The Billion Dollar Valuation Club
Aileen Lee has a really good post up on TechCrunch, in which she analyzes the number of companies that have been started since 2003 that have gone on to be worth $1bn or more.
This is a very useful exercise in the VC business since it is these big wins that produce the vast majority of returns in the business. I am not sure it is that is worthwhile exercise for entrepreneurs since you can bypass the VC business entirely, keep all or most of your company, and sell it for $20mm and have a big personal and financial success. That's another way of saying that focusing on the huge wins is something VCs do, will keep doing, and need to do, but it can be a collossal waste of time and energy for everyone else. Unless, of course, you raise money from VCs. In which case, you are getting into the game and will be impacted by it.
So, with that disclaimer, let me say a few things about Aileen's analysis and then suggest an exercise we can all participate in.
The number of tech companies started each year that go on to be worth a billion or more has been a debateable figure for as long as I have been in the business. It is an important figure for VCs and the investors in VC funds. I have heard people say it is one or less. I have heard others say it is ten or more. I think it is at least ten, particularly if you think about this globally. Aileen calculates it as roughly four per year (39 to be exact) in the ten years since 2003.
I think it is bigger than four/year in this past ten year period. But we won't really know for another ten years. That is because the billion plus companies started in 2008, 2009, 2010, 2011, and 2012 won't all show up right away. It takes at least five years and possibly longer for some companies to develop into large and valuable companies.
It is also true that some of the companies on Aileen's list won't be worth a billion or more in a year or two. As David Hornik points out in the comments to Aileen's post, using private company valuations to do this excercise means you will count companies with inflated valuations that they won't be able to live up to.
But I think it is OK to use private company valuations as long as you come back and revisit the list from time to time, add new names, and subtract the ones that did not live up to the hype.
Finally, Aileen's list is US and Silicon Valley centric. It misses at least three of our portoflio companies and probably a bunch of others. And it has no companies outside of the US.
So I created a hackpad that we can all use to list, track, and revisit this question. It is here and I have embedded it to the end of this post. It is a public hackpad and anyone can edit it, add additional companies, add comments, etc.
Added Flipboard who’s not there yet, but the post valuration of the last round was 850M.
that is fine with me because we can and will revisit this list. but if you are going to do that, you should probably also include our portfolio company Twilio which is carrying a similar valuation.
i took out the Twilio valuation which was not quite that high and they did not disclose (i think)
Maybe we should include companies in the $500-700M range, because at this rate, they might get over $1B by next month :)I could create a section “Striking range”
it is good to have them in there because the idea of this hackpad is a living breathing document that can and should change over timebut they need to be marked as such. i am using the (not yet) tag
1b is arbitrary as a demarcation point. Agree that striking range is important.For example 1b is 1,044,400,000 CAD.And 1b CAD is 957,487,552 USD. But that’s hard to remember.
2-3 months ago, it was the opposite. The Cdn was slightly higher than the US 🙂
Should we also include companies that grew and then got acquired? E.g. Eloqua, Taleo and there are probably others.
if they were founded between 2003 and 2012 and became worth more than a billion, yes
Braintree was close. My friend bootstrapped it and took no VC money for the first 4 yrs. Took $30M in 2011, and $33M in 2012. Sold this year to Paypal/Ebay for $800M. That’s ringing the cash register.
This post reminds me of what might have been for YouTube.A nice exit and obviously terrific for Google but who knows what they might have been able to do if they had held onto the company?
and instagram. the photo advertising is going to work so great. what a monster that is.
It would be fun to see of list of their respective trailing PE ratios based on these valuations.
anything is possible. this is a crowdsourced effort
I feel like GitHub and StackExchange are such obvious omissions on her list that I must not understand the criteria. Did I miss something?Is it bad form to put a prediction like Rap Genius? Should I just stick to actuals or almost-theres?
predictions are fine. we should just mark them as suchstack is not a billion dollar company, at least not right now.
Oh man, it’s so fun watching people add to the list in real-time. Feels like I’m spying or something, ha!
it was fun to watch the european folks drop their winners onto the list. when will we get the asian folks to join?
When they wake up tomorrow morning their time. ;-)BTW, I was living in China when I discovered AVC, but had moved back to the U.S. when I really discovered it, because that’s when my reading was synced with everyone else commenting.
i value psyched over synced
Yup. I added Qunar, a big one (travel, from China). WeChat is owned by Tencent ($100B+) but they were founded in 1998. Baidu was founded in 2000. AliBaba founded in 1999.
if we end up with the balkanization of the interwebs, and the powers that be are doing their level best to bring this about with their (now not so) covert monitoring, then the days of billion dollar companies may be soon be over (except in China perhaps).all hail the billion bitcoin enterprise.
Tencent’s (owns WeChat) has a valuation close to $100B, rivalling Facebook’s but almost no one has probably heard of them outside of China.
