Nuts? Bubblicious? A (very) simple explanation of super high startup acquisition prices. More often than not the reaction to a large company buying a comparatively small startup for a few hundred million or even a few billion is “nuts”, “bubblicious”, etc.
In some cases this may be true and history sure is littered with poor acquisitions. It is also full of great acquisitions that were called crazy at the time. The problem is that we (e.g. wider public, journalists, the tech community and anyone not part of the deal) are largely working of a fraction of the information required to determine the “true value” of the startup company (let’s call it StartCo) to its acquirer (let’s call it LargeCo). The two key pieces missing to outsiders are usually the financial projections of StartCo for the next years and the synergies (both cost savings and additional revenues) LargeCo thinks it can achieve by acquiring StartCo. Finance for Geeks. Ï»¿ Summary: Eric Sink provides a geek-oriented overview of accounting and company funding.
On my weblog I write a series of articles entitled Marketing for Geeks. The concept of these articles is that a lot of technically-oriented people actually do end up involved in marketing decisions. Most software startups are founded by one or more geeks, often without the presence of experienced people in other areas like marketing. For these people, a little marketing knowledge can go a long way. Corporate Development 101: What Every Startup Should Know. The following is a guest post by Chris Sheehan.
Chris is COO of TrueLens, an early stage startup in the social marketing space. He is also a board member, advisor and investor in many Boston and NYC startups. How to grow your app revenue with DuPont analysis (Guest post) About the author: Kenton wrote this fantastic piece about analyzing in-app revenue, drawing from his work experience at both Zynga, where he runs their mobile poker product, and before that, Google.
You can follow him at @kivestu and his blog here. -Andrew.
Market sizing. Determining Valuation Multiples. Last week on MBA Mondays, I talked about valuing an internet marketplace business.
In that post, I talked about using 1x gross marketplace transactions and 20x EBITDA as multiples to determine value. In the comments, I was asked about multiples for other sectors. That's a good question so I figured I'd show how to calculate multiples for various sectors. For this exercise we will focus on the software as a services (SAAS) sector. Want to Know How VC’s Calculate Valuation Differently from Founders? Back in 1999 when I first raised venture capital I had zero knowledge of what a fair term sheet looked like or how to value my company.
Due to competitive markets we ended up with a pretty good term sheet until we needed to raise money in April 2001 and then we got completely screwed. It was accept the terms or go into bankruptcy so we took the money. This Week in Venture Capital #15 with Kelly Hwang, Associate at GRP. Misadventures in VC Funding: The $24 Million Moz Almost Raised.
A great inside view on the dark side of the VC funding process. – PED
3 Quick and Dirty Business Hacks. My mother was a high school mathematics teacher and understood that kids learn best when learning is fun, so at a very young age she started teaching me math “tricks.”
In the second grade she showed me how 9 times any number less than 10 was simply that number minus 1 concatenated with the sum of difference plus whatever it takes to get back to 9. For example, 9 x 8 is 8 minus 1 (7) concatenated with 9 minus 7 (2) — 72. I was hooked. Since then I have been fascinated with finding quick and dirty tricks to arrive at answers (or good approximations) to everything from the probability that my beloved Arizona Wildcats basketball team will win a game to market sizes and rates of return.
Below are three of my favorite business hacks. 1. Being able to rapidly do math in your head will allow you to think about things in real time that can change the course of the discussion. In the meantime, here are a few of my favorite tricks. Square any 2 digit number ending in 5. For example, let’s square 25. Principles of Corporate Finance: Amazon.fr: Richard A. Brealey, Stewart C. Myers, Franklin Allen: Livres anglais et étrangers. All Revenue is Not Created Equal: The Keys to the 10X Revenue Club.
May 24, 2011: May 24, 2011: [Follow Me on Twitter] “ Don’t you know that you are a shooting star,And all the world will love you just as long,As long as you are.
. ” – Paul Rodgers, Shooting Star With the IPO market now blown wide-open, and the media completely infatuated with frothy trades in the bubbly late stage private market, it is common to see articles that reference both “valuation” and “revenue” and suggest that there is a correlation between the two. Go Beyond the Definition. Click here to edit contents of this page.
Click here to toggle editing of individual sections of the page (if possible). Watch headings for an "edit" link when available. Append content without editing the whole page source. Welcome to Monte Carlo, Excel - Continuations. Welcome to Monte Carlo, Excel Following up to yesterday’s post about randomness, Excel provides a very easy tool for modeling probability.
