SOURCE: Play Bigger Advisors

Play Bigger Advisors

November 13, 2014 09:00 ET

New Report Reveals Speed of Market Cap Growth for Technology Companies Has Almost Tripled Since 2000

Play Bigger Time to Market Map Model Shows That a Typical U.S. Based Venture Backed Consumer Company Is Growing Their Market Cap at More Than $600 Million per Year Compared to a Typical Enterprise Company That Is Growing Their Market Cap at $100 Million per Year

SAN FRANCISCO, CA--(Marketwired - November 13, 2014) - A new report from Play Bigger Advisors, a category design firm, conclusively shows that venture backed start-ups founded in the United States since 2000 are reaching market capitalization milestones at almost triple the rate of predecessors from just over a decade ago. 

Play Bigger embarked upon its research to understand just how quickly market cap for U.S. venture backed technology companies is growing. Research was compiled from 508,628 private companies, 18,430 private investors, 52,055 private M&A deals and 51,889 venture capital funding rounds.  The complete Time to Market Cap report is available here.

As a result of its research, Play Bigger identified a new metric for business success called Time to Market Cap (TTMC). The report defines Time to Market Cap as the measure of time it takes a company to reach certain market capitalization milestones. Time is measured by the number of years since the company was founded. Market Cap is measured by (a) a company public market capitalization; or (b) a company valuation at the time of purchase; or (c) the most recent post-money valuation from a round of financing.

Key findings from the Time to Market Cap report include:

  • Time to Market Cap for U.S. based venture backed companies in the 2009-2013 era has accelerated by almost three times compared to companies in the 2000-2003 era. Specifically, TTMC has accelerated 2.8 times for companies reaching the $500 million milestone, three times for companies reaching the $1 billion milestone, and 3.1 times for companies reaching the $3 billion milestone. (See Table 1, Page 7)
  • The Time to Market Cap model shows that for a typical venture backed company from the 2009-2013 era is growing their market caps at a rate of more than $350 million per year compared to a typical 2000-2003 era company who grew at about $130 million per year. (See Figure 1, Page 9)
  • Time to Market Cap is accelerating much faster for venture backed consumer companies than for venture backed enterprise companies. A typical venture backed consumer company is growing their market cap at more than $600 million per year compared to a typical venture backed enterprise company that is growing their market cap at $100 million per year. (See Figure 2, Page 11)

"It is no surprise that the Play Bigger data exposes what many in the industry intuitively sense.  Network effects are stronger as technology infrastructure becomes more pervasive and standardized, for both consumer and enterprise-focused businesses," said Tom Ernst, global co-head of software investment banking at Goldman Sachs & Co. "Factors such as the ubiquity of mobile devices and the cost and availability of data storage are creating new opportunities and enabling new business models. As a result, Category Kings are able to grow much more quickly and reach a much bigger scale. Investors increasingly understand this dynamic and are willing to invest with greater confidence and at higher valuations to cultivate a Category King."

The report also confirmed that a few dominant U.S. based companies, called Category Kings, are taking a large majority of the market cap in the venture backed technology market. According to the report, Category Kings are companies that dominate the rest of their competitors in a particular market.

Key Category King findings from the report include:

  • At the time of this report, 35 Category Kings dominate the valuation of venture backed technology companies founded since 2000. These companies are more valuable than all the other companies combined and have taken more than 70 percent of the total available market cap of any category or era since 2000. (See Figure 3, Page 13 and Table 2, Page 14)
  • At the time of this report, there are 83 U.S. based venture backed companies founded since 2000 that have reached the $1 billion threshold. Almost half of them, and the largest companies, are Category Kings. (See Figure 4, Page 16)
  • With a few notable exceptions (WhatsApp, Nest and Exact Target), at the time of this report, most Category Kings have remained independent companies. The report also shows the number and cumulative value of companies that have been acquired; many of the acquirers were Category Kings from eras before 2000, (Google/Waze, Microsoft/Yammer, Facebook/Instagram, Adobe/Neolane). (See Figure 6, Page 18)

"The efficiency of risk capital and dramatically increased liquidity in the uptake of new products by both consumer and enterprise users is creating large, valuable businesses like never before, said Bryan Roberts, partner at venture capital firm Venrock. "The Play Bigger time to market cap and category king framework is a very interesting methodology to showcase that phenomenon."

The report also stated that the implications of accelerating Time to Market Cap are material for businesses. Specifically the report stated that today, a six-year-old start-up with less than a $500 million valuation or market cap will likely never dominate their category or achieve a $1 billion valuation.  Another key implication of the TTMC acceleration phenomenon is that companies may have less time to pivot once a category is defined and developed.

"The Play Bigger Time to Market Cap report findings shows the harsh reality that the technology industry is a winner take all game and that speed is of the essence," said Al Ramadan, co-founder and partner at Play Bigger Advisors.  "While some might say the technology industry is in a bubble, the facts show that we are in a time of shifting dynamics where money is flowing faster to a few category winners and away from the losers equally as fast.."

REPORT GRAPHICS AVAILABLE: To request graphics and complete report methodology including breakdowns of survey results by era and category, please contact playbigger@maven-pr.com

Methodology

The research was conducted using a primary data source from PrivCo and supplemented with Crunchbase. Python code was used to extract data and also extracted and downloaded data where APIs weren't available. Play Bigger selected from 52,055 private M&A deals,  51,889 VC funding rounds and 508,628 private companies that met the following criteria:

  • Headquartered in the United States;
  • In the technology industry;
  • Founded in 2000 or later;
  • A financial transaction where the valuation was known and was in excess of $30 million for an M&A transaction.

Public market cap data was also included from Google Finance and Bloomberg. Public, M&A and private valuations are included in the model. Companies are separated into three distinct time eras based on the year the company was founded. For complete report methodology, including weighting variables, please contact: playbigger@maven-pr.com.

About Category Design

Category design is an emerging discipline in technology companies which focuses on company / category fit just as product design focuses on product /market fit. Category design creates market pull, which becomes a major engine of growth. Just as experience design revolutionized product development, category design is now becoming more understood as a strategy to build both companies and categories at the same time.

About Play Bigger Advisors

Play Bigger is a category design firm whose mission is to position great technology companies to become Category Kings. Play Bigger specializes in category design -- the discipline of conditioning a market to generate market pull and market cap. Play Bigger believes that category design is one of the most powerful, yet underutilized business disciplines for companies to increase the odds of winning and becoming a Category King.

Play Bigger is founded by Dave Peterson, Al Ramadan and Christopher Lochhead -- all former entrepreneurs and operating guys turned advisors. More information about Play Bigger can be found at the Play Bigger Blog and by following the company on Twitter, Facebook, and Linkedin.

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