The average age of companies that the owners sell at more than $1 billion is seven years, according to US venture capitalist Jacob Mullins, who has revealed the common characteristics of $1 billion consumer tech companies.
Mullins, a venture capitalist at Shasta Ventures in San Francisco, primarily focuses on consumer web and mobile companies.
In an article for TechCrunch, Mullins identifies the characteristics of successful consumer tech companies.
“I examined the pool of consumer companies that have had exits over $100 million within the current era of consumer tech, which I consider to be post-recession 2008,” Mullins wrote.
Mullins created a dataset by drawing on a number of venture capital data sources, including CrunchBase.
He narrowed it down based on the following criteria: US, venture-backed companies that have had “realised outcomes”, both IPO and M&A, over $100 million since 2008.
Of the 38 companies over the past five years that exited at more than $100 million, nine exited at more than $1 billion and all nine exited in 2011-12.
Those companies are Facebook, Groupon, Zynga, LinkedIn, Pandora, HomeAway, Zappos, Kayak and Instagram.
Mullins has identified the common characteristics of these companies:
“The average age of the nine companies that exited at over $1 billion is seven years, with the minimum being two years (Instagram) and the maximum being 11 years (Pandora),” he said.
“To build truly large and valuable businesses, do not expect a short-term play.
“Plan to be in it for the long haul – the better part of a decade – and build out a team that is willing to dig in and fight hard.”
According to Mullins, no specific category or type of company is a standout among the nine $1 billion companies.
“However, the fact that huge opportunities are possible in nearly every category is a positive attribute,” he said.
“Two of the top five companies, LinkedIn and Pandora, have more than one business model that significantly contributes to their top line – advertising and subscription,” Mullins said.
“Of the nine that had $1 billion exits, four are eCommerce-based, three are advertising-based and two are subscription-based.”
The most valuable companies have founders who have “unusually strong and focused product vision”, Mullins said.
“They are intimately engaged in every aspect of product development, ensuring the product instantiates itself in their image,” he said.
“In every single one of the top five most valuable companies on this list, the founder himself was maniacal about the product.”
“As you look down the list of the nine $1 billion-plus exits, you recognise that there is a strong common focus on end-user value, each in its own way,” Mullins said.
“Not only were these companies able to acquire new users, but they were able to keep users around for days, weeks, months and years after they signed up.
“They did this by focusing on constantly providing their users value at every step.”
Don’t fear incumbents
“There is not a clear enough trend to say whether or not it’s more valuable to invent an entirely new product category or reinvent a market with a better product,” Mullins said.
“As an entrepreneur with a revolutionary idea, don’t be turned away because there are competitors in the same space.
“In many cases, the most valuable products have been built in areas where the existing solution is just not up to snuff.”