How sad that they only listed companies that got funding. It is not a good culture to look at funding as success, how about growth, revenue or even profit.
It's true that funding is only a step toward success. I'm constantly reminding founders of that. But as of now, at least, it is empirically a necessary one. Construct a list of the most successful technology startups however you like (by revenues, market cap, number of users), and you'll find the number that didn't take outside funding is zero or near it.
It's an interesting phenomenon that all the biggest successes take outside funding. Perhaps the reason is that the better you are, the better terms you can get money on, and for any given startup, there are terms so good you'd be stupid not to take money at them.
You are right that any truly transformative tech company has raised outside money. However, it seems like there is a shadow tech scene comprised of substantial companies that have self funded. e.g.
CSN Stores - $300MM+ annual revenue/ bootstrapped
MailChimp - Approaching $100MM/ bootstrapped
Club Penguin - $350MM acquisition, heard they had a little angel money, but no VC
Ganz/Webkinz - Kind of a startup within a small manufacturing biz, but they have mid 9 figures in revenue.
SparkFun/iFixit - Both $20+MM in revenue with no outside investment.
Provocraft has $100MM+ in virtual good sales
Granted, most of these aren't household names in the tech world, but all thrive based on web tech. I'm sure there are others beyond the ones I know, but there seems to be a playbook that can get a company to $100MM+ without VC.
In closing, I agree with your thesis, and Sequoia's old homepage would back you up 100%, but do you think companies like the ones above are just outliers or are not successful enough?
Right -- and these are all companies with multi-millions in revenue. There are many other companies, many with only one founder, that are doing $200K+ with no funding. And these people are often treated like tech-world outsiders!
When I lived in NYC there were tech community events filled with people trying to launch an idea with no traction (ie. users, customers) and in many cases these events required an invite! I have more than one profitable bootstrapped web app and I can't get an invite!
Do you wish you had raised VC for Viaweb and grown it to be "bigger"? How much bigger would you have had to grow it to get a better exit personally?
Bose is at least one counterexample, it seems. However, don't the most successful private companies have little incentive to release the information you say is necessary for the comparison?
> Construct a list of the most successful technology startups however you like
At this stage in my life, I'm not so interested in most, but in average, meaning: sure all of the really huge companies took funding, but are people who took funding, on average, more successful? In other words, I'm more interested to a surer path to a million dollars than an outside shot at 100 million.
I don't know the answer, but it's an interesting question.
Given the recent trend of founders partially cashing out during larger rounds, there's a chance that the funding event alone could guarantee a million dollars (or something relatively close).
"Construct a list of the most successful technology startups however you like (by revenues, market cap, number of users), and you'll find the number that didn't take outside funding is zero or near it."
I think looking at how much money the founders made would be the most objective measure. Of course you're going to be able to create a bigger company if you go out and raise a few million bucks, but that doesn't necessarily mean that you'll personally be better off in five years.
I think you are very wrong in this case. The list is not looking for the largest companies in any of those categories. Clearly those that are huge companies took funding along the way to grow, but the list is of young founders and you can easily generate a list of young founders with huge success that did not take funding.
I think the problem with lists like this is it creates a culture of celebrating the funding part only, not the hard work that comes later and the true success that the investor wants.
What about making a list of unsucessfull startups? I bet there be a lot of them with funding too.
I am with 37signals on this one — funding only teaches you to spend money.
Even if funding is the first step to success it is still wrong to pronounce startups most sucessfull based only on that. How about waiting till they start to to make money?
If you read the comment again you'll notice pg doesn't claim the best companies are successful because they took funding, in fact the opposite, perhaps they took funding because they were so successful that they were offered terms they'd be crazy to turn down.
Bottom line is some companies may be well suited to take outside funding early on, some might be better off bootstrapping to profitability, but it seems most successful companies in our industry do end up taking funding at some point in their lifetime for one reason or another.
Much of the 37signals/anti-VC/whatever crowd fails to recognize that not all companies are created equal. Just because 37signals has done phenomenally well without outside funding (with the exception of Jeff Bezos' investment) doesn't mean that's the right path for all companies. Ditto for Google/Microsoft/etc which did take funding.
It's slightly ironic because I don't think the 37signals themselves believe no company should ever take funding, rather they're fighting the perception that you must take funding to start your company.
I think the key is 'When did they take the money?' is it before traction or after traction.
Yes, it would be stupid to not take money when it is cheap and you have traction.
