VC: Please Don't Try to Build a Billion-Dollar Company
BY Will Yakowicz
That's the wrong way to go about it, says Homebrew co-founder Hunter Walk. Instead, build a big business by focusing on these three things.
According to one estimate, there are only 39 tech start-ups in the U.S. valued at $1 billion or more. The reality is that your company will probably not join this Unicorn Club.
And that's OK--because setting out to build a billion-dollar company from the get-go is not the right way to achieve your dream, says Hunter Walk, co-founder of the venture capital firm Homebrew, on his blog. As an investor he doesn't ask founders, "Is this a billion-dollar company?" Instead, he looks at the size of the problem they're aiming to solve, the company's "why" statement, and its revenue streams.
Here's more advice from Walk on the makings of a big business:
Solve a billion-dollar problem.
Your start-up's value isn't only tied to the size of the market you're targeting. Sometimes, the market doesn't even matter--especially if you are founding a disruptive start-up. "Billion-dollar start-ups don't always start out as billion-dollar markets," Walk writes. "Billion-dollar companies often create new markets by tapping into unmet demand. Billion-dollar companies can start out looking like toys." Your valuation will come from the size of your problem? How painful is the problem your start-up is set to solve? If it's big enough, you're looking at a big company.
Have a strong "why" statement.
Why are you and your founders dedicating so much time and effort to solve this problem? Walk says that you need to have clear and sincere motivations to help drive your company's success. "A big evergreen problem to solve and a superior team that wants to make sure they're the ones to solve it [is a] recipe for a billion-dollar company," he writes. Make sure your why statement is strong enough to carry you through the peaks and valleys of starting up--not just "near-term opportunism."
Create a recurring revenue stream.
How will your company return your investors' capital? If your start-up's revenue streams rely on billing customers for work done, you'll have a "much smaller multiple of revenue," he writes. A better option is a recurring revenue stream, such as a subscription model, that doesn't involve you having to hunt your clients down to collect.
WILL YAKOWICZ is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York. @WillYakowicz