VC Cliché of the Week
You often hear entrepreneurs and VCs say that they want to "build a billion dollar company". It’s the goal of anyone serious in the company starting business.
But there are sveral ways people define "billion dollar company". Some want to build a company that gets taken out for a billion dollars or more. Others want to build a company that will trade in the public markets for a billion dollars. And some want to build a company with a billion dollars in revenues. A few brave souls want to build a company that has a billion dollars in profits.
In my experience, while everyone might say they are attempting to build a billion dollar company, very few will get there. In the late 1990s it was shockingly easy to build a company that would trade on the public markets for a billion dollars or more. We did it five or six times in less than three years with Geocities, Sina.com, Starmedia, IXL, ITXC, possibly Multex (I don’t recall it’s high water mark).
But as we wall learned, trading at a billion dollar market cap doesn’t always lead to a great outcome. Only Geocities ultimately cashed out north of a billion dollars. Sina.com trades at a market cap of $1.4bn. The rest were sold for hundreds of millions or even went bust.
These days it seems almost impossible to get a company public and trading at a billion dollar market cap unless it is a very solid business. Some would argue that Vonage (which trades at just over a billion dollar market cap) is not a solid business. I am not entirely sure where I come out on that, but I do think there has been significant value creation in Vonage which was not true of some of the billion dollar public companies in the late 90s/2000.
Getting sold for a billion dollars (what Facebook wants right now) has been easier to get done. Skype did it last year. If you are very strategic and have built a business of some scale, the billion dollar exit is possible.
But building a company with a billion dollars in revenue or profits is much harder. That requires a lot of patience, committment, and a bit of luck.
There may be a billion dollar revenue company in our portfolio right now, but I don’t think I can tell you which one it might be. Some companies break out, catch a wave, ride it well, and get there. Most don’t. That’s why the venture capital business is a bit easier than being an entrepreneur. We get to take the portfolio approach and it’s more likely that we’ll catch a wave with one of our companies.
But if you are really in it to build a billion dollar company, then being an entrepreneur is the role to choose. The VCs, even the most active ones, are passengers along for the ride. The entrepreneur and the management team drives the car.
Building a billion dollar company is a great aspiration to have. We look for it in everyone we back. But we also recognize that few, if any, will get there. And it’s hardly a failure to sell out for hundreds of millions of dollars. In fact, its a huge success. So recognize that the billion dollar target is a stretch goal for everyone in the deal. And when it happens, recognize how special it is.