I added the $ billion Chinese equivalents of Apple, Amazon, Twitter, Facebook, Evernote, EA Games etc.
What about Biotech?
Aileen said “tech” in her post, so I think we keep biotech out of this exercisewe could do another one for biotech though
how has twitter been valued?
trivago from Germany (acquired by expedia in March 2013) just barely missing the cut, but still massive for Germany. http://finance.yahoo.com/ne…
.The valuation issue is very interesting and the data, to me, is a bit surprising.What is left unsaid is this is also a celebration of capitalism and free markets.In almost every instance these successes are the product of individual effort, private funding and entrepreneurial risk taking.In many instances, these companies created their own markets or so dramatically disrupted existing markets as to create a completely new market.’What would also be interesting is the amount of jobs created, the amount of personal wealth and the income taxes paid.When you encourage entrepreneurs to flex their capitalist muscles and to leverage OPM, massive wealth can be created, numerous jobs can be created and huge income taxes are paid.This is the fundamental indictment of current policies which do nothing to encourage entrepreneurial risk taking, wealth creation or job creation — they do however do a damn good job of taxing the living crap out of everything that wiggles.I am a huge fan of increased tax revenue — well, and spending restraint but if you can only do one thing then stand for creating immense wealth BEFORE taxing the crap out everyone.This document stands for the wisdom of free markets rather than the hapless and failed attempts to try to pick winners and to place the government’s thumb on the scale a la Solyndra, et al.JLM.
# of jobs created would be a very interesting statistic.Also, there’s a 2nd order effect. That is, founders/co-founders/early employees cash out and start other companies. The rolling ball effect.
.The creation of wealth — demonized by this administration — is the key to growing the economy.Who are you going to look for a job with — a millionaire or a guy sleeping under a bridge?The multiplier effect is huge but, of course, that is what capitalism is all about — the unleashing of market forces leveraging ideas and creativity to create jobs, wealth and prosperity.JLM.
Agreed.(I edited previous comment, China comment was meant for jasonp)
Who are you going to look for a job with — a millionaire or a guy sleeping under a bridge?Well some of the businesses that have been started havea) just rearranged dollars spent  andb) resulted in efficiencies that have destroyed jobs. Or created lower paying jobs.  As anyone who has lost their job due to the changes in the economy can attest. Once again good for certain people not so good for others. Or put another way a restaurant that opens creates jobs but there is only a fixed amount of discretionary spending and that dollar has to come from somewhere. Robinson luggage as only one example:http://articles.philly.com/…Nancy Center, vice president of the company, said the store at Broad and Walnut Streets could no longer compete with big-box stores such as Walmart and online giant Amazon.com.
.Not getting your point.JLM.
the unleashing of market forces leveraging ideas and creativity to create jobs, wealth and prosperityNet vs. gross.Jobs created in certain companies that are started don’t result in a net increase in employment because of jobs lost in other areas.The efficiency created by some inventions ends up being a loss of jobs for some people or a decrease in wages for others.If an entrepreneur can pay all his bills online he no longer needs a bookkeeper. I can write whatever I want and I don’t need a secretary. Because most correspondence goes by email. More money for me bad for the women who would fold and put postage on the letter.I guess to me things are shades of gray not “it’s all good” or “it’s all bad”.
Tech automates.Automation eliminates need for human labour.Tech = new jobs but fewer jobs.
I think you guys are looking at it through the lens of a zero sum game. Innovation does eliminate jobs. It also creates efficiency and value-which can create new jobs or allow people to do something else. Did Quicken create jobs? Did Apple’s iPhone create jobs? They certainly eliminated jobs but they created far more jobs than they killed. Henry Ford killed the horse and buggy industry. Darn.As Milton Friedman observed, “Why aren’t you guys using earthmoving equipment and just shovels?” The govt official said, “This is a job creation program.”. Friedman said, “Then why not give them spoons?”
.It is not a zero sum game but when the Internet was extended to Steamboat Springs suddenly entrepreneurs could work remotely and you can’t swing a cat without hitting an entrepreneur, writer, software engineer, money manager.Having said that, prosperity and population growth have many demands which are simply linear — 100,000 people require more services and hamburgers and a filling station, no?JLM.
Ah yes, but it used to be that upon arriving at the filling station one of half a dozen helpful young chaps would ask me how much to fill, clean the windscreen, and check my water, take my money and bring me my change. Today I pull up to a pump that senses my arrival, pump my own fuel while watching an ad, and then wave my smart credit card over a reader to pay. There is a not-particularly help chap inside a bunker whose job it is to push the big red button should he happen to see fire, although they also have sensors for that these days.Demand may be linear, but the continued rise of shadow work and automation ensures job creation is less so.(To clarify, I don’t mean job creation is non-linear. I mean the curve doesn’t look like you think it does.)
