Sale prices of high-tech companies soar from millions to billions.
SAN FRANCISCO – “What’s your number?”
That’s a question that keeps swirling in technology circles these days. It asks how much money it would take for you to sell your start-up, quit your job or close your venture capital fund — and maybe, just maybe, walk away from it all.
What’s your number?
We now know the answer to that question for Brian Acton and Jan Koum, the pair behind WhatsApp. After insisting that they would not sell their mobile messaging company to a behemoth like Google or Yahoo, they are selling to Facebook for what could add up to a mind-bending $19 billion. That means WhatsApp, a five-year-old business with 50 employees, is worth more than Alcoa, Campbell Soup, Coach, Gap, Harley-Davidson, Kohl’s, Macy’s, Southwest Airlines and Xerox, to name a few.
Nineteen. Billion. Dollars. It seems surreal. But these are heady times in technology — and everyone, it seems, is rethinking his or her number. David Karp sold Tumblr for $1.1 billion, but Evan Spiegel turned down $3 billion for Snapchat.
Lesser lights are redefining what it means to be rich, at least here in the insulated bubble of the tech scene. It is little wonder that the private buses that ferry employees of Apple, Facebook and Google to Silicon Valley have, for some, become symbols of income inequality in this city.
For most people, and in most places, asking someone, “What’s your number?” would be like asking “What superpower would you like?” Not in Silicon Valley in 2014.
A few weeks ago, over dinner with a half-dozen entrepreneurs and venture capitalists, the question came up again. The table, which included a few people already worth more than $100 million, went quiet. One man in his late 30s twirled the stem of his wine glass as he thought. Then he tipped back his head, downed his pinot noir and said, “One billion,” his glass landing back on the table with a thud. “That’s it. That’s my number. One billion dollars.”
The others nodded.
John Gabbert, chief executive of Pitchbook Data, a database of private equity deals and industry players, said that 10 years ago, entrepreneurs were more down to earth about their numbers. He pointed to Plumtree Software, which went public in 2002 and raised $42 million in its initial public offering. “The founders of Plumtree probably made $5 million to $10 million each from the IPO,” Gabbert said. “That looked like success back then. That’s pretty good money. You could live forever on that.”
Which brings us back to WhatsApp. Koum will personally make about $6.8 billion on this deal — the rough equivalent of San Francisco’s annual budget.
However this acquisition plays out for Mark Zuckerberg — whether it propels Facebook to new heights by powering its mobile and international ambitions, or ends up looking like a top-of-the-market clunker — even many people who follow technology were floored by the $19 billion price. For that much money, Zuckerberg could have bought nearly all 30 National Basketball Association teams.
“It doesn’t matter how you look at this number, it’s an outrageous amount of money,” said Glen Allmendinger, president of Harbor Research, an Internet strategic consulting and research firm.
Still, Allmendinger said he did not think the deal would pop the tech bubble. To the contrary: It will affect what other tech companies will be willing to sell for in the future. “This sets a new bar for other start-ups,” he said.
Over at Snapchat, Spiegel, who is 23, apparently thought $3 billion was not enough for a company that, as yet, does not turn a dime of profit. But here’s another question: When is your number big enough? The most expensive homes in the Bay Area top out at around $30 million. Pick up a few fancy cars at $100,000 a pop. Throw in a Bentley for $175,000, a weekend place in Sonoma for $5 million, a modest pied-à-terre in Manhattan for around $5 million — fine, make it $10 million. And a top-of-the-line private jet for around $50 million. With expenses, taxes and whatnot, you’re barely past $100 million.
Of course, you could give away a lot of your number money. But Silicon Valley billionaires, with the exception of Zuckerberg, are not known for their philanthropy. And giving away millions or billions isn’t as easy as it sounds (although this is a problem many of us would love to have).
“You can’t just give a billion dollars away,” said Kevin Kelly, a co-founder of Wired magazine and an influential technology theorist. “You need an infrastructure to give it away. You need a staff and support and you need to make sure it gets to the right people. Spending a billion dollars is really, really hard.”
Kelly said that Bill Gates had to start the Bill & Melinda Gates Foundation, which has 1,194 employees — about 24 times as many as WhatsApp — to figure out how effectively to give his part of his fortune away.