How to become a Billionaire, not just a Millionaire

Technology Posted 6 Jun 2011 by Daniel Kraft

There has never been a better time to have a great idea and work like crazy to make it a success. Just have a look at the valuations. Twitter raised new funding at a valuation of $4 billion in December, Zynga’s latest number is $8 billion, even the B&B online version airbnb is rumored to hit 1$ billion in their latest round. I guess by the time this is online Facebook has reached $1 gazillion.

The moment of truth has yet to come for all of those companies: the going public. Just some days ago LinkedIn took that step and floated their shares on the NYSE. Starting at $45 the share sky rocketed and hit $122 and has now settled at about $78, still an impressive 73% increase in just a few days.

But why do some companies hit a billion $ valuation while others with similar business models, maybe even better financial results, achieve only a fraction of that? To illustrate this case I looked at LinkedIn and compared some key figures with it’s European counter part XING, also publicly traded and their best match.

LinkedIn_vs._XING.png

While XING is more profitable and has more sales per member, LinkedIn is trading at a substantial premium. The revenue multiple is 32x vs 5x (LinkedIn vs. XING) and the valuation per member is $78 vs. $39. But the main difference is that LinkedIn is growing at more than 100% and XING is only showing about 20% growth in 2010. The bottom line is that among other factors, the investors believe LinkedIn to be the better bet on future success.

Where does this leave us for your own startup? Make sure you raise money when the outlook is great and understand what is en vogue with customers investors: right now it is users and growth.

PS: it might also help to pick the right stock exchange :-)

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