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DownloadThe billion-dollar startup founder is shrouded in mystery and mythology, but don't believe everything you hear. If you're not an Ivy League drop-out that launched a company from your dorm room, you are just as likely, if not more so, to be the next Super Founders.
Venture capitalist Ali Tamaseb shares over 300,000 data points that reveal the truth about billion-dollar startups and their founders, such as their age, education, industry experience, market size, competition, investors, and more.
Interviews with actual Super Founders offer an even closer look into the struggles, triumphs, and truth behind startups like Zoom, PayPal, Nest, and Instacart.
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Myth: You have to start your company out of Silicon Valley.
Fact: While it's true that over half of the companies in this study are in the San Francisco Bay area, many of them moved there later. Dropbox's founders moved from Boston to San Francisco after Y Combinator. The area created a self-sustaining hub for talent, and many venture capitalists limited their investments to local places where they could attend board meetings. The pandemic changed this significantly, with remote work adopted by many companies. The other half of unicorns hailed from New York, Massachusetts, and other locations. Chewy started in Florida. Epic Games is in North Carolina. Carvana was founded and remains in Tempe, Arizona.
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Myth: You must be young.
Fact: The median age of billion-dollar Super Founders observed was 34. On average, they also had 11 years of work experience before founding.
Myth: You must be first.
Fact: Many billion-dollar companies are famously built on previously tried ideas that failed to take off. General Magic developed the first smartphone in 1995, but the company was long gone before Apple's first iPhone was introduced 12 years later. At least eight other search engines were created before Google.
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The largest segment of billion-dollar companies – 55% -- faced multiple incumbents, compared to 17% that faced no competition when they started.
Myth: You can only create a billion-dollar company if you raise venture capital.
Fact: About 10% of unicorns were self-financed or bootstrapped. GitHub, Atlassian, UiPath, and Qualtrics all bootstrapped for at least four years.
Myth: You can't launch a unicorn during a recession.
Fact: Startups have been funded, and billion-dollar companies have been created during times of economic recession. The sharing economy was born from a need for travelers to access accommodations (Airbnb) and transportation (Lyft, Uber) without the commitment to purchase. Likewise, the movement created new avenues to earn money which gave rise to the gig economy. As the old saying goes, "necessity is the mother of all invention."
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Sometimes a billion-dollar idea rises from the ashes of a failed one or evolves from the founder's original intentions. Super Founders possess the ability to realize this and pivot to maximize success.
Stewart Butterfield has a history of turning failures into unicorns. His work as a game developer inspired him to find other uses for an in-game photo share feature. The game never took off, but Butterfield and his team turned the tool into its website for Flickr.
The Super Founder left Yahoo in 2008 to start an online game called Glitch. The multiplayer game had a small fan base but didn't catch on. Finally, in 2012, Butterfield threw in the towel. He had 35 employees that he wanted to keep together because they were efficient, and that's when he realized why. They had developed their own communication tool that replaced email.
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Butterfield and his team decided the tool itself was a product that could increase productivity in other companies. That tool became Slack.
YouTube is known for its endless hours of video content, but when it launched in 2005, its intended purpose was for dates.
"We always thought there was something with video there, but what would be the actual practical application," said YouTube co-founder Steve Chen. "We thought dating would be the obvious choice."
The slogan was "Tune In, Hook Up." The idea was sound, but no one uploaded videos until the founders offered $20 for women to sign up. Rather than upload dating profiles, however, the women shared footage from vacations and their funny pets. It was at that moment that YouTube's true purpose was revealed.
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Shopify started as a company to sell snowboard equipment. Originally called Snowdevil, the e-commerce site served as a proof of concept, and its founders Tobias Lütke, Daniel Weinand, and Scott Lake pivoted to sell other goods under the name Shopify.
Another unicorn that started its life as something different is Instagram. Originally called Burbn, the company was a feed to share social plans that worked similarly to Foursquare. Users would "check-in" at various locations then add text and photos. At the time, social media had taken off, but it was the evolution of smartphone cameras that helped launch the startup into billion-dollar history.
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A simplified version of the app, called Instagram, gained tens of millions of users and was acquired for $1 billion by Facebook. At the time, Instagram had zero income.
Successful investor and former PayPal employee Keith Rabois witnessed one such pivot that made all the difference. PayPal was initially designed to exchange money on Palm PDAs but shifted to email-based transactions and targeted the growing eBay market.
Pivots can be dangerous and worry investors, so use this strategy with caution. It's often easier to pivot when the company is still tiny, and it helps to have a common denominator between the original idea and the new.
Company pivots that happen later in the life cycle aren't necessarily bad, as history has shown. Intel started as a company that produced computer memory, but the tech giant pivoted to the creation of processors when profitability dropped.
Founders need to foresee and understand the external factors that affect a company's timing – inflection points, enabling technologies, changes in regulations, new market segments, and other fundamental behavior shifts.
Apps that used GPS were not financially feasible until Apple and Android lowered costs through competition. These market factors allowed apps like Uber to enter the scene. On the other side of the coin, inflated prices within a market can open the door for innovation. It's no coincidence that as cable subscriptions rose in price, streaming services rose in popularity. The recession gave rise to low-cost housing and transportation, such as Airbnb and Lyft. Likewise, Warby Parker replaced the traditionally long and expensive process to replace eyeglasses.
