Being big takes more money than ever. Total capital invested has gone up significantly over time regardless of the industry. For instance if we look at the last 20 software IPO’s, median capital invested was $358mm (average was $500mm) whereas the first 20 had median capital invested of $80mm. As a founder, don’t feel the need to raise a ton of cash: being big and being successful are not the same thing and there are plenty of very happy investors and founders with cash efficient, smaller businesses (it’s all we do); however, if your goal is to be the biggest player in the space, it’s going to take a lot of capital.
The cash need differs by industry. Given the data spans diverse industries with different capital needs, it’s appropriate to look at each industry separately. For instance, because hardware companies are generally profitable quickly, the median equity raised was only $83mm (and $24mm of debt) whereas social media companies had a median of $1.8bln equity.
No debt. Notice debt plays a very small part in any tech company’s capital structure except for hardware, which had on median $24mm of debt versus $83mm of equity.
Cash need has grown with time. The oldest companies on the list like Amazon, Apple, TiVo, and 1800 Flowers required very little capital relative to peers today. Equity raised by these 4 companies was $10mm, $12mm, $12mm, and $20mm respectively. This drives home the point that building a successful business takes more cash than ever. Even looking within the same industry, you can see stark differences between old companies and new: Fitbit, GoPro, and Roku have all raised over $200mm each whereas Garmin went public in 1999 on only $63mm of capital raised.
Profitability minimizes investor need. Companies that reach profitability faster need less capital. We can see this when looking at ecommerce relative to more capital intensive businesses like Marketplaces. E-commerce companies need to reach profitability quickly because the repeat sale can be infrequent and unpredictable.
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