You, too, can flip a start-up (if you've got 7 years)

It takes a long time to build a solid, robust business--at least seven years, suggests the data.

Those who joined the technology industry in the 1990s can be forgiven for believing that dramatic wealth for paltry effort is the norm.

For everyone else, it's worth being reminded of something that Trevor Loy, a partner with venture capital firm Flywheel Ventures, said in recent congressional testimony:

We expect to hold a typical venture capital investment for 5-10 years, often longer and, since the technology bubble burst, rarely much less.

Unfortunately, Loy is not alone. In fact, as Tim McAdam and Jim Tybur of Trinity Ventures told me over breakfast Thursday morning, 20 years of National Venture Capital Association data (PDF) suggests that very few companies grow to $100 million in revenue in fewer than seven years.

This chart shows the value and age characteristics of venture-backed IPOs from 1980 to 2008. National Venture Capital Association

If you're looking to flip your Web 2.0 start-up that sells fashion accessory widgets, this will come as bad news. But for those open-source entrepreneurs who are dismayed that they're only at $50 million or so after a few years in business, take heart: that's the way it's supposed to be.

It's supposed to take years to grow a solid business. Sure, Salesforce.com hit $1 billion in revenues after just 10 years in business, and $100 million in its first 5. Google made it to $100 million even faster.

But those are anomalies, as all the data suggests. Red Hat, MySQL, and other leading open-source businesses took at least 7 years to ripen financially. They were built for profitability, which should be the focus of every open-source entrepreneur. We're growing businesses, not hype and fan clubs.


Follow me on Twitter @mjasay. Please note that if someone offers you $1 billion for your company that is still pre-revenue, disregard all advice above. Just take it.

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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