5 companies that sold for billions not long after launching

May 10, 2016

Let me clarify upfront that this is not an article on how to get rich in seven easy steps. I’m just not a fan of that way of thinking – suggesting, as those articles do, that there is some sort of standard formula to follow in the pursuit of wealth.

And also I am not in agreement with focusing on getting rich in itself. That should never be the goal of the entrepreneur. The true entrepreneur is a builder. True entrepreneurs have a product or service they “must” bring to market because it is something that they feel very passionate about. And sure, money is on the mind, but it is not the prime motivator.

So what is the purpose of an article that focuses on companies that attained super high valuations super fast? Well, perhaps just a bit of awe factor. There is certainly something neat about an idea that turned into a business with a billion dollar valuation in just a few years (known as unicorns in the startup industry).

And to be clear, these are extremely rare. Consider first the numbers from the GEM Global Report, which tell us a staggering 100 million new businesses launch worldwide every year. And now turn to the researchers at TechCrunch, who will tell you that only eight of these companies will go on to one day be valued at over $1 billion.

Truly the rarity of these achievements is indeed something in itself to behold. And while most entrepreneurs can only dream of seeing their companies attain such mega-status, it is still fascinating – and perhaps even inspiring – to review a few of these unicorn cases studies. So without further ado, let’s get to the five I have chosen – all of which you will likely be quite familiar with.

YouTube

Practically a dinosaur in dot-com startup terms, it’s hard to believe the hugely popular video streaming site has been online for over 10 years now. YouTube was created by three former PayPal employees – Chad Hurley, Steve Chen and Jawed Karim – who offer differing reasons for its inception. According to Karim, the idea of the video sharing site first dawned on him when he tried – in vain – to find footage of Janet Jackson’s now infamous wardrobe malfunction at the 2004 Super Bowl. Hurley and Chen, on the other hand, say the original intention was to build an online video dating site.

Whatever their reasons for launching the service, the three very quickly knew they were onto something huge, raising over $11.5 million in venture capital between November 2005 and April 2006. The site was already averaging around 8 million views a day by the time it officially launched to the broader public in December 2005, and just about ten months later, in November 2006, Google made a $1.65 billion offer for the platform. The offer was quickly accepted.

Today YouTube users watch over 8 billion videos a day and upload over 300 hours of content every minute. And as for Google getting its money’s worth, well, the platform alone is valued at around $70 billion today.

WhatsApp

Ok this one is a bit insane. The instant messaging platform WhatsApp was founded back in 2009 by two former Yahoo! employees Brian Acton and Jan Koum, after Koum purchased a new iPhone and spotted the potential for the App Store to spawn a whole new industry – apps. The pair got together with their old friend Alex Fisherman and began to develop an idea built around a messaging app “with statuses next to individual contacts.” Happy with their concept, they enlisted the help of iOS developer Igor Solomennikov, and began building what we now know as WhatsApp.

Shortly after launching in the App Store in 2009, the WhatsApp founders were forced to switch from a free to a paid service as the costs associated with sending verification texts to users were growing too fast. This did nothing to dent the app’s popularity, however, and by December of 2009 it was among the top 20 apps in the US App Store. Just two years later the app received its first substantial investment: $7m from Sequoia Capital.

And then (drum roll please), in February 2014, Mark Zuckerberg of Facebook announced that his company was picking up WhatsApp for a tidy $19 billion (yes that’s a 1 and a 9 together and then a b before the “illion”).

Hotmail

Ok, I am cheating a bit here, dropping in a case study that doesn’t fit the billion dollar valuation. But I include it because it was, at the time, a simply monumental story of startup success, and perhaps the first major dot-com “insanity purchase”.

Now if YouTube is the dinosaur, I don’t even know what we will call the third entry on our list – which was in fact launched way back in 1996 (I bet some of you reading this were not even born). Here we are referring to Hotmail, which was one of the first webmail services in existence, offering users the ability to check their mail from anywhere (something we very much take for granted nowadays). A little over a year after launch, in December of 2007, Hotmail already had upwards of eight million users, no doubt an absurdly high number in what was still very much the early days of the internet.

The two founders, Sabeer Bhatia and Jack Smith, wasted absolutely no time in cashing in on their idea. These two former Apple employees got a call from Microsoft just 18 months after launch. The software services giant was keen to make the webmail platform part of its MSN group of services – so keen in fact that they gave Bhatia and Smith 400 million reasons (of dollars) to say yes. This was an absolutely colossal figure for a 90s tech acquisition.

