Monday, October 22, 2012

The Road To $5 Billion Is A Long One

I was talking with Brian Singerman and he raised an interesting question: How many software companies have been founded in the last 10 years that are now worth more than $5 billion?  Or more than $10 billion?

The list we could come up with is shockingly small:

Software Company started in 2002 or later, >$10 billion market cap:
(all valuations from 10/21/12 unless otherwise noted)
Software Company started in 2002 or later, >$5 billion market cap at last news:
  • Workday ($8.8 billion)
  • Skype ($8.5 billion acquisition by MSFT)
  • Twitter (~$8 billion at last financing in 2011)
This has serious implications for the companies raising money at a $1-$3 billion valuation.  In order to 5X they would need to achieve what only 5 companies have been able to achieve in the last decade.  

Even if you assume YouTube as a stand alone would be worth more than $10 billion today, this list is surprisingly small.

There are two reasons this list is so short:
a. It take time to build real value.
Amazon, was 6 years old in 2001 when it reached its last low of ~$2.5 billion.  It took it 11 additional years (17 years total) to grow to ~$100 billion market cap.

If you look at the Forbes Billionaire list as a proxy, you notice it is mainly full of old people :) .  It takes a long time to build something really valuable.

b. Few companies do anything sufficiently valuable.  Most companies serve a niche, or don't monetize very well.  Business that can truly scale to the revenue that justifies a $5 billion+ market cap are rare (indeed, across *ALL* industries, there are only <800 companies with market caps >$5 billion).

There are a few companies founded in the last 10 years that are closing in on $5 billion or who sold within 50%.  This includes Palo Alto Networks ($4 billion), Splunk ($3 billion), SuccessFactors (acquired for $3.4 billion by SAP), Palantir (I think the last round was $3-$4 billion), Dropbox (last valuation at $4 billion), Square (last valuation at $3.25 billion), and potentially Spotify.  

Finally YouTube, if still stand-alone today, may be worth more then $10 billion.

Did I miss any companies?  Let me know in the comments.

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