Land of the “Super Founders“— A Data-Driven Approach to Uncover the Secrets of Billion Dollar Startups

Land of the “Super Founders“— A Data-Driven Approach to Uncover the Secrets of Billion Dollar StartupsI Spent 300 Hours Gathering Data On Billion-Dollar Startups and Here’s 100 Charts You Shouldn’t MissAli TamasebBlockedUnblockFollowFollowingDec 5About 15 months ago, I embarked on a journey to answer a personal question: what did billion-dollar startups look like when they were getting started?.I am a VC at DCVC (Data Collective), but this work was done on my own time and leveraged my own work. It may mention DCVC companies or outcomes but in no way is intended to promote them, nor was directed in any way by my colleagues there.Here are 50 things I learned:The “Super Founders” of Yesterday Create the Billion Dollar Companies of TodayThe word “Serial Entrepreneur” has been misused and doesn’t mean much anymore, so here’s a suggestion for something concrete.“Super Founder”: Founder with at least one previous exit over $50M or whose company generated/is generating $10M+ Annual Revenues. Paper valuations not to be included.In some of the charts below I show a strong correlation between being a “Super Founder” and founding a billion dollar company.I have specifically looked at the co-founders separately, i.e. I have separated the founding CEO from the other co-founders as I think they have different characteristics.1) Two or Three Is The Most Common Number of Co-foundersIt seems like having 2 or 3 co-founders is the ideal scenario, however, it is important to note that 20% of all billion-dollar startups have had a solo founder.2) More than Half of the Founding CEOs Are Over 35 Years OldOne popular misconception is that billion dollar companies get started by college dropouts. There are certainly college dropouts in the list, but the bulk of these founders were between 24 to 36 years old when they were getting started.3) Founding CTOs/CSOs Have An Even Wider Age DistributionCxO Definition: I have defined CxO as the 2nd person in the rank, the person with the highest level of authority or importance after the CEO..Seems like consumer founders are at any age (which is perhaps against a misconception that only millennials get consumer!)5) 50% Have Over 10 Years of Work ExperienceThe mode for tech companies is around 10 years of total work experience and for pharma/health companies around 28 years of work experience.6) Directly Relevant Industry Experience Does Not Matter; It Matters Even Less For CxOsContrary to the popular belief, most founders don’t have any directly relevant work experience in the industry they are disrupting. There’s also a clear distinction between the CEO and CxO where the industry experience is even less relevant for the CxO.However, this does not hold true in healthcare and biotech, where almost 80% of founding CEOs had directly relevant experience.7) Almost 60% Are Repeat EntrepreneursAs a VC, most founders we see come and pitch are first time entrepreneurs. However, based on this data, there’s a very high percentage of billion-dollar companies that are started by repeat entrepreneurs.8) The Repeat Entrepreneurs Founded and Led a Couple of Startups PreviouslyIt is a wide distribution, many were a founder for 2–3 years previously, and some founded multiple startups and led them for 20+ years. For many of them their first or even second startups failed.9) Almost 70% of Repeat Entrepreneurs Had Previously Founded A Successful Company (Let’s Call Them “Super Founders”)“Super Founder”: Founder with at least one previous real exit over $50M or generating $10M+ annual revenues. Paper valuations not to be included.Of the CEOs and CxOs who were previously a startup founder, 70% of them had at least one previous successful startup founding experience.10) Some of the Founding CEOs Had More Than One Successful Prior ExitNot just one successful prior exit, but some of these “Super Founders” have had multiple successful prior exits.11) Bachelors and MBAs Are The Most Common Degrees Among Founding CEOsAlthough we can see a range of different education patterns, including MD, Ph.D., etc. Clearly more professors, PhDs, and MDs in healthcare/pharma.12) Half of CxOs Went To Grad School (Mostly Technical)More PhDs and Masters than MBAs in the 2nd person in rank.13) As Many Technical CEOs As Non-Technical CEOsThis has always been a debate; technical vs. non-technical founders. They have had a similar level of success as a CEO, and naturally, the CxOs are much more technical. Please note that for a