The Surest Way To Build A Multi-Billion Dollar Firm As a venture capital investor, I’m focused on identifying and backing high potential consumer technology startups. It’s the small number of hits that drive the investment returns generated by the best VC funds. I recently met with a talented and driven Internet entrepreneur who is running hard at building his second company. He sold his last startup a few years after founding it for about $ 50 million, which was a very fine outcome. He told me that his goal this time around is to “go the distance,” to build an independent company that will be a leader in its space and worth a billion dollars or more. His goal inspired me to go and look at the data and the patterns behind what kinds of Internet companies, specifically consumer Web companies, became billion-dollar entities. The results of my data dive surprised me, and might surprise you. It’s A Short List The first observation in looking at billion-dollar consumer Internet companies is that there aren’t a lot of them. We’re approaching the twenty- year mark of the commercial Internet. Amazon and Yahoo were both founded in 1994. Yet from a recent scan of the public markets, there are currently only twenty-four publicly held U.S. based Internet companies that are worth $1 billion or more. That’s about one company per year for the past twenty years. When you add to this list all of the companies that have been acquired for $1 billion or more over the past two decades, plus the companies that have cleared this valuation threshold but are still private, the total number just about doubles. Still, that’s only two consumer Web firms created per year worth north of $1 billion. Social Platforms: Home Runs Happen But Odds Are Low If you’re reaching for a true grand slam, the best way in the past decade has been to build a defining social platform. Facebook and LinkedIn are the only public Internet companies founded in the U.S. after the year 2000 that are currently worth more than $10 billion. If you include in the count the privately held social- platform companies valued at more than a billion, there are only two: Twitter and Pinterest. Tumblr is close, and Instagram appeared to be on its way before Facebook took it out. These businesses have grown virally and they have deep network effects. The utility to participants grows as the scale of the network increases – which makes the network highly defensible. A social platform can be a beautiful business, but only if it crosses the threshold to dominate a category. The challenge is there are very few of these defining social platforms that break through and sustain. And to be a true winner, you generally have to get a very sizable percentage of the overall population to regularly use your product. Media, Search, Payments: Not Many Billion-Dollar Plays Here Since the early days of Yahoo and AOL, the online media sector has given us Youtube, Pandora and Hulu. Search has of course yielded Google , but there aren’t other independent success stories to point to. The only independent advertising network to clear the billion-dollar threshold since Doubleclick and Aquantive is Valueclick. And Square is the only payments company that has cleared the line since Paypal. In communications there was Skype. And in online gaming there’s Zynga. And The Surest Way To Build A Billion-Dollar Startup Is… What most people don’t understand is that the best way to create a consumer Internet company worth north of a billion dollars is to build a digital transaction business – a company that connects buyers and sellers so they can more efficiently transact. A full two-thirds of the 24 publicly traded U.S. Internet companies worth more than $1 billion are digital transaction firms. The billion-dollar club includes a heavy dose of travel, local and real estate businesses. The list includes Priceline, Expedia, TripAdvisor, HomeAway, Groupon, OpenTable, Yelp and Zillow. Other transaction-focused businesses that clear the threshold include Amazon, Ebay, Netflix, Vistaprint, Shutterfly, Ancestry, Bankrate and IAC/ Match. Other than Amazon, very few of these firms deal in physical goods. Almost all are digital information businesses that facilitate commerce. They’ve built platforms that attract and provide value to a critical mass of both consumers and businesses. I understand the VC billion dollar game to my best,thats why Im getting a few investors interested in my goal to raise $2.6 billion VC fund/Private Equity firm. I have lots of free ideas to give to interested investors and partners.
Posted on: Tue, 12 Nov 2013 16:34:52 +0000
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