.The number of guys cutting your grass is linear. The pool guy is linear. The pest control guy is linear.Some things are linear, some are not.The guy working on your home network and security system is a net addition to the work force who did not exist 20 years ago.No question you are right as it relates to some jobs, perhaps many jobs. Still other jobs are linear.JLM.
.Automation is not a new phenomenon.WWII brought the efficiency of the assembly line and the ability to mass produce tract homes.The assembly line drove down prices as did Levittown.The economy is like a balloon, when you push in somewhere the diaphragm stretches and bows out somewhere else.Creative destruction also simply eliminates buggy whip manufacturers.The good drives out the bad.JLM.
There were some investments, financial,social capital, in buggy whip making. Theautos made money but didn’t incur the’cost’ of writing off the ‘capital’ of thebuggy whip industry. And for the buggywhip people to get new jobs needed morecapital investment which, in such cases,often doesn’t come. So, the ‘gains’ lookedat just from the side of the auto overstatethe ‘gains’ across the country because, again,the gains for the auto manufacturers don’tshow the losses for the buggy whip industry.Yes, when we exported our textile industryto East and South Asia and imported theirproducts, we put much of the US textileindustry out of business and had to’write off’ that capital. Yes, maybe thosetextile workers were to get ‘higher paying’jobs at, say, Microsoft selling businesssoftware to the East and South Asiatextile manufacturers, however, I doubtthat many did. Basically we just wroteoff the industry, its machinery, plants,brand names, people, supply networks,etc.If we keep this up, then we will be shorton not only jobs but also capital neededfor new jobs.And, some young people are starting tocatch on: For a career, stay the heckaway from a big company because, asa big target, it is more vulnerable toforeign competition. Stay away from anythingthat might have foreign competition. E.g.,nearly any US business job for a Ph.D.in electronic engineering is vulnerable toforeign competition which can mean thatthe 99 out of 100 Ph.D. EEs who don’tget promoted into management can wishthey could swap their Ph.D. for anelectrician’s license. A Ph.D. in materialsscience can wish they had, say, a goodsteam boiler welder’s certification (myDad had one). A good job likely hasa geographical barrier to entry, e.g.,a red sauce Italian restaurant has noserious competition more than 100 milesaway. It’s easy for an electrician,auto mechanic, auto body guy, grassmowing guy to notice the importanceof such a barrier to entry.Yes, long term we want the gains inproductivity from automation, etc.,but in the short term such gains canplay havoc with a lot that is alsoimportant in society, and in the longterm we are all dead.There’s some question about justhow much automation we canuse and just how. E.g., what wouldbe the consequences of a $1000robot that could do nearly anyjob of a human? How about sayingthat have to get a license for one,and one person can have at mostone such license!No doubt for now we will let peoplecontinue to deploy automation, andmostly the cures we have via moregovernment would be worse thanthe disease, but, still, the diseaseremains a threat.
There is a difference between the internal combustion engine or prefab housing revolutions is that the internet revolution does not create new assets or industries…..it automates human data handling.That’s a de-employment curve.
.How about heightened hardware demand and employment — phone, phablet, tablets, laptops. desktops, server farms?Isn’t a server farm almost exactly the same thing as an agricultural farm? Feeding more people and devices?JLM.
Well, let’s try this again:1) automation = equipment handling things that people used to handle2) automation = higher efficiency (fewer defects, faster completions, less cost)3) automation = upfront capital costThe only way it makes sense to automate anything is:1) automation allows you to do something previously out of reach (drive across Texas in a day)2) automation allows you to do something that is currently done by people in a faster, higher quality or less costly fashionThere is no way that this ends up with more people in higher paying jobs.You are right that the folks @ Foxcomm are reaping some benefits from the iRevolution, just as the steel workers who made trans-oceanic shipping containers took jobs from longshoremen.But in the end, making those cost reducing & quality enhancing assets does not cover the high cost, inefficient labour jobs that provided the non-automated service.There’s just no way.Its not a zero sum game but the job totals end up negative.
.Perhaps you are taking a one dimensional view that the employment measurement is taken solely within the automated enterprise and not the ecosystem as a whole.Automation drives down price of cars/pick ups (Toyota in San Antonio, Tundra pickup), increases quality and spurs demand. Splash of prosperity and folks can afford to own more than one vehicle.Toyota — rice burner — is owning the pickup truck market and providing gobs of employment all incremental to Texas.Fracking opens energy basins that had “played out” and technology thereby spurs real job growth with no loss of employment elsewhere — no buggy whip phenomenon.Technology now has houses pre-wired for Internet, security, video, sound, etc. — more tech construction employment.The loss of certain jobs is simply a fleeting phenomenon until global labor pricing reaches equilibrium. Textile jobs shipped out of Greenville, SC will not come back until Greenville folks can produce textiles at same rates as China and Mexico.JLM.