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In 2011, Cisco and Polycom owned the majority of the video conference market. Zoom became the market leader in 2018 and has continued to grow. The company's revenue doubled in 2020 as the pandemic closed businesses and forced teams to work from home.
Billion-dollar startups can emerge from a recession, too, as did web security and infrastructure company Cloudflare. The website service company raised its first round of funding in 2009 when many venture capitalists stopped investing. However, her company went public a decade later for close to $5 billion
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Over 90% of billion-dollar startups were backed by venture capital. There are, of course, exceptions to the rule and those who bootstrap or self-finance end up in a better financial situation to raise capital later.
Brothers Roy and Ryan Seiders founded Yeti in 2006 out of their father's garage and had already reached $30 million in sales before they raised money from a mall private-equity firm in 2012.
Spanx super founder Sara Blakely started the company with $5,000 of her own savings, wrote her own patent based on a textbook, and kept her 9-5 job until Spanx grew too large to manage on her own. (Oprah's endorsement didn't hurt.)
As a result of her avoidance of venture capital, Blakely owns 100% of the company and keeps more of her billion-dollar value than founders of much larger companies.
GitHub bootstrapped for the first five years and raised $350 million in Series A and B funding rounds before Microsoft acquired the company for $7.5 billion in 2018.
When you start a company from scratch, it can offer valuable insights that might not otherwise have come to light.
Stitch Fix founder Katrina Lake reflected on the company's early days when she didn't know how to code and made every decision based on efficiency.
"The worst piece of advice for entrepreneurs is to raise as much money as possible," she said. "There are companies out there that may have failed because they had too much money and have had to think about the economics of their business."
As venture capitalists look for their next profitable investment, a great idea isn't enough. According to a survey of 900 venture capitalists conducted at Stanford Graduate School of Business, "the team" was named the most important factor when they consider an investment. When researchers asked the same VCs to look at their most successful portfolio companies, 64% attributed each success to its team. Other factors were timing and luck, at 11% and 7%, respectively.
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Alfred Lin of Sequoia Capital offers this advice to structure a pitch deck:
These sections don't necessarily have to be in that order, but all of them are important to know and talk at length about.
The creation of a deck is an excellent way to make sure you know your business inside and out. However, the author observed that they aren't always necessary. Unfortunately, there isn't a magic formula to become a Super Founder.
"I have seen $5 million seed funding rounds come together from brand-name VC firms without a single slide – let alone a deck – on the strength of the team," wrote Tamaseb. "I have also seen founders struggle to raise a much smaller amount, despite beautifully crafted decks and comprehensive materials, perfect timing and signaling, and superb narrative and story."
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Trust matters
You may be tempted to keep your best data at the forefront of a pitch and keep the less-than-ideal information to yourself. While it might paint a more favorable picture upfront, it can cause trust issues down the line, advises Lin.
"You want to have a relationship with your investor where you can talk about bad news," he said. "If I don't know the bad news, I can't help you. I've never passed just because the founders showed me that something is wrong. I've passed because I am not the right partner to help you."
Looks can be deceiving
There are plenty of instances where some billion-dollar ideas were not immediately apparent to VCs. One example is Honey, the web browser extension that finds coupons. The company's founder, Ryan Hudson, came up with the idea after several back-to-back startup failures. He was in the middle of a pizza order and wished he had a coupon.
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So he launched Honey in 2012. Together with his co-founder George Ruan, Hudson bootstrapped the project for two and a half years but could not convince investors to back it. By the next year, Hudson was once again out of money, and it looked like the company was another bust. However, the browser's users had other plans.
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A leaked Reddit post from one of Honey's beta testers and recommendations from one user to another caused a surge in engagement. And yet, investors still weren't interested. Browser extensions seemed like an antiquated idea when compared to the shift in consumer interest to mobile devices.
Yet, Honey's momentum continued to grow until the company raised a seed round, a Series A round, and a Series B round years later. In January 2020, PayPal acquired Honey for $4 billion.
Peloton and Airbnb faced similar rejections before their unique value propositions, and the stubbornness of their founders became too big to ignore.
Some startups only take a few years from their first funding round to reach unicorn status, while others take a decade or more.
One example is Medallia, a customer experience management company founded by Amy Pressman in 2001. Investors passed on the opportunity, and the aftermath of 9/11 hit the travel industry hard. Yet, the company was profitable by 2003, and Pressman decided not to pursue outside funding after all. Fourteen years later, Medallia underwent an IPO that valued the company at over $2.6 billion.
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The path to a billion-dollar startup begins with a bug for creation. If you've never started a company before, the best way to prepare yourself is to start something—anything. It could be a side hustle, a club, or a non-profit.
Many Super Founders had already started businesses before they hit it big, and many of those businesses had failed. That's okay. The next generation of founders and investors will focus on companies that solve real problems and leave a lasting impact.
Data shows that anyone with any background can become a Super Founder. So, keep on creating.
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