How long & how quickly can a business compound ?
This is a question every investor asks of every business, public or private.
In the 2010s, Slack & Atlassian became titans. On the day Salesforce announced its intent to acquire Slack, it was equally valuable to Atlassian at ~$27b.
The revenue curves look similar in the out years, similar growth rates. Atlassian continues to compound at massive scale.
To create value, a startup must grow quickly & grow at scale ; or grow consistently over a long period of time. AI companies today are growing very quickly. The T3D2 companies can grow at a slower rate over a longer period of time to achieve the same market cap.
Compare OpenAI’s 400% growth at $1b revenue to Atlassian’s 30%. Or Snowflake at 124%. Snowflake is $75b market cap today, Atlassian $42b. The advantage of a head of steam is clear.
While both paths steady compounding & hypergrowth can lead to the same destination, the latter creates more value because of the time value of money. The sooner a startup reaches $1b revenue, the more valuable it is.
Of course, a hypergrowth company with significant churn isn’t worth very much at all. The CAP theorem equivalent in business is some combination of growth, margin, & retention. Most businesses can’t optimize for all three.