In the years that followed, Hotmail faced stiff competition from the likes of Gmail, however it has seen somewhat of a resurgence since rebranding as Outlook, and now boasts over 400 million active subscribers.

Instagram

With a very rapid rise to billion dollar status, Instagram – the brainchild of two Stanford University alumni, Kevin Systrom and Mike Krieger – hit the web back in 2010. The app began life as a “check-in project” allowing users to update friends and loved ones to their location along with a photo of wherever they were. Within months, Systrom and Krieger had secured seed funding in the region of $500,000 – an early indicator of the success to come.

Less than a year later, shortly after Instagram 2.0 hit the App Store, complete with the filters and editing features we associate it with today, the company announced it had raised $7 million more in funding from a series of investors including Twitter CEO Jack Dorsey. This put Instagram’s valuation at around $25 million.

And that valuation was meaningless, because as it would turn out Instagram had already caught the eye of Zuckerberg (yup, he’s a recurring theme in this article). In April of 2012 the Facebook CEO tabled a $1 billion offer for the image sharing site, which was duly accepted. Facebook’s acquisition meant Instagram had gone from a market value of zero to $1 billion in just two years.

Naturally, the deal raised plenty of eyebrows in the tech world, with people suggesting Facebook had massively overvalued a company still very much in its infancy. But it did not take long to reveal that Zuckerberg had once again nailed it, and today Instagram is thought to be worth around $40 billion. A fun fact for Zuckerberg and those Facebook investors, yet perhaps not so much of a fun one for Systrom and Krieger.

Oculus VR

Maybe we should have just called this article “The amazing billion dollar Mark Zuckerberg purchases”, because our final case study is yet again a Facebook acquisition. This time it’s something a bit otherworldly – as in the world of virtual reality.

Oculus was founded in June 2012 by Palmer Luckey and Jack McCauley. Their signature headset – the Oculus Rift – was designed by the then 17-year-old Luckey in his parent’s garage. Now here’s the truly amazing bit. In order to launch the Oculus Rift, Luckey and McCauley took matters into their own hands, turning to crowdfunding platform Kickstarter to raise investment. The business partners smashed their funding target, raising an astonishing $2.4 million.

And so the Oculus Rift virtual reality headset went into production. A couple of years later that headset was sitting on the face of one of the most important figures in the technology world (yes you, Mark).

Zuckerberg said at the time that when he put on the goggles it was “different from anything I have ever experienced in my life.” And with that he was sold. And so was Oculus VR, after its founders accepted the social network’s astronomical $2 billion offer.

Fair to say it is still rather early to talk about the financial returns of the purchase, but as I have written about in a recent article on virtual reality, this is much more than just the birth of a new industry, this is a revolution in the works, with the potential to affect just about everything in our lives – from entertainment to education to travel to you name it.

Startup success

What’s the takeaway here? As I said at the outset, this article was intended to be just a heavy dose of awe factor. But certainly we can pick out a lesson or two. Perhaps a good one to focus on is that all of the ideas above – with the possible exception of Oculus VR – are really incredibly simple. They can be explained in a sentence or two, and their potential for mass appeal could not be more obvious.

It’s worth keeping in mind. Much of the time those companies that go on to have huge valuations started off as an idea so brilliant in its simplicity that it was almost a throwaway thought. And sure, once you get into the details and start the building, things indeed get complex, but the core idea and focus actually stay very simple.

So as you are sitting there dreaming about what your next startup will be, don’t force it. Think about your daily experiences and see what is missing or what sort of problems need to be solved, and simply let the ideas float up to the surface. And to keep things grounded in reality, it’s probably worth reminding yourself that it is literally impossible to know what’s going to be huge or not. It comes with the doing. In other words, get out there and get doing, and let it all take its course.

 

Neil Petch Author Image

About the author
Neil Petch; Chairman at Virtugroup
With a history of business successes, Neil Petch is well known in the UAE and beyond as a visionary entrepreneur with a passion for helping others establish and grow their own businesses. Neil founded Virtuzone in 2009 and quickly established it as the region’s leading company formation expert, before launching Virtugroup, a holding company that has a wider mandate of supporting startups from establishment; to successful market entry; and all the way through to exit.