27 Oct 2014

Great companies can come from anywhere: a first look at the global spread of billion-dollar software companies

We have always believed that great companies and entrepreneurs can come from anywhere. Like athletes and artists, the qualities needed to be a world-class entrepreneur — vision, courage, technical knowhow, the ability to build a great team, and a deep competitive streak — are not confined to any one country. And the spread of the Internet, open source software and cloud computing over the past decade has removed many of the traditional barriers to starting a technology business.

That said, there are still many who believe that the majority of truly successful companies come from Silicon Valley alone, and that the other emerging ecosystems are still reaching maturity.

Given the speed of technological change and the number of entrepreneurs founding companies around the world, it can be hard to get an accurate picture of what’s going on. So we combined data from multiple sources along with our own research, and for the first time looked at the global distribution of Internet and software companies founded within the last decade that had reached a valuation of over $1 billion. Valuation isn’t everything and is in many senses a crude yardstick, but the billion-dollar mark is generally accepted to represent truly phenomenal success.

What we found was surprising even to us.

The majority of the 140 companies that met the billion-dollar bar have actually been built outside Silicon Valley, with 61% coming from other cities — and the gap is widening. Silicon Valley is of course the preeminent single location, with 54 companies. But it is far from being the only game in town.

As we dug further into the data, more stories emerged:

On average 14 companies have reached a billion-dollar valuation each year in the past decade

The average time taken is six years from founding. More companies are getting to a billion-dollar valuation faster; in total, 26 companies have reached the bar within just three years of being founded. Of those companies, 17 were founded in 2009–2014 and nine founded in 2003–2008

Two-thirds (67%) reached the bar since the start of 2013 (94 out of 140), including 49 in 2014 so far

2007 is the founding year vintage with most billion-dollar companies (24)

The average time taken varies significantly by sector:

Average time taken in years to reach $1B+ threshold, by sector

Companies from 16 different countries have reached a billion-dollar valuation

US, China & Sweden are the top three countries: the US has 80, China has 26 (of which 16 reached the bar since 2013), Sweden has five

Europe has 22 companies in the set (in this we have included Russia and Israel, with three each), Asia has 36, while North America has 82. No billion-dollar Internet businesses have been founded since 2003 in Latin America, Africa or the Middle East

In absolute terms, Silicon Valley is the single most prominent tech hub with 54 companies. The top six hubs are rounded out by Beijing (17), New York (7), Stockholm (5) and Los Angeles and London (4)

On a per capita basis, Stockholm is the second most prolific tech hub globally, with 6.3 billion-dollar companies per million people (compared to the Valley with 6.9)

The gap between the rest of the world and the Valley is growing

The sectors with the largest number of billion-dollar companies are: Enterprise Software Applications (23), E-commerce (22), Social communications (18), Gaming (14)

Healthcare (2 companies) and education (1 company) are two of the most obviously underpenetrated sectors in terms of number of billion-dollar companies founded since 2003. Real estate is another huge sector that has seen little disruption, except through the emergence of online classified platforms.

66% of the companies are consumer-focused businesses, with significant regional variations — for instance, 100% of the 26 companies from China are consumer-focused.

48% of the billion-dollar companies have enjoyed a significant liquidity event:

The balance varies significantly by region:

Companies achieving $B+ threshold by source of valuation

We think it matters that this picture is well understood. Not just because it’s right to give entrepreneurs from Stockholm to Shanghai the credit they deserve, but because it’s vital for the next generation of great companies in securing the right investment, talent, and attention.

We hope that this goes some way to raising awareness of these amazing entrepreneurs and companies. We don’t have to dream of a future where great companies can come from anywhere. It’s already happening right now.

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