Web 2.0 Expo ShowMe The Money


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Web 2.0 Expo ShowMe The Money

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Web 2.0 Expo ShowMe The Money

  1. 1. Show me the money Web 2.0 Expo April 18 th , 2007 Jeremy Liew Partner, Lightspeed Venture Partners www.Lightspeedvp.com Lsvp.wordpress.com
  2. 2. Its cheaper than ever to start an internet company… $ ‘000s Source: Carsonified.com/SXSW Presentation
  3. 3. … and cheaper than ever to run an internet company SAMPLE EXPENSE BUDGET <ul><li>Rent, Legal, etc </li></ul>$0.2m Other Costs $1.4m TOTAL <ul><li>$15k/month </li></ul>$0.2m Infrastructure Costs <ul><li>8 employees </li></ul><ul><li>$120k fully loaded </li></ul>$1.0m Staff Costs Assumptions Annual Fixed Costs
  4. 4. As a result, getting to breakeven isn’t too hard… * Assumes ad sales by an ad network or ad rep firm Illustrative 0% - 0% - EBITDA 3% 200 7% 200 Other Costs 3% 200 7% 200 Infrastructure Costs 14% 1,000 36% 1,000 Staff Costs 10% 700 0% - Marketing 70% 4,900 50%* 1,400 Cost of Goods 100% 7,000 100% 2,800 Revenue % $ '000s % $ '000s E-Commerce Media
  5. 5. …but you still need to be big to be public MEDIA E-COMMERCE PUBLIC COMPANY ’07 REV MULTIPLES REVENUE NEEDED FOR $500M EV* * Assumed minimum public company scale to sustain meaningful trading volume and analyst coverage Source: Goldman Sachs Research, March 25, 2007, Lightspeed Analysis
  6. 6. Significant variation in revenue targeted for internet companies to breakeven versus to be public MEDIA E-COMMERCE BREAKEVEN PUBLIC, $500M EV* * Based on median multiples $277M $7.0M $131M $2.8M
  7. 7. Media Companies
  8. 8. Advertising RPMs* depend on your ability to deliver a targeted audience $10-40 $1-5 $0.50 - 2 ** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from advertising and half from ticketing” Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis * RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen 600M 126B 524B Annual US PVs $41.67 50M $25M** Fandango $1.03 12B $150M** Facebook $0.52 44B $271M Myspace RPM March US PVs 2007 Revenue Example
  9. 9. To reach breakeven, US traffic requirements can become quite meaningful, depending on RPMs RPM PV/Mth to reach $2.8M in revenue Sites with comparable US Traffic <ul><li>eHarmony 239M </li></ul><ul><li>Real 237M </li></ul><ul><li>Whitepages 230M </li></ul><ul><li>Tagged 229M </li></ul><ul><li>NFL.com 49M </li></ul><ul><li>Nextag 48M </li></ul><ul><li>Wash’ton Post 47M </li></ul><ul><li>Heavy 45M </li></ul><ul><li>Technorati 12M </li></ul><ul><li>WinAmp 12M </li></ul><ul><li>UFC.com 12M </li></ul><ul><li>Digg 11M </li></ul>Source: Comscore, Lightspeed Analysis Not necessarily demographically targeted Not necessarily endemically targeted
  10. 10. US traffic requirements are even higher to reach public company levels RPM PV/Mth to reach $131M in revenue <ul><li>MSN 13,672M </li></ul><ul><li>Google 12,476M </li></ul><ul><li>Facebook 12,179M </li></ul><ul><li>AOL 10,609M </li></ul><ul><li>Live.com 2,819M </li></ul><ul><li>Youtube 2,539M </li></ul><ul><li>Go.com 1,559M </li></ul><ul><li>Pogo 1,544M </li></ul><ul><li>MSNBC 592M </li></ul><ul><li>Expedia 522M </li></ul><ul><li>Paypal 495M </li></ul><ul><li>Weather.com 488M </li></ul>Source: Comscore, Lightspeed Analysis Sites with comparable US Traffic Not necessarily demographically targeted Not necessarily endemically targeted
  11. 11. E-Commerce Companies
  12. 12. Many e-commerce niches are large enough to support $7M in revenue, our illustrative breakeven level Allheart.com – nursing apparel Figleaves.com – lingerie Hats.com – hats Ridegear.com – motorcycle gear Source: Internet Retailer Top 500 Guide, 2006 Edition
  13. 13. There are three ways to get to over $271M in e-commerce revenues, public company type levels <ul><li>One online store with >$271M in revenue </li></ul><ul><li>5-10 online stores, each with $25-50M in revenue </li></ul><ul><li>100+ online stores, each with up to $3M in average revenue </li></ul>
  14. 14. Relatively few pure play e-commerce companies have achieved over $271M in annual sales so far Amazon.com Newegg.com Source: Internet Retailer Top 500 Guide, 2006 Edition, Goldman Sachs $8,490M $1,300M $804M $688M $399M $345M Below $271M in 2005 but projected over $271M in 2007 Amazon Newegg Overstock Netflix Drugstore Buy.com Bluenile Peapod VistaPrint Zappos 2005 Revenue Company
  15. 15. In 2005, there were at least 227 companies with e-commerce revenues over $25M, but none with multiple websites in this range Source: Internet Retailer Top 500 Guide, 2006 Edition Supplements PC hardware Auto parts Shoes Kitchen goods Plumbing and Lighting Blinds Women’s clothing Beauty Products Sheet Music Products $46M $45M $45M $44M $40M $39M $38M $34M $32M $27M Bodybuilding.com Computer Geeks Parts Train Shoemall Cooking.com Decorative Product Source Blinds.com Shopbop Gloss.com Sheet Music Plus 2005 Revenue Company
  16. 16. A number of companies have taken a portfolio approach, building large numbers of stores Source: Internet Retailer Top 500 Guide, 2006 Edition, Company websites bicycletrailers.com, highchairs.com, sparebed.com, suuntowatches.com, tricyclekids.com Niche Retail Aquariumsdirect.com, croquet.com, daybeds.com, hammocks.com, justglobes.com, potracksgalore.com Netshops Pilates-exercise-direct.com, Rowingmachines.com, sofabed-store.com, tennis-ball-machine-guide.com Mercantila homeclick.com, absolutehome.com, barbeques.com, knobsandthings.com, poolclick.com Home Décor Products adirondack-furniture-direct.com, allairbeds.com, bedrooms.com, csnbunkbeds.com, everysafe.com CSN Stores Sample Websites (not exhaustive) Company
  17. 17. Conclusion <ul><li>Easier than ever to start a consumer internet company </li></ul><ul><ul><li>Not too hard to get to cash flow breakeven </li></ul></ul><ul><li>For long term value creation, plan A can’t be “get bought by Google” </li></ul><ul><li>Need to have a roadmap to be an independent public company </li></ul><ul><ul><li>Requires real scale </li></ul></ul><ul><ul><li>Revenue sometimes lags costs when you are growing </li></ul></ul><ul><ul><li>May need venture capital to bridge the gap </li></ul></ul>