What would also be interesting is the amount of jobs created, the amount of personal wealth and the income taxes paid.You also would have to look at the opportunity cost of all of this as well.Labor and gambling in one area also means that those people aren’t going to be spending time doing something else that (for the people who aren’t the”winners”) ends up being better for both those individuals and for society.I benefit from all of this so it is great for me (because I sell and make money off the pick axes).But I also recognize that a dollar spent on the axe and an hour spent mining for gold that never ends striking anything atll might not be good for the miner. Or his family, health and all of that.When you encourage entrepreneurs to flex their capitalist muscles and to leverage OPM, massive wealth can be created, numerous jobs can be created and huge income taxes are paid.When it all works. When it doesn’t work there is a down side. Not saying that there aren’t other upsides but a path taken is a path not taken. No way of exactly knowing what might have been a better path to take for an individual. In general conventional wisdom is not to go for the brass ring (or whatever you might call it) but to set more realistic goal based on your ability. Popular culture wisdom is to celebrate the people who win big and to encourage that. But popular culture also celebrates people who will take a bullet for a stranger (and call them a hero). I am a huge fan of increased tax revenue — well, and spending restraint but if you can only do one thing then stand for creating immense wealth BEFORE taxing the crap out everyone.You live in Texas where there is no state income tax. In NJ there are very high state income taxes. PA is right next door and it’s easily half (varies) the PA income tax.  Edit: My point is be glad you aren’t in NJ if you care about taxes. Your father is in his 90’s, right? What if he had taken a bullet in his 40’s and wasn’t around for the past 50 years? Would that be good for you? Interestingly property taxes in NJ are higher than in PA. As a result housing values are generally lower all else equal. But with the lower housing prices you don’t get the advantage of real estate appreciation (because of the multiple).
.The Old Man took a few bullets, they just couldn’t kill that tough Son of a Bitch.He shot it out direct fire across a valley in Italy against a Kraut 88 battery with his 105s and knocked them out. He lost a couple of his guns.Point taken.JLM.
.Capitalism by its very nature is about risk taking and not everyone gets to the winners circle or the pay window.Then there is creative destruction which suggests you do not get to be successful forever, you have to keep answering the bell, don’t you?Fortune — capitalism — favors the bold.JLM.
Fortune — capitalism — favors the bold. When I was in elementary school I remember my mother saying (with respect to the postman) “that’s all he ever wanted out of life”.I remember when the postman told my mother that he would be late the next date because his supervisor was following him and if he worked at his normal speed they would give him a larger route. And while I don’t remember the words she used or what she said whatever it was dov-tailed with “and that’s why he’s only a postman”. Very judgmental and doesn’t cover the corner cases of why some people are postman (health, family, upbringing) but on the dartboard of accuracy for sure.Now that I’m older I realize there are many reasons behind why the postman is only the postman but I don’t think it’s harmful for a kid to have certain ideas stuck in their head to motivate them to have higher aspirations than being a postman either.
.So Jesus and the Holy Ghost were hosting a scramble and invited all the famous Generals of their time. Everybody likes having Jesus on their team because, well, He can really putt.Sometimes the Holy Ghost calls Jesus up short and questions whether He is using His divine powers to guide that ball. Jesus typically demurs and is offended. He’s like that. Nonetheless, the Guy can putt.So after a round of golf, MacArthur, Napoleon, Montgomery, Rommel (most of the German Generals are in Hell), Washington, Caesar are having a few beers. In Heaven, your glass is never empty. It just keeps refilling itself.So MacArthur asks Jesus — Hey, Jesus, who was the best General ever?Jesus points to a mild mannered guy sitting contentedly on the side.Caesar jumps up and says: “That guy was a janitor.”Jesus replies: “Well, yes he was. But I gave him the gifts to be the greatest General ever. He just never took the chance.”To succeed in life you have to have the talent, the opportunity and then you have to take the chance.Fortune favors the bold.JLM.
The obvious precedents of your pickaxe/gold example are in the history of communist countries. Mao’s Great Leap Forward, for instance, was what you’re describing. People wasting their time building cinder blocks instead of farming, until they starved.Capitalism is the best known way to avoid the problem you suggest. The best way to ensure the problem is to interfere with the free market.
I wonder how many of these don’t exist if it wasn’t for the modern mobile era (iPhone and later). Rovio, clearly, and Instagram and Square and Flipboard. Maybe the early days of the web were just squeued but it seems like few $1b companies coming out of this era compared to the 1995-2001 Internet era.
I don’t think many were focused on business models in the early days…partially because no one yet understood what the internet could/would mean to business and the average person’s life.I think almost everyone was simply competing for eyeballs…and very few (Amazon being one of the few exceptions) were focused on building real, disruptive, businesses…the pop of the bubble hurt at the time, but was really the kick-in-the-butt that everyone needed to get down to building real, billion-dollar potential businesses.