pharma/biotech company, being technical refers to being sufficiently scientific in bio/medicine.And while this seems to go against intuition, when the 1st person in rank was non-technical, the second person in rank had a higher chance of being non-technical too!14) The Founders Had Previously Worked In Tier 1 CompaniesIf the founders had worked in a corporate environment before (many of them had only worked for themselves!) they had worked in a Tier 1 corporate previously.15) Google, Oracle, and IBM Are the Biggest Billion Dollar Founder ProducersYellow indicates founding CEO and purple is founding CxO. Facebook and Cisco have generated many CTOs, McKinsey and Microsoft have generated many CEOs.16) Previous Work Experience in Other Startups (Not Founded By Themselves) Does Not MatterIt is a misconception that working in a startup is a great way to learn how to start a company yourself, seems like it’s not..not, a very large percentage of the founders are immigrants (based on their last name).Obviously, these names constitute just 20% of all founders. 80% are other less repeated names.Industry/Sector19) Most Common Themes: Cloud, Data, Mobile, MarketplaceThe themes of the next 14 years will not necessarily be those of the past 14 years.20) Software Is Eating the World, But Not All of ItThe bulk of these companies are software (including SaaS, web, etc.), followed by consumer product companies (like clothing brands) and business products (physical products, like 3D printers) and healthcare/pharma.21) Social, E-Commerce, Network, Database, Biotech, Automation Are The Largest Sub-Sectors22) Biotech Companies Go Public Fast, FinTech and Software Companies Stay Private For LongerThe below chart is the industry representation for the private billion-dollar startups founded after 2005. A very small percentage are private bio-tech companies and a large percentage are private software and fintech companies.23) Cancer, Ride-sharing, Lending, and Autonomous Vehicles Were The BuzzwordsThe chart below shows the keywords mostly repeated in the descriptions of these companies.Business24) 2000 And 2008 Crashes Did Have An Adverse Effect — Also 2017 Was An ExceptionSince after the dot-com crash, the number of billion dollar companies founded each year gradually increased and reached a peak in 2007, but the 2008 crash decreased this number..2017 has interestingly seen more than usual billion dollar companies (partly due to SoftBank, partly due to electric bikes and scooters)25) Many Companies Did Not Have Much Engineering Complexity, And a Disproportionately High Number Were Deep TechThe level of engineering/scientific innovation and work varies and we can find all types, from pure system integration (where the value-add is mostly in business model) to hard-tech companies where the main value is a new technology that was not available before..Based on the overall number of deep-tech companies that get founded every year (not that many), a disproportionately high number of billion dollar companies are deep-tech.26) Similar Number of B2B and B2C Companies, Very Few Doing BothDon’t try to do B2B and B2C at the same time.27) If You Can Raise the Money, High CapEx Companies Work Too!Contrary to the belief that these companies are low capital intensity, a disproportional percentage (compared to all startups) of billion-dollar startups require a high investment to build/scale their solutions/products.28) 2008–9 Was Peak of Enterprise, 2011–12 Was Peak Of ConsumerThere are a similar number of B2B and B2C companies overall, more enterprise billion-dollar companies were started in 2008–9 and more consumer billion-dollar companies were started in 2011–12.29) Over 50% Were Competing With Multiple Incumbents At the Time of FoundingSeems like competing with multiple large incumbents is a good thing. It is a sign that the market opportunity is large, and the large incumbents have educated the market. However, a startup can use the inefficiencies of incumbents and the benefit of not having a legacy system to win over a market. Fragmented and empty markets are also prime for disruption. The worst case seems to be copying what another startup is doing, specifically where they have recently raised a lot of money recently.30) Engineering and Network Effects Are The Most DefensibleNote that some startups had multiple defensibility factors, so engineering alone was not necessarily enough to create defensibility..However, in most cases saving time means indirectly saving money and in enterprise businesses, you need to show clear Return on