Just insert =RAND() into a cell. This will generate a new (pseudo) random number between 0 and 1 each time the spreadsheet is recalculated. For most business modeling one wants to have a discrete distribution of values with a subjective probability distribution. Valuation Witchcraft - Where Do Seed Valuations Come From? - robgo.org. Valuation Witchcraft – Where Do Seed Valuations Come From? September 29, 2010 Given all the talk recently about rising seed valuations and AngelGate, I wanted to do a sequel to my old post on how VC’s Value Early Stage Companies. The valuation dynamics are even more puzzling at the seed stage, where there is even less to value. Rather than provide a very structured formula for seed stage pricing, I just want to offer some principles of seed stage pricing to help entrepreneurs navigate this process better.
Pascal Quiry - Analyse Financière. The Option Pool Shuffle. “Follow the money card!” – The Inside Man, Three-Card Shuffle Summary: Don’t let your investors determine the size of the option pool for you. Thoughts: Term Sheet. While some people hate the phrase “failing fast”, I find it instructive when it’s used to signify that one isn’t going to pursue a particular path in the context of a larger set of activities.
A few weeks ago, I wrote a post about The Proliferation of Standardized Seed Financing Documents. It generated several hundred email responses and a handful of phone calls. A week or so later, my partner Jason Mendelson wrote a post titled Why There Will Never be a Standard Set of Seed Documents. I’ve concluded that Jason is right so rather than torture myself, I’m failing fast with regard to trying to help create a set of standardized seed documents. Return Free Risk - A Merger Arb Anecdote. Guillaume Martin: Eureka, le pacte d'actionn...
Holy Crap! HubSpot Has Now Raised A Total Of $33 Million. It has been a little over a year since I announced the news that my marketing software startup closed it’s Series B round of funding. The article, “Insanity? Why A Bootstrap Entrepreneur Raised $17 Million in Venture Funding”, was a candid glimpse into the rationale for raising what seemed like a huge amount of money to me at the time (it seemed huge, because it was — at least to me). Today, we’ve released news that HubSpot has just closed on another $16 million funding round (our Series C) bringing our total capital raised to a whopping $33 million. As I write this, I’m a bit worried that this article is going to come off as arrogant and/or self-indulgent. Series AA Equity Financing Documents. Safe Financing Documents The safe (simple agreement for future equity) is intended to replace convertible notes in most cases, and we think it addresses many of the problems with convertible notes while preserving their flexibility.
In addition to being simpler and clearer, we intend the safe to remain fair to both investors and founders.During its development the safe was positively reviewed by many of the top startup investors. We believe it’s a positive evolution of the convertible note and hope the startup community finds it an easier way to accomplish the same goals. Features of a safe: Unlike a convertible note, a safe is not a debt instrument. Want to Know How VC’s Calculate Valuation Differently from Founders? Startup Killer: the Cost of Customer Acquisition. Valuation and Option Pool. Don't Let the Funky Math of Convertibles Bite You - Continuation. Options on early stage companies cdixon.org – chris dixon's blog. I believe that what I’m about to say is accepted by venture capitalists as fact, even trivially obvious fact, yet very few entrepreneurs I meet seem to understand it.
Beware the Hockey Stick in Your Budget. We are deep in budget season as the last board meeting of the year typically includes the 2010 Budget – or at least the “2010 Draft Budget” or “2010 Budget – Draft”. This is also known as “the joy of cramming a spreadsheet into a powerpoint presentation.” The budgets I see generally fit into one of the following five categories. Pre-Revenue: We are pre-revenue and won’t generate revenue in 2010.First Year of Revenue: We are pre-revenue but will generate our first revenue in 2010.Growing Revenue: We are on a revenue growth curve in 2010 but will lose money every month.Becoming Profitable: We are currently losing money but will become profitable in 2010.Profitable: We are profitable every month this year. While I’ve written about this before, it’s worth noting that “profitable” is often used to mean either EBITDA positive, Net Income positive, or Cash Flow positive.
Guillaume Martin: Ce que tout entrepreneur d... [0904.0016] Stochastic Models of User-Contributory Web Sites. Burn Rate as the Canonical Mistake (for Web Startups) - Continua. Burn Rate as the Canonical Mistake (for Web Startups) One of the all time great opening lines is from Tolstoy’s Anna Karenina: Happy families are all alike; every unhappy family is unhappy in its own way. I am beginning to think that the opposite is true for (web) startups. There seem to be surprisingly many roads to success. But the canonical road to trouble appears to be taking your burn rate up *before* you have something that is really working. Over the past couple of weeks I have seen two startups that are in very different positions, despite superficial similarities. The mood between the two companies couldn’t be more different. Stats. When it Makes Sense to INCREASE the Burn Rate « VCMike's Blog. Analyzing Financial Statements.
CHART OF THE DAY: How Google Invests Its Cash. Opportunity Costs. Off Balance Sheet Liabilities.