I was thinking there were more big companies then than there is now in a comparable timeframe.
@Falicon, I agree wholeheartedly.The numbers are a little skewed.Many of those companies promoted the idea,while falling in scalability, and had a rude awakening after the dot bubble bursts. If you have a business. Read here http://bfs.ag/629328/2678 as to how we can help obtain funding for your start-up.
You can say that about every company ever, the mainframe, the PC, the internet, social, mobile – all new inventions that triggered entire industries.
if i blogged i might respond with a post entitled ‘The Billion Dollar VC Club’.i need to brush up on my understanding of the meaning of the word ‘industry’.
At the end of the day I don’t care what any of these companies are worth or who, outside of my own company, is on or off this list…and I only care about getting my own company onto a future version of this list because it will mean that I’m on my way to accomplishing my goal of changing the coaching landscape…
it will mean that I’m on my way to accomplishing my goal of changing the coaching landscape…What do you mean and what is the “coaching landscape”?
Specifically the youth sports coaching world…prob. too much to dig into via this comment thread, but I’ve been talking a lot about the general space on my blog at http://falicon.com as I work towards actually getting the product out.Unlike most of my little hacks and projects, I’ve been thinking about the product for over 10 years, but only started finally building it about 10 months ago — it’s my Magnum opus
What is the market saying about this idea (for this niche)?The coaches that have tried it? Does a typical sports team (or coach) have money to pay for this product and do they need it enough to pay for it?Are the people who coach sports the type of people that care (in this way) and are disciplined enough to use this? Or are they just having fun with kids (the majority of the market how serious are they in other words?). Guy wants to show up at the field and help and spend time with his kid. (This is a question not a statement.)As I have pointed out I’m not a sports guy. My stepson though plays on a zillion teams though. So I’m asking questions strictly.I can definitely see this product applicable for the things that mothers do though. Examples “Odyssey of the mind” or Lego League similar. Or all those girls who do dance. That’s a huge business and there is plenty of money there. Go see what they charge and how the mothers get all involved in helping their kids with dance (and the Tv shows about it). A gold mine. There were lines when I went to pickup dance recital tickets.I think the product could be something that fills the “how to help the mom (or dad but mainly mom) give their kid (or the team they manage whatever that “team”) is an edge.As such you could take the concept and change the homepage to cover more bases. And tap into that.FLL: http://www.firstlegoleague….OM: http://www.odysseyofthemind…See attached re: Lego League.
Product is not ‘released’ yet…so right now I can only speak to the feedback I’ve gathered from all my various conversations with coaches around the ‘idea’…from that (and my personal needs as a coach) I can say that we are all very excited about what it has to offer.We are starting with youth sports because that’s where my personal need is, where I have an existing coaching network, and the core customer I really understand…but absolutely the idea expands *very* nicely into the broader concept of ‘coaching’ and is what helps the long term version of the business side of things.There are a lot of players in the general space (supposedly about a $5 billion annual industry)…but very few currently focused on the coach (and the intersection of technology and the process of developing a great coach)…most plays are either too tech focused (doing things because the tech is cool, regardless of the real coaching situations) or too focused on the coach (not taking advantage of modern tech or taking the ‘casual coach’ into mind)…so I think I’ve carved out something really special…we’ll see if it’s as big as I think it can be, but I know for sure it’s going to be a huge help for myself and at least my mini-coaching network who has been helping me to define and evolve the product through this ‘idea’ phase…I could go on for days about this… 🙂
Two points would be interesting to me. How many have that valuation, without having it set by a preferred round. As we know if I have a participating preferred round with a 2X preference, put rights, and 100 other pages of investor rights, the top line number really only is a means to say how much money gets me what percent of shares at those preferences.The second would be if any are not VC funded. Those must be like Hen’s teeth.Those are two very instructive points to entrepreneurs.
i would bet that all of them are clean valuations. at that price, you don’t need to do fancy stuff to get money.i don’t know about the enterprise companies but i think all of the consumer facing businesses have been VC funded
I’m sure you know better than me. But again instructive to Entrepreneurs…..roughly 10 companies generating $20B in value. Those are rough numbers. Therefore no tears when you are sub $100mm and considered a failure.
Well, we haven’t accepted any VC funding for Riskalyze. But I did just sell 0.00000005% of the company to Andy Swan for $1, so we made it to the $2 billion club.
Very cool! I added Gnip and Moz. Not sure if they are valued at billion but they are both well known
not even close on both
Given that this is the rare air, I’d love to see something more broadly applicable to readers, like 1) fold-ups 2) return of capital and 3) mediocre exits (~2x).And with crowdfunding about to create new options, I’m betting that the ability for VCs to make the bets on the $1 billion exit will be dramatically reduced–in the current form anyway. Maybe it just changes how players move through the farm system to the majors.
