- ok I have to stop you there. This is not a new developing trend. It has always been a part of tech startup lore. If there is any current trend it's the democratization of startups. 10 years ago you needed $10 million in funding to build something real. 5 years ago $3 to $5 million. Today that's probably $1 -$2 million. The interesting thing about startups _today_ is that you can build real, decent, 10's or 100+ people startups without having to raise gazilions of $'s. Prior to very recently it was go big or go home entirely.
Which is a good point. Has anyone done any analysis on the YC/500 alums that fall in-between the Billion Startup Club and failing? My guess is there might be literally 100's of Olarks that are really great places to work with interesting teams doing millions in revenue that never needed to raise big dough. That option didn't really exist 5 or 10 years ago. The option to strike it rich though always has.
If you're a bootstrapped company (let's say < $100k in outside funding) and you have revenues >> $1m / year, we'd love to hear from you!
Does it count if you raise after you hit $1m / year in revenue? I'll let you decide.
Making profit is a "good thing". Raising money is just this side process that may or may not be necessary for your company.
Without VC there would be no Google, no Microsoft, no Amazon, ... I don't think many people seriously advocate for a world with no VCs.
I look at some of the largest start-ups or even companies, and they aren't solving problems so much as creating opportunities.
AirBnB didn't really solve a problem, they created an opportunity for you to rent your extra space, or find a place other than a hotel to stay.
This also applies to larger companies. Coca-cola didn't solve a problem, they just made something people really liked.
Apple and Microsoft didn't solve a problem people had. They didn't have computers, so what what problem could you have been solving by giving people an operating system. At the time, people didn't know what they would use a computer for, so what problem was being solved.
1) Maintaining a general ledger for your business (and all the calculations) by hand & on paper was tedious and labor intensive. VisiCalc was the first "killer app" that made loads of people want to buy an Apple. Apple provided the platform to make VisiCalc possible. On the PC side, the driver was Lotus 123, then MS Excel.
2) Using a typewriter was annoying, especially when you need to fix a mistake. (e.g. Liquid Paper, Wite-out). On the PC side, there was WordPerfect, then MS Word.
Airbnb offered affordable rentals compared to hotels, it solved a problem/need. This created an opportunity for other's
Uber made hailing a car much easier (solving a problem), creating an opportunity for other's
I don't see how tackling this in reserve works. How can you create an opportunity (let says for truck drivers) without solving a problem somewhere?
- People unable to find accommodation - at any price - during major events (2008 DNC, SXSW)
- Property owners (particularly in NYC) struggling to make mortgage payments during the GFC.
Airbnb - I only use my place 90% of the year, but I pay for using it 100% of the year.
Coke - Water doesn't taste very good.
Apple/MS - secretaries are expensive. Can they be automated?
Similarly, Apple/MS must have found an early market of professionals to sell to that need excel, calculators, whatever - solving a problem for them.
You don't start by automating out secretaries. You start by solving a problem for an existing set of people.
Generally when people talk about 'creating opportunity's' they just mean solving problems that people don't think of as problems.
In that context Google's quest to 'organize the worlds information' is really just solving the gap between what humanity knows and what you know. EX: Someone knows where the closest ATM is, but you have no idea. Someone knows what error code 237b means and what to do next, but you don't.
I guess it can be argued that AirBnB didn't solve a problem but they definitely created a better experience for me. When I traveled to Paris and Amsterdam last year, I actually felt like I was experiencing the country as someone who lives there when I would walk home to an actual apartment every night instead of a hotel room where everyone is experiencing the same bland room. It didn't hit me until my very first night but it was a nice realization.
Typically founders are product people, they want to solve a problem that exists in the world. But, to solve that problem, they need to make a big impactful company, that grows to dominate a particular niche or industry and disrupt the current way of doing things.
To these founders, "billion dollar company" is a shorthand for all these ideals: to make a great and lasting company, to solve a real problem for a very large number of people, and to make a real impact in the world.
It's not coincidence that this phrase is also important to VCs, for whom "billion dollar company" may have a different meaning, that being "make back the fund for our LPs". I say "may" because that's a simplistic view: many VCs are looking to make the world a better place too, and in many cases they have more money than they need already.
And to journalists, these mean "companies which we have to pay attention to". And when you think about, they're not paying attention because of the value, but because of the impact. Which is why journalists are always talking about consumer companies, because they have much more impact in the world than more successful enterprise companies.
Of course, that's not to say there aren't people in it for the money. But we rarely need to worry about them, since they rarely succeed.
Every once in a while you see a publication do a retrospective of a failed startup. And every once in a while you see a blog post from a startup that exploded. But the statistics are completely skewed with distorting the reality of startup success. Mentioning that there are now X number of billion dollar startups masks how many startups are simultaneously failing. I would love to see a study that showed the total number of inflation-adjusted billion dollar startups as a percentage of the total number of startups started over time. This percentage may actually be decreasing, even though the media seems to be suggesting that there's a tech bubble.
I've seen two large stock market / tech implosions in my relatively short lifetime, the 1999/2000 bubble and the smaller 2005/2007 pre-great recession era.
In both cases there was a lot of hubris around the notion that because you acquired a massive valuation, you had a business that was really worth that, and really had that sort of potential. It's a failure to separate the financial atmosphere at the time, and the reality of business when it comes to generating the sales and profit that it takes to support a given valuation over time.
You most certainly can manufacture a billion dollar valuation out of, essentially, thin air - it happened frequently in 1999.
I understand what the author is getting at. But the purpose of a business is to make money. What's wrong with starting a company to get rich? My suspicion is that the author means something more along the lines of "There are too many people starting companies simply to make a quick buck."
All things considered though, I agree. There are simply too many people in the Valley chasing huge valuations and quick exits and not enough building sustainable companies.
On that note, I would suspect that a company whose primary interest is making the founders money wouldn't necessarily have their customer's best interests in mind and would probably never reach a $1B valuation.
The stated billion dollar goal has several reasons behind it, the least of which is money. Diving into those reasons one by one could be very interesting; it could expose and analyze our core beliefs (both noble and less-so). Instead the author wasted the chance to do that and left us with something both simplistic and wrong.
"Yesterday Forbes published a piece on 'The Billion Dollar Startup Club'.”
Remember, these valuations are not cash paid for common equity like in the stock market. It's an extrapolated total equity value based on a smaller amount of cash given for a smaller amount of preferred equity that comes with a lot of conditions such as liquidation preference and maybe even preferred dividends or, god forbid, personal founder liability.
The valuation number is really just a bullshit number and meaningless to anyone who doesn't know the entire term sheet.
The same psychology comes into play when pricing anything else. We price things at $1.99 rather than $2.00 because there's an irrational feeling that a price starting with a 1 is much less than a price starting with a 2.
I think the OP is just making the point that a lot of these $1B companies are priced as such because it gives some extra legitimacy, thereby increasing their chance of success and increasing the value of the VC's share. The question is whether this is speculation or whether investing at that price actually makes the company worth that price.