Mark Suster of Upfront Ventures recently published an excellent post describing what to do when your competitor gets funded. It fully covers how to think about your competitor’s funding, what to do in response, and what not to do.
Each point that Mark makes is fully valid for non-marketplace businesses like on-demand self storage providers MakeSpace and Clutter.io which are the subject of the post. Marketplace businesses are different in that their intrinsic network effects are likely to produce single dominant winners. As a result, in a marketplace business, a very large fundraise by a competitor is a greater cause for concern as it enhances their ability to subsidize the services they offer their suppliers and consumers until they reach a size where it no longer makes sense for suppliers and consumers to join competing marketplaces.
For non-marketplace internet businesses, here’s what I think is the money quote from Mark’s post: “Our competitors are not really each other but the incumbent businesses that have 99.9% market share today”.