Are all of the non-public companies listed here valued on an equal playing field? I question the source and methods because there may be biases which may impact which companies should be included or excluded.Although it is very exciting to see what companies you all consider to be part of the billion $ club.
that’s why we need to revisit this list over timesome will not really be worth a billion when all is said and done
The idea of value is quite meta. We all think something is valuable because everyone around us thinks something is valuable.
So are there any actual “useful” (actionable, predictive) learnings from that piece?
for me, that we need to say yes to more of them 🙂
Fred, perhaps this was caused by embedding that “hackpad,” but this most recent post was again missing the VoiceBunny audio summary.
Thanks for letting me know
No problem Fred. I figured you’d want to know. Hope you had a great weekend. Talk soon.
Fred, how about crowd sourcing aileen’s explanatory covarites? And time to valuation?
Can you elaborate?
I added the $ billion Chinese tech co’s that are the Chinese versions of Apple, Amazon, Evernote, Twitter, Facebook, World of Warcraft etc.
Great information. But how do you guys judge value? What makes a company $1 billion to you? A mass amount of customers/users, intrinsic value, the quality of the product, the team and founders, a combination of them all? What is really worth a billion?
> That’s another way of saying that focusing on thehuge wins is something VCs do, will keep doing, andneed to do, but it can be a colossal waste of timeand energy for everyone else. Unless, of course,you raise money from VCs. In which case, you aregetting into the game and will be impacted by it.”it can be a colossal waste of time …” Yes.But must be? I don’t see it.> I am not sure it is that is worthwhile exercisefor entrepreneurs since you can bypass the VCbusiness entirely, keep all or most of your company,and sell it for $20mm and have a big personal andfinancial success.Yes, but somewhere in here seems to be an assumptionthat a bootstrapped company worth $20 million butclearly with potential of being worth $1 billionsomehow needs VC funding to grow to be worth $1billion. Sure, maybe in most cases, but, for allcases, I’m not getting it.Besides what all this entrepreneurship is about isthe exceptional, not most cases; that is, we have toget used to looking for and at the exceptional andsetting aside the usual.E.g., suppose the entrepreneur, a sole proprietorand solo founder, brings up a Web site from hisliving room, and the site starts to get popular(yes, a major issue — but some sites do get popularquickly).Suppose his upload bandwidth to the internet is 5million bits per second with an ISP that permitscommercial usage, and the site sends Web pages foran average of 130,000 bits per page. Suppose onaverage there are 4 ads per page sent (of course thebits for the ads come from ad servers and not theentrepreneur’s server or upload data rate), and thecharge per 1000 ads (likely paid for via charge perclick) displayed (called CPM) works out to be $2, alittle less than some of the KPCB Mary Meekerfigures. Suppose the upload data rate is on averagehalf full 24 x 7.Then, let’s see: We’re talking sending5 * 10**6 / ( 2 * 130,000 ) = 19.2pages a second. Suppose the Web server for this is,say, a mid tower case, power supply, motherboard, 8core, 4.0 GHz processor, 32 GB ECC main memory, and4 four hard disks at 3 TB each, assembled from partsfor less than $2000.Then the monthly revenue would be2 * 4 * 5 * 10**6 * 3600 * 24 * 30 / ( 2 * 130,000 *1000 ) = 398,769dollars. One month of that would be cash like mostseed rounds.Then there would be plenty of cash to upgrade to anupload data rate of 15 million bits per second formonthly revenue of2 * 4 * 15 * 10**6 * 3600 * 24 * 30 / ( 2 * 130,000* 1000 ) = 1,196,308dollars. So, three months of that would be cashroughly like a Series A. It could take longer thanthree months just to close a Series A. That is, thebusiness could put cash in the business checkingaccount faster than raising equity funds.Can any such thing be done? Sure: At one time inCanada Plenty of Fish was one guy, some old Dellservers, ads just via Google, and $10 million a yearin revenue. In one year he had free cash enough fora Series A.Gee, I was doing well on my little TCP/IP codebetween my Web pages and my Compute Server and needto finish that, put the results from the ComputeServer in a table in a Web page, and then have aworking site (with all the code ready forproduction). So, add some simple Help pages andsome initial data and do a critical review and someminimal revisions. Add some more initial data.Then get a tax ID, trademark registration, businesschecking account, bookkeeper, accountant, lawyer,static IP address, and domain name, etc., go live,get publicity, users, ads, and revenue, and try tomake it grow.Where’s the promise of the $1 billion? Well, theother guys are getting maybe 1/3rd of the market andhave market capitalization of ballpark $400 billion,and I’m going for the other 2/3rds. Right, thatwould be $800 billion, 800 times the mentioned $1billion.Why can’t the other guys do what I’m doing? Theother guys are in computing, and the crucial core ofmy work is some original applied math I derived(yes, theorems and proofs) with some advancedprerequisites.Uh, that’s why I went to graduate school, for aPh.D. in applied math, the