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Ask HN: Do bootstrapped billion-dollar companies exist?

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Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#121

Post by mrfusion »

patio11 wrote: post #87
spaldingwell wrote: post #41

Earlier quoted context omitted.

GoDaddy is actually not profitable. In 2013 the company lost $199.88 million and in 2012 they lost $279 million . http://techcrunch.com/2014/06/09/godaddy-files-for-100m-ipo/ (just a minor correction as I am not the biggest fan of GoDaddy)

This is an artifact of a longstanding issue that they've had with GAAP. They sell non-cancelable non-refundable multi-year services (like domain registrations) and receive cash up front for them. GAAP requires that they book that revenue on a pro-rata basis over time. This means that if it costs them $200 to acquire a new customer and that customer immediately whips out their CC and buys $1k of domains spread over te…

Why is it a liability? I'm thoroughly confused.

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#122

Post by patio11 »

mrfusion wrote: post #121
patio11 wrote: post #87

Earlier quoted context omitted.

This is an artifact of a longstanding issue that they've had with GAAP. They sell non-cancelable non-refundable multi-year services (like domain registrations) and receive cash up front for them. GAAP requires that they book that revenue on a pro-rata basis over time. This means that if it costs them $200 to acquire a new customer and that customer immediately whips out their CC and buys $1k of domains spread over te…

Why is it a liability? I'm thoroughly confused.

So if I promise to pay you money in the future, that is clearly a liability, right? Same if I sell you a chicken today for $25 and promise delivery next year. My assets increase by $25 cash and my liabilities increase by 1 chicken, which I'd probably record at $25.

This makes a lot of sense for chickens. It feels to me like it makes a lot less sense when I'm selling you something with a COGS which is too cheap to meter and where there is essentially no meaningful risk to delivery.

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#123

Post by doobiaus »

argonaut wrote: post #104
aaronbrethorst wrote: post #50

GitHub's valuation 2 years ago was $750mm. I'd be shocked if they hadn't cracked the $1bb marker yet. http://allthingsd.com/20120709/github-valued-at-750m-with-fi...

GitHub raised $100M from Andreessen.

Github was bootstrapped for 4 years before taking funding. Eventually everyone does when they need to grow rapidly.

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#124

Post by brianfitz »

shreve wrote: post #65
vecter wrote: post #60

Earlier quoted context omitted.

Is 37Signals worth $1B?

Actually, they're valued at $100B. http://signalvnoise.com/posts/1941-press-release-37signals-v...

That article was intended to be a joke. 37signals (now Basecamp) is private and doesn't publicly announce revenue or profits -- though Jason has acknowledged both are in the millions.

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#125

Post by mrfusion »

patio11 wrote: post #122
mrfusion wrote: post #121

Earlier quoted context omitted.

Why is it a liability? I'm thoroughly confused.

So if I promise to pay you money in the future, that is clearly a liability, right? Same if I sell you a chicken today for $25 and promise delivery next year. My assets increase by $25 cash and my liabilities increase by 1 chicken, which I'd probably record at $25. This makes a lot of sense for chickens. It feels to me like it makes a lot less sense when I'm selling you something with a COGS which is too cheap to met…

Thanks for explaining. So why would your liability for the chicken be $25, the retail price? Why wouldn't it be what a chicken costs to you?

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#127

Post by mechanical_fish »

mrfusion wrote: post #125
patio11 wrote: post #122

Earlier quoted context omitted.

So if I promise to pay you money in the future, that is clearly a liability, right? Same if I sell you a chicken today for $25 and promise delivery next year. My assets increase by $25 cash and my liabilities increase by 1 chicken, which I'd probably record at $25. This makes a lot of sense for chickens. It feels to me like it makes a lot less sense when I'm selling you something with a COGS which is too cheap to met…

Thanks for explaining. So why would your liability for the chicken be $25, the retail price? Why wouldn't it be what a chicken costs to you?

Accounting isn't always intuitive, but in this case I believe it is: His liability for the chicken is $25, because what he owes you is not "a chicken", but "$25 worth of chicken".

To see this, imagine what happens if he has to break his promise to deliver, perhaps because all his chickens get swept out to sea and there are no substitute chickens available in time. He owes you a refund. How much does he owe you? Having spent our lives doing deals like this, we intuitively know the answer: $25. He has to give back all the money you paid. That's why the liability is $25.

Now, once an actual chicken gets handed over to you, and you agree that it satisfies the chicken contract, things are different. Now the $25 liability changes into a $5 cost-of-goods-sold (assuming that wholesale chickens cost $5) and a $20 increase in equity (aka "profit").

(More or less, I think. I'm not an accountant.)

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#128

Post by joshjdr »

logicallee wrote: post #118
ownagefool wrote: post #115

Earlier quoted context omitted.

Uh, if you're pulling in $10M in profit per year you definitely have a value greater than $0 and that's pretty easy to work out. It's the companies forever making a loss having a positive valuation besides their constant losses that defy logic.

it might be pretty easy to work out but that's not how valuations at a billion dollars work. Only actual transactions in shares would establish this kind of a valuation. I mean just consider our specific example: at $10M profit, the price per earnings if you purport to be a billion dollar company, is 100. So, no alternative accounting metric would ever give you a billion-dollar valuation (assuming you bootstrapped, w…

If the $60 million investment came in with a pre round valuation of less than $1b then the example given does not meet the requirement.

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#129

Post by projectramo »

I think part of the problem is in how you value companies. Basically, you can only "value" a company when someone makes an investment. So if a (sophisticated?) person or VC invests in it, or if it goes public, we would consider that an estimate of value.

If no one invests in it, and you are clipping coupons, how would you know you have a billion dollar company? You could have $100 million a year in earnings and some growth, and have a pretty good idea, but you don't know. Conceivably, whatsapp could have bootstrapped their way to $1 Billion before they accepted VC money, but even they may not know.

Re: Ask HN: Do bootstrapped billion-dollar companies exist?

#130

Post by mrfusion »

mechanical_fish wrote: post #127
mrfusion wrote: post #125

Earlier quoted context omitted.

Thanks for explaining. So why would your liability for the chicken be $25, the retail price? Why wouldn't it be what a chicken costs to you?

Accounting isn't always intuitive, but in this case I believe it is: His liability for the chicken is $25, because what he owes you is not "a chicken", but "$25 worth of chicken". To see this, imagine what happens if he has to break his promise to deliver, perhaps because all his chickens get swept out to sea and there are no substitute chickens available in time. He owes you a refund. How much does he owe you? Havin…

that makes sense. Thanks.
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