Investment (ROI) that saving time leads to saving money. The second category is saving money directly, i.e. where your solution directly costs less money than competitors.37) California is By Far Home To the Highest Number, Followed by New York and MassachusettsBut states like Florida, Texas, Washington, and Utah are also home to a number of billion dollar companies each.Funding38) Almost 90% of These Companies Did Not Go Through Any Accelerator Program. Of the Rest, YCombinator Is №1It is important to mention that most accelerator programs were started in the last 10 years and until recently there were limited to software/tech startups.39) Over 90% Are VC-FundedThe rest are either boot-strapped (running on sustainable revenues) and did not raise any VC funding in the initial years, or are self-financed through a wealthy founder.40) Tech Companies Have Mostly Raised ~$250M, Pharma/Health Companies Have Raised ~$400MThere is a very large number of companies that reached $1Bn and stayed there.41) 2009 and 2012 Seed Rounds Produced The Highest Number of Billion Dollar CompaniesFollowed by 2017 which has seen an outlier number of unicorns, mostly due to the electric scooter and bike companies.42) The Valuations Follow The Power Law. Over 50% Between $1-$2BnThe chart below only shows private billion dollar companies. However, Uber, Workday, Airbnb, Square, Twitter, WhatsApp, WeWork, Stripe, Snap, Juul, Pinterest, Kite Pharma, Lyft, Juno Therapeutics, StemCentrx are the most valuable companies created in the past 14 years.43) Tier-1 VCs See The Best Deals, Get The Highest ReturnsVC is an exponential game so brand name VCs see and get into the best deals and get the highest returns. It does matter if the first round investors are brand-name investors.44) Ex-founders Make the Best Angel InvestorsDavid Sacks (PayPal, Yammer), Biz Stone (Twitter), Peter Thiel (PayPal), Alexis Ohanian (Reddit), Marc Benioff (Salesforce), Matt Ocko (Da Vinci), Kevin Hartz (Eventbrite), and many other founders are also successful angel investors with investments in multiple billion dollar companies..Of 195, 14 (7%) eventually failed or fell below $1B (they are excluded from chart below)And eventually it’s the VC partners who lead investments. Below are the VC partners leading the highest number of investments in these companies on behalf of the VC firm they work at.46) Late Stage Funds Get Into More Billion Dollar CompaniesConsidering all investment rounds (both early and late stage), VC firms that have larger funds and can invest at later stages (and hence take less risk and less return per successful exit) are in a larger number of billion dollar companies. Please note that the numbers below are as accurate as public profiles show and perhaps contain errors.47) They Raised Money Quickly, and Kept Raising QuicklyMost raised their seed round in less than 6 months and their series A round in less than 18 months from founding.In many cases, they also raised their second round in less than 12 months from their first round (typically suggested to be 18 months)48) They Were Large and Expensive Deals From The Very First Round$2M angel rounds, $5M seed rounds, and $15M A rounds? These are larger than you would normally see, especially considering that this is over the past 14 years. The reason for being able to raise a lot and quickly is the combined fundraising strength by the “Super Founder” and their core backers in the first round. This shows that the market recognized the quality of the founding team.49) Tech Unicorns Became a Unicorn Very Fast, In Some Cases In Just Two YearsThere are companies that became a unicorn in less than a year, and there are companies that took more than a decade to reach a billion dollar valuation.50) The Seed Round Has Grown From <$0.5M Into Multi-Million Dollar RoundsThere’s a clear increase in the size of the first investment round over the past years..You may see a noticeable number of $10M+ seed rounds which are quite rare among most startups, however since many of the founders of these billion-dollar companies were “Super Founders”, they were able to raise a very large round.ConclusionWhile there are many takeaways from the study and the charts above, these were the strongest signals to me:1- Yesterday’s “Super Founders” (at least one previous exit over $50M or $10M+ annual revenue) create billion dollar companies of today.The word “Serial Entrepreneur” has been misused and doesn’t mean much anymore, so the term “Super Founder” is a suggestion for something concrete.. More details

Leave a Reply