money making kind. To dothat and to give my wife more time for her Ph.D., Ipassed up the promise of $500,000 in founder’s stockfrom the COB of FedEx, stock worth now 100-1000times more.Given the math, the computing is trivial. Withoutthe math, any attempt via computing is just hopelessfloundering around. There’s hardly a single personwith a budget in all of US information technologywho would know how or want to try to sponsor aproject such as mine. Indeed, they’d never hire me,even at minimum wage. Literally. My Ph.D.,background in artificial intelligence at YorktownHeights, B-school professorship, etc. do about asmuch for my getting hired as a felony conviction.Literally. Net, no one else will bother trying tocompete with me until my success has already beenobtained. Offer to buy me out? Maybe, but they mayneed a thick checkbook. Compete with me? Not for along time.Really, AFAIK, the VCs will be interested in myproject if and only if my revenue is way above whatI need as a sole proprietor and solo founder andable to put cash in my checking account faster thanI could raise cash from equity funding. For themath in my project, commonly VC firms list theirinterests on their Web sites, and so far “math” maybe listed on fewer than a dozen such sites, maybe 0such sites.An assumption appears to be that for work that usescomputing, the best technical background is computerscience, and this assumption is clearly contradictedby history. E.g., the orbit determinationcalculations for the Navy’s version of GPS (wellbefore GPS) was programmed in PL/I on an IBM 360/91,but what was crucial was the applied math by astudent of mathematician M. H. Stone at Universityof Chicago.Finally, I’m not thrilled about the prospects ofreporting to a Board that does not understand mywork, has me put my 100% ownership on a ‘vestingschedule’, fire me before I am vested, thus,essentially taking my company, and then, becausethey don’t understand my company, ruin it.Really we have to expect that if a project is reallygood then it can both get nicely profitable quicklyfrom bootstrapping and then grow just ‘organically’to be worth $1+ billion.Just because a project should be worth more does nothave to mean that it is more difficult to do. E.g.,I have another project, if fully successful might beworth $500 million. Yes, it has less promise thanmy current project, but we have to remember it’salso much more difficult to do than my currentproject!There is more than one way to make money. Some VCsdo well. Many sole proprietors do well. Plenty ofFish did well. Zuckerberg did well. Maybe what I’mattempting will do well.
This list is friggin awesome! Only Fred can do this type of stuff and make it so innovative and community generated…you gotta give it FRED, hes too good at what he does.. #AllHailFRED
surprised not to see kickstarter on that list. @fredwilson:disqus ?
they don’t want to sell or go public http://www.avc.com/a_vc/201… so i don’t think they are going to get close to that kind of valuation with a dividends only approachthey understand that
Would be nice to have the corresponding investors, ranked by ROI.
Not sure TechCrunch is the right way to go about this. Better to use the VenturExpert data tied to Jay Ritter’s IPO database and Zephyr (for acquisitions).
There’s a fundamental and, really, debilitating flawin the methodology of the Aileen Lee analysis.What’s the point of the analysis? Sure, find how toselect her ‘unicorns’, that is, companies worth $1+billion, early on.So, roughly she is looking at statistics for’causality’, but that’s nearly always tough.In simple terms, we can take all the severalthousand companies she looked at and the dozen or sovariables on which she had data for each of thecompanies and try, via some version of essentiallycross tabulation or conditional probability, toidentify the variable values that correspond tounicorns. Fine. We can do that. But don’t try totake it to the bank.Why? Because it doesn’t have to mean much. And inthis case likely doesn’t have to especially becauseare looking at really exceptional situations, which,from Microsoft, Cisco, Google, Facebook, and Appleare very different, from the full collection ofcompanies.Next, and more serious, there might be somevariables that are really crucial, even causal, notconsidered in the analysis, and, really, then, allthe analysis is doing is making crude stabs atgetting at the causal variables.Moreover, really in practice, each new unicorn isfree to use causal variable never used before.Causal variables? Okay, consider 0-60 MPH times forcars. Look at manufacturer, age of the CEO, CTO,factory manager, marketing budget, sales numbers,and several more. Then try to say what cars willhave short 0-60 MPH times.All nearly total BS. Why? Because from the basicphysics we already know what are essentially thereal causal variables — the ratio of weight tohorsepower; want this ratio small, maybe down to 4pounds per HP for, say, the Veyron. That’s it. Allthe rest is at best only loosely connected.For a top fuel dragster, get a ratio of maybe 1/4pound per HP. That’s why over 1/4 mile the thingswere going 0-330 MPH in about 4.44 seconds beforethey put in some speed limiters and then justshortened the race from 1/4 to 1000 feet mile. Theyhad already limited engine displacement to 500 cubicinches.Let’s take bomb design: For the data, take all thehistory of bombs, from medieval times through, say,WWI. Collect