Before you launch the next great startup, take a step back and look at the big picture. Over the past 15 years, venture capital funding and initial public offerings have accelerated at an astounding rate. Just look at the evidence.
INDICATOR: Number of Unicorns
2000: 1
2015: 133
INDICATOR: NASDAQ 100 P/E
2000: 105x
2015: 22x
INDICATOR: IPOs
2000: 445
2015: 152
INDICATOR: IPO Proceeds
2000: $108 billion
2015: $25 billion
INDICATOR: Median Time to IPO
2000: 3 years
2015: 10 years
INDICATOR: Median IPO Offering Size
2000: $84 million
2015: $92 million
INDICATOR: Average IPO First-Day Pop / Year-End Gain
2000: 53%/–19%
2015: 16%/–0.4%
INDICATOR: Percentage of Profitable IPO Companies
2000: 26%
2015: 30%
INDICATOR: Median Annual Revenue of IPO Companies
2000: $18 million
2015: $39 Million
INDICATOR: VC Investments
2000: $105 billion
2015: $59 billion
INDICATOR: Late Stage VC Investments
2000: $18 billion
2015: $16 billion
Source: National Venture Capital Association, PwC, WilmerHale, Fortune
The dramatic increase in the number of large private companies is mainly a result of two key trends.
First, venture capitalist (VC)–backed private companies are staying private longer (a median of three years in 2000 versus ten years in 2015). Second, there are now over 3 billion people on the Internet with 2.6 billion smartphones, enabling entrepreneurs to go from an idea to a product that reaches billions of people at warp speed.
We are riding powerful tailwinds that are rapidly transforming the world as we know it. In 2000, there were only 370 million people on the Internet (roughly 6% of the world population), no one had heard of a smartphone yet, broadband was a fantasy, and mobile applications off a platform had not been invented. Today, the “digital tracks” have been laid and 140 billion apps have been downloaded from Apple and Google.
INDICATOR: Internet Penetration
2000: 370 million (6%)
2015: 3.1 billion (43%)
INDICATOR: Broadband Penetration
2000: 60 million (1%)
2015: 2.3 billion (32%)
INDICATOR: PC Penetration
2000: 180 million (3%)
2015: 1.4 billion (20%)
INDICATOR: Mobile Phone Penetration
2000: 740 million (12%)
2015: 7 billion (98%)
INDICATOR: Smartphone Penetration
2000: 0
2015: 2.6 billion (28%)
INDICATOR: Tablet Penetration
2000: 0
2015: 500 million (7%)
INDICATOR: Mobile App Downloads
2000: 0
2015: 226 billion
INDICATOR: Computing Cost (per person)
2000: $7.03
2015: $0.04
INDICATOR: Computer Storage Cost (per person)
2000: $4.77
2015: $0.02
INDICATOR: Digital Natives in Workforce
2000: 6%
2015: 35%
INDICATOR: Global Middle Class
2000: 1.4 billion
2015: 2.5 billion
Source: Gartner, Nielsen, A. T. Kearney, eMarketer, KPCB, GSV Asset Management
Moreover, in the Internet Bubble of 2000, the ten largest Internet companies were valued off a figment of one’s imagination. Now, they are mainly valued on future cash flows discounted back to today. Apple, with a $640 billion market value, has $200 billion of sales and $190 billion in cash.
However, as those who have seen Benchmark Capital’s VC Bill Gurley’s tweetstorm know, valuations for private companies are reaching sky-high levels. On the one hand, the value of every Unicorn put together is less than the market capitalization of Facebook, and lower valuations means less VC money being spent. On the other hand, many Unicorns are reaching huge valuations with little profit to show for it, meaning a market correction may be in order. As Gurley argues, this means there could be a shift in venture capital from focusing on growth to focusing on the path to profitability.