Hello and welcome to a lightweight series I’m writing while I recapture my footing at TechCrunch. It’s lovely to be back, and I’m excited to chat about what’s going on with private companies, public markets and the space between the two.
I wonder what the average revenue (trailing, say) of a unicorn is today, and if that figure is higher or lower than it was a year ago — or three years ago.
There’s a lot of wiggle room in the question; on one hand, the average age of a unicorn has likely gone up, as there are far more born over time than exist in the cohort. At the same time, I’d guess that as unicorn creation accelerates, it leads to companies with less revenue than before making the cut. How does it shake out?
I have an email address now, so let me know what you think. Best answer gets a free Diet Coke.
Now, to work. Today we’re chatting about a revenue threshold that’s a pretty good demarcator for what a unicorn should be: rare, valuable and fundamentally desirable.
Back when the unicorn phrase was coined (here at TechCrunch.com, recall) six years ago, it excluded a collection of startups that were special in their own right. Private companies worth $1 billion were rare enough then to deserve their own moniker, an aspirational label that quickly became uncomfortably normal as companies held off on launching IPOs and venture capitalists raised ever-larger funds.
In recent years, as troubled augmented-reality shop Magic Leap showed with its high valuation and vanishingly small revenues, some startups have earned the unicorn tag without having a business at all.
Firms with valuations that their revenues can’t back are in similar straits. In the post-WeWork era, some unicorns are starting to look a bit long in the tooth. I suspect that the companies in most danger are those with slim revenues (compared to their valuations), poor revenue quality (compared to software startups) or both.
That said, there is a club of private companies that are really something, namely private ones that have managed to reach the $100 million annual recurring revenue (ARR) threshold. It’s not a large group, as startups that tend to cross the $100 million ARR mark are well on the path to going public.
For example, Bill.com is going public this week (the B2B payments company prices Wednesday and trades Thursday; we’ll cover it as it gets out). According to its own amended S-1 filing, Bill.com, which is backed by Emergence, MasterCard, TTV Capital and others, reached the $100 million ARR mark in Q2 2019. In the third quarter of this year, its subscription revenue grew from $25.2 million to $28.5 million. Not bad.
Asana announced that it had crossed the threshold back in February on the back of “a period of eight consecutive quarters of revenue growth acceleration, measured on a percentage basis.” It’s still private, though it is considering a direct listing next year.
But not every $100 million ARR startup is going public. At least not yet. WalkMe crossed $100 million ARR in Q2 2019, as well, though its IPO plans are opaque. And just last week, Druva announced that it crossed the $100 million ARR mark.
Reaching nine-figure annual recurring revenue matters; try to stop a modern software company at that scale and you’ll struggle.
100 > 1,000
Given that startups that generate high-margin, recurring revenue — which is to say software startups — are richly valued, aren’t all $100 million ARR companies already worth $1 billion, defeating our point? After all, if the two categories are synonymous, why bother to tease them apart?