Founders with a small exit in their first company are much more likely to build a unicorn in their next venture, a new startup study shows
Alex Tew is not your stereotypical Ivy League college kid or Google software engineer who founded a billion-dollar startup. Tew was a student at the University of Nottingham when he launched his first project. His desire to build something and make money led him to create “The Million Dollar Homepage” in 2005. The website consisted of one million pixels arranged in a 1000 × 1000 pixel grid.
Pixels were sold for $1 per pixel and the buyers of these pixel blocks were advertisers.
This is before “Display Ads” were a big thing. Within four months, the page went viral and advertisers raked in all the pixels. Tew had achieved success and a million dollar result.
It was by no means a massive success in the world where hundred million dollar and even billion dollar results are common and what venture capitalists care about.
Six years later, Tew created a company called Calm. Calm slowly grew to become the number one meditation and sleep app. The company was last valued at more than $2 billion. Tew’s itch to create companies led him to create and run a billion-dollar company.
Tew is not the only one who has taken the path to becoming a founder of a highly successful company. Consider Paul Davison and Rohan Seth, the co-founders of Clubhouse, as another example. Launched in 2020, the audio-only social network already has millions of users and a valuation of $4 billion. It seems like an overnight success, or that two founders got lucky with the right idea at the right time, but Davison and Seth had launched several consumer and social apps and startups in the previous ten years and had nine failed ideas between them. the two before finally cracking the code. Seth’s last company, Memry Labs, was a small acquisition by Opendoor, and Davison’s last company, Highlight, was acquired by Pinterest for a small amount.
In the startup ecosystem, it is very common for a seed-funded or Series A-funded startup, whose product is not a product-market fit or is struggling to raise the next round of funding, to be acquired by a larger company. Most commonly, these larger companies see this as a way to hire a group of people with a lot of talent and entrepreneurial spirit.
Among the founders of billion-dollar startups, almost 60% were not first-timers.
Although these may seem like small results or even failures in the world of venture capital (like they didn’t create an investment fund or a 10X return for their investors), this is far from a failure, and going from a small business result to founding a billion-dollar startup is far from an isolated incident.
I spent the last four years conducting one of the most comprehensive studies on startups, with more than 30,000 data points, examining why some become billion-dollar companies while most do not. I have published the results, many of which are counterintuitive and surprising, in my upcoming book Super Founders: What Data Reveals about Billion-Dollar Startups. One of the variables I studied was the founders’ previous business activity.
Among the founders of billion-dollar startups, almost 60% were not first-time founders. In a randomly selected group of companies that had raised a minimum of $3 million in venture capital funding but had not achieved unicorn status – the typical image of a seed-funded company – about 40% They were not first-time founders. Statistics show that repeat founders are more likely to create a billion-dollar company.
This is not to discourage first-time founders. In itself, it’s a great sign that 40% of billion-dollar companies were created by first-time founders. It is more about encouraging those who failed or those who obtained a small result on the first attempt to try again.
Another relevant fact: of the founders who repeat in billion-dollar companies, more than 70% had founded a previous company (42% in absolute numbers) that was acquired for about 10 million dollars or had similar income levels, compared to 24% of the random group, a statistically staggering difference. In other words, founders with a small exit or a previous company with a small result were much more likely to end up building billion-dollar companies.
We don’t often hear about the years of entrepreneurial hustle that many successful founders went through before finally landing on their best startup. In my book, I tell the stories of founders like the Collison brothers, who founded and sold an auction management startup before founding Stripe at age 19, and Airtable founder Howie Liu, who had founded and sold his previous startup. to Salesforce for $25 million. Brian Armstrong created a company called UniversityTutor with modest success before founding Coinbase, and Daniel Ek had created an online advertising company called Advertigo that was a very small acquisition before founding Spotify.
Even first-time founders like Mark Zuckerberg and Bill Gates weren’t really first-timers. They had started several projects before creating the companies for which we know them. Zuckerberg had created a music app called Synapse, and Gates had built Traf-O-Data, a traffic monitoring device, before founding Microsoft.
People who have the itch to start projects, create side businesses and run them are much more likely to create massively successful companies than those who have brilliant resumes or the experience of having worked in leadership positions in large companies but lack the itch. to build.
It turns out that the best preparation for founding a highly successful company is to found a startup. If you’ve never started a company, the best preparation for doing so is to start something, perhaps a club, a side business, or simply selling something online.
The CEO of Cloudflare had created HoneyPot, a nonprofit community to report spam, and the founders of Confluent had launched Apache Kafka within LinkedIn as an open source project.
The billion-dollar result may be reached on the first try, but the data shows that it is more likely to happen on the second, third, or tenth. The important thing, however, is to keep building until luck is with you.
