Phantasmagorical forecasts

A recent great blog from IPO Dashboards, “How long does it take to build a technology empire?” talks about the results of research on 100 of the most successful software companies now in business. It shows that they took an average of 10 years to reach $50 million of revenue. The data covers at least 30 years of company formation, so on average there are three companies founded every year that make it into the top 100.

Some older stats I calculated based on research into technology company formation shows that, on average, it takes about six years for a software company to get to $10 million revenue. Thus, getting to $50 million in ten years (the average on this list) makes sense as this is a 50% annual growth rate from years six to 10.

Unfortunately, many companies produce hockey stick forecasts that would make Google envious, with revenue run rates of $100 million within five years. Since U.S. VCs fund hundreds if not thousands of the software companies founded and 15% or so should be successful for a VC, then a company should probably not budget to be one of the three best founded in any year but instead one should budget to be one of the 15%. Thus, forecasts of $10 million in six years and $50 million in 10 years would make a company one of the best ever created and more reasonable forecasts would be $10 million in ten years and $50 million in 15.

Further research we have done with the Branham 300 on public Canadian companies that shows that, on average, we’re taking 10 years to get to $10 million — four years longer than the average successful company in the U.S. takes to get to $10 million. The alarming fallout from these statistics is that by the time we get to $10 million, the top ones in the U.S. are at $50 million. We’re doing some research on why this is the case, so more on this later.