all the data you want on all thevariables you want. Tilt. As of 1945, all yourcalculations are junk. Why? Einstein, Szilard,Wigner, Fermi, Oppenheimer. Okay, considerfissionable materials from the heaviest elementsamong your variables. Tilt. By 1952 with the Mikeshot of Teller and Ulam, now have to consider fusionof some of the lightest elements. Sorry ’bout that.For Unicorns, just can’t hope statistically frompast empirical observations to get good predictionsbecause the unicorns are so rare and, thus, free tobe so different from the past and not fit the oldpatterns.Sorry ’bout that.Looking for statistics on empirical data to predict$1+ billion exits really is looking for ‘unicorns’.When Einstein wrote FDR about the possibility of afission bomb, he emphasized the recent laboratorywork in physics of splitting atoms and ignoredessentially everything in the history of bombdesign. Variables about splitting heavy nuclei didnot appear in the history of bomb design.In 1952, it was necessary to introduce some newvariables, fusion of light elements including onereaction that was a big surprise!To evaluate what the Wright Brothers were taking toKitty Hawk, had to ignore essentially everything donebefore in flight and concentrate on wing lift todrag ratio, engine power, the thrust to powerratio of the propellers, and the three axis control– all new variables missing from past history.For the SR-71, had to consider the possibility of aram jet. Hmm …. Poor MIG 25!The exceptional projects are so rare that they areable to exploit such new variables; that is, it’sasking too much to have a large fraction of all theprojects with each project exploiting its own newvariables, but a few exceptional projects can. Thenfor these projects, with their new variables, thepast means next to nothing. So, to evaluate theseprojects, can’t do ‘statistical filtering’ of oldempirical data and, instead, have to look at theprojects one at a time in detail, just the wayEinstein, Szilard, Teller, Ulam, and the WrightBrothers did. Sorry ’bout that.The Aileen Lee analysis is like the old joke ofprofessors grading term papers by throwing them downa flight of stairs to separate them by weight andthen giving the higher grades based on weight.Statistics, actually, is some really good appliedmath, but, like all good math, it’s really a nicecollection of theorems and proofs. The theoremshave hypotheses, that is, assumptions. If theassumptions hold, then so do the claimed results.The Lee analysis didn’t pay attention to assumptionsand just used some calculations; while that’snonsense, sometimes people get by with it (e.g.,’machine learning’), but, being nonsense, it doesn’thave to work and in Ms. Lee’s case didn’t. Ms. Leeappears to be diligent but not informed. Sorry’bout that.
“I am not sure it is that is worthwhile exercise for entrepreneurs since you can bypass the VC business entirely, keep all or most of your company, and sell it for $20mm and have a big personal and financial success.”So true and yet so many in the startup ecosystem think that they have to have VC money to do anything of value. It’s ridiculous and I’m glad you’re not afraid to mention it.I actually think this is one reason why there’s so much opportunity for startups outside of the main startup hubs. They don’t have this crazy view that they need VC funding to be validated.
Love it all. Thanks, Fred!A little over a year agoyou wrote a post (couldn’t find the link) that talked about USV’s thesis, much of which is based on research by Carlota Perez. You talked about how it’s about time for a large change/disruption. Maybe even a new industry or something. Have you seen that? Are you thinking bitcoin? Or even Google glass (remember our conversation?) Or have you seen anything specific? Just curious.
Why is Warby Parker on this list? They’re in the manufacturing/fashion business. Are we calling any company that has an online channel as a “tech company”.
The article uses a denominator of 60,000 companies to get the 0.07% Unicorn figure. It’s a bit misleading, because a sizable percentage of that 60,000 aren’t seeking to build billion-dollar companies. Sure, who doesn’t want to hit $100M/year in profit? But many entrepreneurs (myself included) are making the $20M exit play Fred referenced. I think the percentage of internet companies that actually think they are shooting for a $1B valuation is more like 6,000. If that.
When did “unicorn” become a synonym for “rare”? Unicorns are not rare, they do not exist.
IntraLinks at one time had a public company valuation of > $1bb
Indeed valuation is a job not to let the reasonable approval.
According to LE’s “rules of order” when saying something like this “way to accomplishing my goal of changing the coaching landscape…” it’s essential to provide links or further info especially when it relates to one’s own product or service. Ruthless self promotion is important in being an entrepreneur.For every person like me who asks “hey what is that” and offers cheerful free helpful advice, thoughts and ideas there are perhaps 20 people who don’t ask and might have something helpful to say or want to make a connection.
Agree and noted.My general rule is to only provide links when the product is live…otherwise it’s really just hope and hype (and frustrating to anyone who might be interested but can not yet ‘get it’)…all of which means really I should just shut up and keep building! 😉