Start-ups prepare to set a course for AWESOME

Facebook launched in 2004 and filed its IPO S-1 registration document last week enabling start-up CEOs, management teams, VCs, industry experts and commentators to pore over its numbers.

Much has been said about the anticipated valuation, within the $75bn-$100bn range, and who will be making the really big money. Surprises on that latter point are not that Peter Thiel (its first angel investor) is smarter than all your average bears put together but that Bono (activist, philanthropist and occasional musician) was also an early investor and Mr Zuckerberg Senior (aka Mark’s Dad) will be able to lay down his dentist drill earlier than planned.

While other Tech start-ups such as Pandora, Yandex, Zillow, RenRen, LinkedIn and Zynga reported impressive metrics and financials at IPO, Facebook’s are nothing short of phenomenal. Consider the following:
                                                      2007       2008      2009       2010          2011
Revenues                                   $153m     $272m    $777m   $1,974m    $3,711m
Operating (Loss)/Profit         ($124m)  ($ 55m)   $262m   $1,032m   $1,756m
MAUs (Monthly Avg Users)       58m       145m      360m        608m        845m

Over the period the compound annual average growth rate of Revenues was 220% and MAUs195%. Operating profit/revenues in 2011 was an envious 47%.

Zynga, the social gaming giant, listed in December 2011 at a valuation of $7bn. Incredible user and revenue growth led to 33% profitability in 2010.
                                                                       2008      2009      2010
Revenues                                                     $19m      $121m    $597m
Operating (Loss)/Profit                           ($23m)   ($ 53m)   $125m
MAUs                                                                             207m      195m

LinkedIn, the world’s largest professional network, listed in May 2011 at a valuation of $4.3bn. Impressive user and revenue growth led to 8% profitability in 2010.
                                                                       2008      2009      2010
Revenues                                                     $79m      $120m   $243m
Operating (Loss)/Profit                          ($5.5m)   ($ 3.3m)  $  20m
MAUs                                                                                36m       65m

Collectively in 2010 these 3 companies reported spending $357m on Sales & Marketing and $359m on R&D. Big, bold follow-on investments are one reason why each company has made the jump to warp speed and achieved stellar returns for founders, management teams and investors.

                               Mktg/Revs%   Mktg $ms     R&D/Revs%     R&D $ms
LinkedIn                     24%                $ 59m                27%                 $ 65m
Zynga                            19%                $114m               25%                 $150m
Facebook                      9%                $184m                  7%                 $144m

Groupon, the daily deals leader,  really knows how to spend on Marketing, reporting an eye-watering $290m spend in 2010. That’s 93% of its revenues! Warp speed any time soon, assuming the engines can take it!

One moral of the story: if you want your start-up to make it to the stars, you better know a few people with some very deep pockets. Getting hold of those eyeballs is not cheap and getting them on board is even trickier.


About This Week in Business

I'm CEO @YesGrowth a leading AltFin company which provides syndicated, short term working capital to UK businesses in any sector. Connect with me on LinkedIn or Google+ and follow me on Twitter.
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