Breaking the Barrier: the race for the first 1 person $1B company

At lunch someone (I’m pretty sure it was Elliot or Derek) made an interesting point.The number of people it takes to build a billion dollar business is decreasing.They posited that it was only a matter of time until an individual built a company and sold it for a billion dollars without hiring a single full time employee. This theory is founded in an obvious trend: it keeps getting easier to make software that millions of people can use.

As far as the record is concerned, the race is on. Until 1995, the record numberof employees for a billion dollar acquisition was 7800 (General Instruments Corporation was sold to Forstmann Little & Co for $1.6B). In 1996, StrataCom crushed this record when it sold to Cisco for $4.2B with 155 employees. Sincethen the record has dropped roughly every 5 years. Instagram is the current record holder at 13 employees.

The big question here is whether this graph becomes asymptotic above 1employee. Even if the software writes itself (which it won’t for a very long time),can a solo founder handle the “soft” challenges of starting a company? My guessis yes, given the right advisors. There’s also something to be said about software making a lot of the operational processes less burdensome, but I digress.

Records, almost by definition, are outliers. With that in mind, does our theory hold water on average? In other words, are billion dollar exits with fewer people becoming more common over time? At first glance it doesn’t appear so.

It looks like there is a (very) weak positive correlation between time and number of employees. But if software is getting easier to build and distribute, why does ittake more people to build a big business?

There are a few epic disclaimers here. First, the data is messy and unreliable. Weare only looking at software mergers and acquisitions (sorry Beats), and we tooksome strong liberty in just eliminating pieces of data that smelt fishy. For instance,there were several parent corporations whose subsidiaries employed thousandsof people, but technically the shell employed 0–3. We deleted those, mostly onthe basis of lameness. It’s also worth noting that there are a handful of internal corporate takeovers that are included in our data that we just didn’t have time toclean everything up. Also, we are only looking at M&A. The data probably looks different given the crazy IPO market of the first internet bubble, but let’s just rollwith it.

Finally, there are way more factors than ease of distribution and building here.Off the cuff I would say that business are just bigger when they get bought todaybecause venture and growth investors are more willing to deploy capital andstave off an earlier exit. Why get bought with 20 employees when you can take minimal dilution and get bought in 18 months when you have 50?

Number of employees in a billion dollar acquisition is a cool vanity metric, but probably a better proxy for ease of value creation is “dollar per employee in a billion dollar acquisition”.

Again there seems to be a weak positive overall correlation here. As far as records are concerned, Lycos was the reigning champion for almost a decade and a half at $125mm per employee, until WhatsApp dethroned them with a whopping $354mm per employee.

I would say there aren’t any profound realizations to be drawn here. Nonetheless,it’s interesting to think about, or try to fund/found the first $1B1P company.

Thanks to Alex Hartz, Shaun Khubchandani, Derek Morris, and Jason Riggs for reading over copies of this post.