Understanding unicorns

- Let's talk about unicorns. Unicorns is a term that's used in Silicon Valley, and now actually globally to define companies with a billion dollar market cap, not necessarily revenue, but billion dollar market cap. Unicorns are very hot right now. There's a unicorn bubble in 2016. There's definitely a unicorn bubble, and we are starting to understand the goods and the bads and the uglies of the unicorns. And I'll tell you a little bit about it.

The reason I want to discuss this as a myth is that there is a belief that you should bootstrap if you're doing something little, here and there. If you want to really do something big and high-impact, you should take venture capital. This is not true. It is not true at many levels, and I want to kind of untangle all these myths for you in this session.

First and foremost, you can build very large companies by bootstrapping. You don't have to have venture capital financing to build large companies. And I want to tell you a few stories. The first one is an entrepreneur called Sridhar Vembu who founded a company called Zoho. Zoho has been now around for quite a while and they're doing over $300 million a year in annual revenue. This is not a small company. I'm sorry, $300 million of revenue is not a small company.

Sridhar never took any outside financing. He's one of my heroes, you know? Somebody who can develop a business that solves real problems, delivers real value, and generate $300 million worth of customer revenue, customer-focused revenue, customer-generated revenue, is a hero as far as I'm concerned. So, that right there debunks the myth that you can't build something large and scalable with bootstrapping.

The other question of valuation and market cap, Zoho is a private company, but if you want to take this company public, or if you were to even fund this company, value this company in the private market and private investors wanted to come into the company, this company would be, at a minimum, $3 billion market cap. So it is not just a unicorn, it's a mega-unicorn, okay? So this is a big, large success story by all measures, and it is a bootstrap company.

And there are other stories like this. I have another friend, Girish Navani, who runs a company called eClinicalWorks. Girish has also built a $300 million revenue, not market cap, $300 million revenue healthcare IT software as a service company. And that company also is private. If it were to be taken public or it raise money in the private market, it would be valued at a minimum $3 billion market cap, probably more, because these are both very high growth companies and very, very profitable companies.

So please, if anybody tells you that with bootstrapping you can only build little companies, don't buy into it because that's complete bullshit. There's one other story that I want to share with you, and that is the story of RightNow. This is a slightly different story, different flavor of a story. Greg Gianforte is somebody I met probably a good seven, eight years ago now.

And Greg had built this company called RightNow out of Montana. Who builds a software company out of Montana? But Greg did. And because he wanted to do this in Montana, in Bozeman, Montana, none of the Silicon Valley VCs wanted to give him money. So he said, "Okay, fine. "Keep your money." He invested his own money, $50 thousand of his own money, and started his company in Montana. And he very diligently validated, validated with customers, really understood what his customers were looking for, built exactly what his customers were looking for, and in two years, went from zero to $6 million in revenues.

What that did was position him very solidly for external financing. Because when investors see an entrepreneur succeeding, they want to come to the rescue of victory. This is typical investor behavior. They love to come to the rescue of victory. So obviously, everybody was now chasing Greg to invest in him. And I have actually a favorite saying which I'm going to share with you right now. This is a perfect moment to do that. Do not go to VCs as beggars.

Go as kings. So when Greg went to investors, the market was very high. This was 1999, actually. The market was in a bubble. He raised his first round of financing at a valuation of $130 million. Normally people raise first round financing at $2 million, $5 million. $5 million is considered as very rich for first round financing valuation. He raised a first round of financing at $130 million valuation.

RightNow was a very successful company. It eventually went public and finally was acquired by Oracle for $1.5 billion. So this is a unicorn company that bootstrapped first, raised money later, and was a resounding success across the board.