If majority got funding before traction, that would indicate that VCs/angels are really good at evaluating teams.
I'm inclined to think that the management help (or "help" depending on one's attitude) that typically accompanies funding plays a significant role here. Funded companies usually get access to market(ing) expertise that solo people don't. I don't think that's an absolute rubric, but it can help companies penetrate.
Yeah, I thought the same thing. I recognize the need for funding (for some, not all), but I hate using it as the primary barometer for success.
How about revenue, or users, or even active users?
It's just damn disappointing to see that the mantra being spread is "raise a ton of cash or bust," and that people not raising money are often ignored.
raising funding is a reasonable indicator of being in vaguely the right direction of success (defined by your metrics) at an early stage, do you not think?
Hmmm. Honestly, no - it's quite possible to raise a decent amount of seed funding today before you've got any metrics to share at all, based off of the team and how well the team presents the idea.
Anyone else see this as a thinly veiled advertisement for the venture capital syndicate. How could the two most important categories on the Best Young Tech Entrepreneurs of 2011 be "Funding" and "Wisest Funding Decision?" Everyone's answer seems to be, "Yeah, the best thing we ever did was take $X MM from X venture capital."
I suppose the meaning of "tech" is somewhat subjective, but to me it seems like most of the companies mentioned purely provide a platform or a service to consumers or businesses, largely with the motivation of selling a consumer something.
I guess I hoped there would be some cool startup working on non-linear optics that I've never heard of, or some bioinformatics startup changing the way we do medicine. Research spin-offs, I guess. I understand there's a lot more intellectual overhead in some of these things, and maybe they just aren't as glamorous or something, but I was hoping to see something along those lines.
Historically, few successful software startups have been research spinoffs. That's not a recent trend. Even Google wasn't really. In biotech, yes, but there the founders are older.
"The Stanford Digital Libraries project is one participant in the 4-year, $24 million Digital Library Initiative, started in 1994 and supported by the NSF, DARPA, and NASA."
That's a huge initiative, especially in 1994, supporting many, many grad students like Larry and Sergey. There's a strong claim that without the research funding, we wouldn't have Google.
That's why I put the "really" in there. It was government funded in the sense that any side project people work on in grad school is government funded, since the government is paying their living expenses. If that makes the startup a spinoff, Apple was a spinoff of HP, because Woz was still working at HP when he started designing the Apple I.
A $24M project, over 4 years, at six universities is exactly supposed to encourage creative innovation among the next generation and surrounded by domain experts. That initiative was designed to produce projects like Backrub.
Was Woz's job description at HP written to specify novel hardware? Was he surrounded by mentors and other employees hired to support that initiative? Across six departments?
As an "outsider", the only thing I really take from this - besides seeing the prominence of YC startups - is that there certainly is a shit ton of money chasing unproven ideas.
I mean, all of these products seem on the surface to be viable entities. I suppose that alone is better than what was happening ten years ago. However the issue I have is that the degree they need to succeed just to be a positive return is sometimes bordering on the outlandish.
Groupon - a BILLION dollars? Seriously? It's news if an entire industry is worth this much, let alone a single company.
Maybe I'm just not getting it, but a lot of this stuff seems to be overvalued in the extreme.
Valuation is not revenue is not profitability. Say your dicey tech stock has a beta of 2 & the S&P500 is expected to make 5% this year. CAPM says you'll have an expected return on capital assets of 10% given the zero risk-free rates we have now. That 10% figure in turn drives a valuation model where you plugin rosy growth probabilities & factor in the exploding populations in the emerging markets & do the all important scenario-analysis on what if just 0.1% of those folks bought my product. That spits out numbers that'll make your head spin. I've seen $1 iphone apps valued at $100 million simply cause that's how the valuation model is set up. Financial math is simply legalized delusion :)
I disagree. P/E is just one way of valuing a company.
Regardless of their current valuation, my personal opinion is that Groupon faces serious issues regarding the long term sustainability of their business model. They have dominated an ecosystem that will eventually balance itself. I am skeptical that they can maintain their current valuation through that process.
I'm not a fan of how much emphasis BusinessWeek puts on the funding amount. It really is the only data point they write about. Would like to see revenue or users... or something else.
Funding events are usually announced publicly, while revenue isn't. Revenue is also hard to compare between product, service, and advertising-supported companies.
Just realizing how small the startup community really is. I've had drinks with a quarter of the people on that list at Hackers & Founders over the last 3 years.
