Running a billion dollar start-up
Congratulations! Your start-up is now valued at over $1 billion!
This might seem exciting, as though you’ve won a lottery. But in reality, when you recheck your lottery ticket, you might find you were off by a single number.
You see, being in the Billion-Dollar Start-Up Club limits how, and if, a company can get out of the Billion-Dollar Start-Up Club — at least safely.
The Club is growing quickly. Based on recent financing rounds and stories about the companies, Twitter is valued at $8.5 billion; LivingSocial at $5 billion; Dropbox, $4 billion; Square, $3.25 billion; Spotify, $3 billion; Rovio, $3 billion; Airbnb, $2.5 billion; Pinterest, $1.5 billion; Box, $1.2 billion; Gilt Groupe, $1.1 billion; and Evernote, $1 billion.
Dozens more companies are within arms’ reach, including Foursquare, WordPress, GitHub, Quora and Fab.
They have a lot to worry about. First, when you’re the most expensive product on the shelf, very few companies can afford to buy you. Apple, Google and maybe Microsoft are on a short list of corporations that could finance an acquisition of this size without reaching for lint in their pockets afterward.
“As a start-up valuation increases, the options definitely decrease,” said Jon Callaghan, a partner with True Ventures who has been investing since the early 1990s. When you’re valued at more than $1 billion, he said, “you have to have a flawless execution, as it’s upping the ante quite a bit.”