now hitting its stride as a company with the release and scaling of Starlink a decade and a half later,” says Randle.


saidbyblock~ via Zoom Interview
Everett Randle

I’ve found that many of the most useful venture investing insights and wisdom come from practitioners outside of the world of VC. One of my core theses, for example, is inspired by the ex-public equity manager, Nick Sleep. This thesis, which is most relevant to Series B and beyond investing, is to find ‘Perpetual Growth Machines,’ which is a term that Sleep used to describe Costco in his write-up on the company in 2005 (A 3.). (I assume he coined this term, but he may have borrowed it himself).

There are businesses in all sorts of markets, leveraging different business models, and serving customers in various geographies that exhibit these attributes. This is a primary reason why I like the idea of looking for Perpetual Growth Machines; instead of constraining the investment opportunity set by some sector or market categorization (e.g. vertical SaaS, B2B marketplaces, etc.), it constrains the opportunity set based on current and/or potential business quality.

Venture/growth is an asset class defined by Power Laws. A handful of companies define each generation of startups and generate the vast majority of returns. Virtually all of them can be described as Perpetual Growth Machines: companies that grow at exceptionally high rates, with high revenue quality, for far longer than the other companies.  Again, the beauty of this framework is that it applies to all sorts of business models and product categories. SpaceX is a perpetual growth machine (hardtech). Stripe is a perpetual growth machine (payments). Airbnb is a perpetual growth machine (consumer marketplace). Rippling is a newly forming perpetual growth machine (horizontal SaaS). Back in the early 2000s, Google was the definition of a perpetual growth machine (internet) (A 4.). Identifying opportunities with this framework applies to every area of innovation.


Q: What do other market participants or observers misunderstand about these categories?

A: "One main thing that people forgot in the mania of the post-covid tech bubble is what constitutes a high quality business. Businesses of drastically different qualities were valued similarly throughout 2020 & 2021. I am just as guilty of this as anyone else. I’m not so sure that people have remembered or learned their lesson on this front in this new market environment.

Investors get so caught up in what is growing fast today or what is a hot market today, that they often fail to be thoughtful about the long-term durability & quality of what they’re looking at."


Deel, Drata, Oyster HR, Papaya Global, Remote, Rippling, Secureframe, Tugboat Logic, Vanta


  1. See John Wolfe's Twitter thread discussing 'directional arrows of progress', here.

2. See HRB's 'The Best Entrepreneurs Are Missionaries', here.

3. See Nick Sleep's reference to Costco as a PGM, here.

4. See Everett Randle's Twitter thread assessing Google in the 2000's, here.

The 2022 EVC List honors the top 50 rising starts in venture capital. Terra Nova’s Thesis Brief series showcases each investor’s insights and category expertise.

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