A few years ago, I was invited to a week-long startup boot camp in Silicon Valley. It was an ambitious, eager and anxious group of non-US-based entrepreneurs investigating the American market for our products, as well as sources of financing for our businesses.
On Day 2, an earthquake hit. Not literally, but it certainly felt like it: Facebook acquired Instagram, a photo-and-video sharing social network, for $1 billion. It had 13 employees. Suddenly they were vastly wealthy.
Early investors – including Benchmark Capital, Sequoia, Greylock Capital, Thrive Capital, Andreesen Horowitz and Twitter ‘s Jack Dorsey were reportedly jumping for joy at their returns on a $50 million investment (and $500 million valuation) that had closed just days before the acquisition.
This, just a year after Instagram took in a modest $7 million from angels.
And that, just a year after an $500k seed investment round.
The reaction among the cognoscenti and experts at the boot camp was more or less this: ‘You’re all screwed. Because once again, the sources of funding you’re likely to talk to are going to be looking for billion-dollar hits.’
And they were right. The doors pretty much slammed shut on all of us then.
Why am I reliving this painful history? Enter Uber. Once again, it’s earthquake time.
Uber, a ride-sharing app which, despite some serious management and operational problems, now enjoys a $41 BILLION valuation – up from $18 billion six months ago.
$41 billion? Total annual revenue from taxis in the US is about $11 billion.
As the New York Times pointed out last week, Uber is merely at the head of the pack:
– Instacart, a grocery-delivery service, valued at $2 billion
– WeWork Companies, shared office space, valued at $5 billion
– Stripe, online payments, valued at $3.5 billion
– Kabam, mobile games maker, valued at $1+ billion
The Times calls it “Ubernomics.”
Maybe these companies will survive and thrive. Venture capital’s record, on the whole, isn’t so encouraging, though – only the top 10% of VC firms consistently get it right. Anybody who’s looked for startup financing knows the odds are against them getting what they need, when they need it, and surviving, let alone succeeding.
Sure, we always strive to learn from history. So why when dealing with startup financing and valuations does history seems to repeat itself?
Maybe it’s a world gone mad. Or maybe it’s simply greed. That drive towards the fast fortune.
According to the Times, “Companies are going from zero to billion-dollar valuations faster than ever before, despite a lack of revenue and perhaps even a market plan.”
I’m no stranger to this drug. I was seduced into joining a Silicon Valley startup in 2000 when the CEO and co-founder told me: “If we’re not a billion-dollar company by the end of the year, we will have failed.”
They weren’t a billion-dollar company at the end of the year, when they laid off most of the 135 employees. But they pivoted, survived and grew into another business that was acquired for an undisclosed sum three months ago. (I chronicled that experience in a TedX talk.
When I moved to digital media, I spent some time with Pitch Johnson, one of Silicon Valley’s first venture capitalists. I remember a conversation in which he told me that the younger partners in his firm were warning him they were missing the boat by not investing in the new Internet companies popping up all over the Valley. “Maybe I’m old fashioned,” he told me. “But I don’t understand companies that don’t have a business model, and I’m not going to invest in them.”
With VitalBriefing, we’ve gone a different route. We’re building a company to last, the old-fashioned way: brick by brick, customer by customer, product by product. Since our founding in 2011, we’ve had a couple of early rounds of financing, and welcomed much-appreciated public grants from the Luxembourg government.
I don’t doubt that we’ll take more along the way as we build out our technology, our sales and marketing and our international operations. But we’ve based our growth to date on developing products our clients need and want, on building relationships with them that should keep them coming back for more of our products and services based on their quality and our customer care – not on hype and buzz, or chasing injections of vast sums of money.
I don’t expect Facebook to waltz through the door with a $1 billion offer and that’s just fine. We’re playing the long game. Building a business, brick by brick.