Saturday, 28 December 2013

Awesome is as awesome does

There's a thing going around that the number of companies that receive investment doesn't alter the number that go on to be "awesome companies". To quote:

“The tech industry creates roughly 10 awesome companies per year... independent many companies are funded"
 Mike Maples, Floodgate Fund

Putting aside that this is a very Silicon Valley-centric viewpoint, it seems there's some confusion between the term "awesome companies" and "companies that create awesome returns within the VC fund lifecycle". They are not the same. A truly awesome company is an IBM, a Unilever, a Honda, a Beretta; companies that stand the test of time, continue to evolve and grow by adapting their products to meet changing times and changing customer demands.

The global tech industry almost certainly can and does produce more than 10 awesome companies a year. Some of those will not be VC funded (which means you're unlikely to hear of them because they won't be riding the hype wagon), some will be funded by funds that are not playing the short term (10 years is short term, it's barely one economic cycle; Beretta was founded in 1526), and some will take no more than a solid seed investment round or two to become serious businesses.

Clearly we are limiting the definition of awesome here to that of great monetary value, which leaves aside awesome tech companies like Mozilla and Wikimedia, but even so it is not important  for "awesomeness" to have become a billion dollar business in less than 10 years; this only matters to people who have invested at valuations upward of $50m and whose investment fund is time limited.

A seed round that values a company at a few million needs only to reach a valuation of $50m in a reasonable time (a) to have made a serious, awesome, return for its investors and (b) where that company has achieved growth while being profitable (rather than following growth strategies of the "seek users at all costs" variety), then the investors could be taking annual dividends equivalent to their original investment value.

Which is, surely, truly awesome.

A version of this post originally appeared as an answer on Quora