Valuation Without Revenue Unicorns

Excerpt from my new Entrepreneur Journeys book, Billion Dollar Unicorns:

Recently, Unicorns with multi-billion dollar valuations without the revenue to justify them have returned with a vengeance. The frenzy started with Facebook acquiring Instagram for $1 Billion, and climaxed with the same company acquiring WhatsApp for $19 billion.

If there were any analysts that had doubts about Facebook’s mobile dominance plans, they have been put to rest. Facebook’s monetization plans vis-à-vis these apps, however, are less clear. The same applies to Yahoo!’s $1.1 billion acquisition of Tumblr.

I would like to look at WhatsApp more closely just because of the historic nature of the deal.
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Achieving Product-Market Fit That Allows You to Build Billion Dollar Unicorns: Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 7)

Sramana Mitra: Help me rationalize what’s happening right now in the market regarding late-stage valuation bubbles. We have two kinds of bubbles in the startup venture world. One is in the seed capital. In 2013, 70,000 companies were angel-financed. That’s too much actually. It’s great that they got angel-funded, but then if you look at the next level, it’s 1,000 venture funding or 70,000 paired down to 1,000. Technically, those companies probably need to be bootstrapped and they’re not going to be scalable venture-scale companies, which should not have been funded in the first place. A lot of people are going to take tax right off. That’s one part of the bubble.

I actually don’t think the early-stage venture capital Series A and Series B is in that much of a bubble. It’s more in the Series C, Series D, and in some cases, Series E, that is completely out of control valuation, right? Part of the issue that we’re going to have to resolve somehow is that the public market is not in a bubble. What is your analysis of this market? You recently raised money. What was your experience in navigating this market?
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Achieving Product-Market Fit That Allows You to Build Billion Dollar Unicorns: Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 6)

Sramana Mitra: This time around, are there any surprises in the product market fit process? You repeated the same process, I imagine.

Gaurav Dhillon: The same thing but with a twist. With Informatica, the timing was spot on. The change was happening in a big way. Year 2000 was coming. From the time we raised venture capital in 1995 to the time we got to $50 to $60 million in revenue in 1999, our timing was spot on. With SnapLogic, our timing was a little bit early. We had built out this technology. We had SnapLogic running on AWS in 2008. That’s like seven years ago. Enterprises weren’t there yet.

If you look at SaaS at that time, SaaS was a mid-market phenomenon. Among people using SaaS today, the majority of revenues and by far, the vast majority of profits for SaaS companies are coming from the enterprise. In fact, Workday is an enterprise-only SaaS company. They don’t even sell to mid-market. Their average deal size is probably $2 million. All these things were just coming out at that time. I think we were slightly early. Of course, we had the technology. >>>

Future Unicorns

Excerpt from my new Entrepreneur Journeys book, Billion Dollar Unicorns:  

As I think about where future unicorns are likely to be, what trends present the characteristics of opportunities that can scale to that extent, I have a few observations.

I have had the opportunity to discuss these observations with a number of thoughtful industry leaders, and this chapter synthesizes some of those conversations in brief.

If you review the types of companies in this book, they span a few specific industry sectors: Cloud / SaaS (Marketo, ServiceNow, Concur, Zoho, eClinicalWorks, RightNow, SuccessFactors), Big Data (Tableau), E-commerce (Eventbrite, MercadoLibre, Flipkart), Vertical Search (Kayak, Trulia), Healthcare IT (AthenaHealth, eClinicalWorks), etc.
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Why Not All Private Unicorns Will Become Public Unicorns

We’re in yet another tech bubble led by Silicon Valley’s marvelous froth machine. However, this time, the bubble is constrained to two parts of the market, and thankfully, both are private.

One, late stage, over-valued, over-hyped venture-funded still private startups. The ones among these that are valued at over $1 Billion are anointed Unicorns. This stems from an article by Aileen Lee with Cowboy Ventures, Welcome To The Unicorn Club: Learning From Billion-Dollar Startups.

Two, over investment at the seed stage in private fledgling startups. For more on this, please read: Why 70k In Angel Investments Is A Problem.

Thankfully, the public market is NOT in a bubble, hence when this one bursts, not much harm will be caused, except a lot of rich people will lose a lot of money.
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New Book Launch – Billion Dollar Unicorns

While the vast majority of entrepreneurs today are trying to figure out how to build billion dollar Unicorn companies, Venture Capitalists have always been looking for Unicorns to fund.

And yet, the probability of founding or funding a Unicorn is, by definition, minuscule. Over 10,000 companies are born every year that go out to seek financing in the venture capital eco-system. Historically, we have only seen five or six Unicorns a year. The Internet’s reach has expanded dramatically, so this number may increase in the upcoming years. Companies are scaling faster these days, once they find the secret sauce that triggers adoption.

In Billion Dollar Unicorns, Sramana Mitra, founder of the One Million by One Million (1M/1M) global virtual accelerator, invites 17 entrepreneurs who have built ultra-scalable companies for in-depth discussions on how they navigated their ways through the startup process. Sramana’s goal: to identify the lessons learned that can be broadly applicable for millions of entrepreneurs. She has been tracking Unicorn companies for months, inspired by an article by Aileen Lee of Cowboy Ventures.

Perhaps, this book will help more entrepreneurs learn to build billion dollar Unicorns. For sure, it will help many more entrepreneurs learn to build successful businesses. You can order your copy from Amazon Kindle here today.

Achieving Product-Market Fit That Allows You to Build Billion Dollar Unicorns: Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 3)

Gaurav Dhillon: Let me take you through that journey. I still remember how excited we were. Once we got the grant, we built the research into the object databases. The truth is they never got anywhere. Then we thought, “Why don’t we build technology to help people downsize?” This is 1995 and you’re running a COBOL program on a mainframe. It’s pretty clear that the 2000 bug is coming. Wouldn’t you want to get this COBOL program off the mainframe into Oracle and Sun?

By the way, we would consult by day and work by night. When you’re in your 20s, you’re just unbreakable. The energy and enthusiasm in doing these things was pretty epic. We were seven to eight people at this point. We actually went out and built a product that would take your COBOL >>>

Bootstrapped Unicorns

Excerpt from my new Entrepreneur Journeys book, Billion Dollar Unicorns:  

In the fall of 2007, I met Sridhar Vembu, CEO of Zoho, for the first time. At that time, no one had heard of him. He was flying under the radar of Silicon Valley. Sridhar had a small network management tools business that basically functioned as a highly profitable cash cow. It was not an earth shattering idea. But it gave him cash to play with.

And play he did. He decided to go after Salesforce.com with a Software-as-a-Service Customer Relationship Management product at a price-point that was one sixth of what Salesforce.com, the market leader, charged. He offered the product to small businesses, and customers lapped it up.
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