A few days ago Will Price published some stats in his blog that really brought home our (repetitive, I know) point about capital efficiency. The basic message is that for a median investment of $10m, some great software companies have been built.
What struck me in particular is that the companies he analysed (Mercury, Checkpoint, Verisign, BEA, Veritas, NetIQ, Business Objects, Peoplesoft, etc) were all built when the technology infrastructure was much much more expensive than it is today. To build the equivalent today ought to cost less in infrastructure and the sam (more ?) in sales & marketing.
What is also impressive is the median revenue ramp of these businesses: from start to $21m in four years. Clearly the tech spending frency in the run-up to 2000 had something to do with it, but most of these companies IPO'd before 1998, so I wouldn't discount their operational growth by ascribing it to the bubble.
Thanks Will - a great reminder of the importamce of capital efficiency, and the value of focusing on topline growth.
The reason for the "part 1" in the headline is that I intend to write more about why we still think software investments are interesting, and to rebut some of the recent arguments we've heard that the software market is dead. Stay tuned.