Are Google-Scale Outcomes More Frequent?

Something has clearly changed within the last 5-6 years in terms of the speed with which monster startups are created in the software and internet space.  As a result of a convergence of many factors (lean startup methodology, broadband & smartphone penetration, social web, cloud computing, etc), breakout startups are clearly getting scale faster than they used to.

There’s lot of anecdotal evidence for this:

There’s one school of thought that the paradigm has changed, and startups that achieve a market value of tens of billions or more will be more frequent than in decades past.

I’m not so sure that’s the case.  What if the new paradigm is simply that software and internet startups accelerate much faster than before, but terminal velocity so to speak remains the same?  It’s the difference between Google-scale outcomes being a once in a decade event or something that happens much more frequently.

The table above highlights some of the most significant VC-backed startups of the last 25 years.  I know Cisco’s really more of a hardware company than software, but I think it’s still relevant to this question.  You could throw companies like VMware in here too (~$38B mkt cap) but that was a spinout of EMC rather than a pure startup.  It’s also worth noting that in the last 5-10 years breakout startups have remained private much longer than in decades past, so more of the equity appreciation has been captured by private investors than public market investors.

In looking at the table, you see that startups reaching the rarefied air of a $75-100B+ market value (either as a private or public company) are extremely few and far between.  This list is hardly exhaustive, but I could only think of CSCO in the ’80s and AMZN in the ’90s and GOOG in the ’00s, and again none of them reached this value until years after IPO.

Facebook will pretty clearly achieve this here in this decade, and undoubtedly there will be more massive standalone companies that are built in the coming years and decades.  And to be clear, I take nothing away from the likes of Zynga, Groupon, LinkedIn, Salesforce, Yandex, and other companies which have achieved multi-billion dollar values in recent years… it’s an incredible achievement.  I’m obviously biased but LinkedIn’s revenue growth is actually accelerating now (>100% year over year) so I think it’s market value will grow commensurately in the years ahead.  But one would be hard pressed to say that other than Facebook, there will clearly be a company out of this crop that will be worth $100B in the foreseeable future.

To me, the new paradigm is one in which companies can often start with less capital than and can grow at a markedly faster pace than before.  For everyone in the startup ecosystem this is a pretty incredible state of affairs.  But I think we must be cautious is letting ourselves believe that as a result, there will be another Google or Amazon every year.

Lee Hower

I’m an investor, entrepreneur, and helper of technology startups. I’m currently a General Partner of NextView Ventures, which focuses on seed stage internet-enabled businesses. I co-founded NextView in 2010 with my partners Rob Go and David Beisel. I started in the VC business as a Principal at Point Judith Capital, an early-stage firm. I joined PJC in 2005 and served as a Principal at the firm through early 2010. During this time I co-led investments in FanIQ, Sittercity, and Multiply and sourced investments in Music Nation and NABsys. Prior to becoming a VC, I was a startup guy myself. I was part of the founding team of LinkedIn, and served as Director of Corporate Development from the company’s inception through our early growth phases. Before that I was an early employee at PayPal, and worked in product management and corporate development roles through the company’s IPO in 2002 and subsequent sale to eBay later that year. I went to college at UPenn and received degrees from both the School of Engineering and Wharton School of Business.

    • Interesting observation. I think one of the key takeaways is that the exponential growth of Internet connected devices along with the strong viral loops of Facebook and Twitter have served as accelerants for these high growth companies. Also, I’d argue these factors have made the “hockey stick” growth curves even steeper because when company’s “get hot” there are so many more eyeballs and networks to capture and convert.