Growth Rates for Technology Companies

Thursday, October 22. 2009

Growth Rates for Technology Companies

Growth rates of 100 software companies from IPO Dashboard

Fascinating study from IPO Dashboard showing the extreme unlikelihood of the "5 year dash to $50m turnover from startup" hockey stick business plan so beloved ov VC focussed business cases. The study was based on the top 100 publically traded (US) software companies, inflation adjusted. Some conclusions:

Most successful technology companies aren’t rocket ships.

Only 28% of the nation’s most successful public software empires were rocketships. I’ve defined a rocket ship as a company that reached $50 million in annual sales in 6 years or less (this is the type of growth that typically appears in VC-funded business plans). A hot shot reaches $50m in 7 to 12 years. A slow burner takes 13 years or more. Interestingly, 50% of these companies took 9 or more years to reach $50m in revenue. The fastest rocket ship of today’s software industry was Novell.

Novell (NASD: NOVL) was one impressive company. It took only three years to reach $50 million after it was founded in 1983. In 2008 it still pulled in almost $1 billion in revenue. You’ll recognize the names of a few of the other genuine rocket ships from various decades: Adobe, Autodesk, Electronic Arts, Interwoven, McAfee, Salesforce, Sybase, Synopsys, and Verisign.

Microsoft and Oracle weren’t rocket ships.

Who would have thought? They are two of the most valuable companies ever founded, in any industry, in any country. Microsoft took 8 years to reach $50 million in sales; Oracle took 10.

As IPO Dashboard notes, is it wise to prepare a business plan featuring steep hockey stick sales projections?

(Hat Tip Robin Klein)

Posted by Alan Patrick in Venture Capital / Angel Funding at 22:33 | Comment (1) | Trackbacks (0)

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Alan

There sample is skewed. It exlcudes massive and successful firms that have been taken out by M&A; and also doesn't include Google, Yahoo, Excite, Aapl etc as 'tech companies'--even in your skeptical world Google is a tech company??

So, no Siebel, MySql, Sun Microsystems, any of the firms acquired by Goog, Cisco, etc. Palm is excluded. Informix.

A weird survivorship bias. The anecdote that success takes time is valuable, the evidence they are using to support it selective.

#1 Azeem (Homepage) on 2009-10-23 08:34 (Reply)

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