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Valuations: What is happening and does it matter?

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Valuations in VC: What does it mean?

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Valuations: What is happening and does it matter?

  1. 1. Valuations: What is happening, and does it matter? Talia Goldberg & Jeremy Levine (Feb 2015)
  2. 2. 1 For the Amusement Park Goers
  3. 3. 2 For the Newtonian Physicists
  4. 4. 3 For the Park Goers ENTREPRENEURS
  5. 5. 4 Quantitative Easing Means Easy Money “So have you sent a note of thanks yet to Ben Bernanke and Janet Yellen? For all of your hard work and delightful intelligence, they arguably have had as much to do with your fund's success as you have.” – Dan Primack (2/19/2015)
  6. 6. 5 Price really, really, really matters Top tier fund Barely in business $500M $1B $1.5B $2B
  7. 7. 6 What Did We Do? • Looked at 4 public market segments relevant to most of our investing: 1. Software as a Service 2. Marketplaces 3. Consumer Internet 4. E-Commerce • Collected monthly valuation multiple and growth data for each company from 1999 (or first year of public listing) through February 2015 • Sanitized the data 1. Excluded companies with negative EBITDA from all charts with EBITDA multiples (only in the period of negative EBITDA) 2. Each sub segment has a minimum sample size of 5 companies 3. LTM EBITDA excludes stock based compensation expense
  8. 8. 7 We are nowhere close to bubble madness (phew!) - 20.0x 40.0x 60.0x 80.0x 100.0x 120.0x 140.0x - 100.0x 200.0x 300.0x 400.0x 500.0x 600.0x 700.0x 1/25/1999 1/25/2000 1/25/2001 1/25/2002 1/25/2003 1/25/2004 1/25/2005 1/25/2006 1/25/2007 1/25/2008 1/25/2009 1/25/2010 1/25/2011 1/25/2012 1/25/2013 1/25/2014 1/25/2015 MedianRevenuemultiple MedianEBITDAmultiple Consumer Internet Multiples EBITDA multiple Revenue Multiple Consumer Internet public valuation multiples have held steady for 5 – 10 years. Let’s zoom in: Saas Marketplaces Consumer Ecommerce
  9. 9. 8 Maybe a slight uptick in last 24 months - 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x Medianmultiple Consumer Internet Multiples EBITDA multiples Revenue Multiples Recent increase in EBITDA multiples is probably driven by newish batch of hyper-revenue growth IPOs. Saas Marketplaces Consumer Ecommerce
  10. 10. 9 Growth clearly drives multiples Be wary of massive multiple re-rating when growth dips below ~30% - 5.0x 10.0x 15.0x 20.0x 25.0x -40% -20% 0% 20% 40% 60% 80% 100% 120% LTMrevenuemultiple 2014 revenue growth Growth Rate vs. Revenue Multiples Multiple compression begins at ~30% Saas Marketplaces Consumer Ecommerce
  11. 11. 10 $10 billion is the new $1 billion Current public companies >$10B market cap Private companies with at least $10B valuation Saas Marketplaces Consumer Ecommerce In ~20 years, we got 10 US public Internet companies with > $10bn market caps, and we have 5 new private ones in 5 years.
  12. 12. 11 E-commerce businesses aren’t worth much - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 20.0x Ecommerce EBITDA Multiple - 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x Ecommerce Revenue Multiple *Data set includes traditional ecommerce, does not include ecommerce marketplace businesses Many VC’s are paying 3-5x revenues for companies that are worth 1x in the public markets. Saas Marketplaces Consumer Ecommerce
  13. 13. 12 Amazon is a special case - 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x E-commerce vs. Amazon Revenue Multiples Amazon E-commerce For ~5 years, Amazon has consistently traded at 2-3x higher multiples than other public ecommerce companies Saas Marketplaces Consumer Ecommerce
  14. 14. 13 Marketplace models are highly valued Valuation multiples are robust, but public markets have calmed down recently – much more so than private markets. - 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x E-commerce vs. Marketplace Revenue Multiples Marketplace E-commerce Saas Marketplaces Consumer Ecommerce
  15. 15. 14 Public Cloud Values are up 30-100% It’s *much* harder to generate a 3x+ fund in this environment - 10.0x 20.0x 30.0x 40.0x 50.0x 60.0x 70.0x 01-2007(7) 07-2007(7) 12-2007(6) 06-2008(5) 11-2008(7) 05-2009(7) 10-2009(7) 04-2010(9) 09-2010(11) 03-2011(10) 08-2011(11) 02-2012(9) 07-2012(9) 01-2013(11) 06-2013(9) 12-2013(11) 05-2014(10) 11-2014(10) EBITDA multiples - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 01-2007(7) 07-2007(7) 12-2007(6) 06-2008(5) 11-2008(7) 05-2009(7) 10-2009(7) 04-2010(9) 09-2010(11) 03-2011(10) 08-2011(11) 02-2012(9) 07-2012(9) 01-2013(11) 06-2013(9) 12-2013(11) 05-2014(10) 11-2014(10) Revenue multiples *Companies with Market Cap’s >$2B Financial crisis Saas Marketplaces Consumer Ecommerce + 100% + 30%
  16. 16. 15 It’s not a tech-wide issue, it’s just our sectors While SaaS valuations have soared, their legacy counterparts are stable with much less rich valuations *Data set: SAP, Oracle, Adobe, Microsoft, HP, Cisco - 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x "Legacy" revenue multiple - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x "Legacy" EBITDA multiple Saas Marketplaces Consumer Ecommerce
  17. 17. 16 SaaS investing was more fun in 2007! It’s easier to make money betting ahead of the curve. It’s much harder when everyone agrees with you. - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x SaaS vs. "Legacy" software revenue multiples SaaS Legacy Saas Marketplaces Consumer Ecommerce “The interesting thing about cloud computing is that we’ve redefined cloud computing to include everything that we already do. ... The computer industry is the only industry that is more fashion-driven than women’s fashion. Maybe I’m an idiot, but I have no idea what anyone is talking about. What is it? It’s complete gibberish. It’s insane. When is this idiocy going to stop?" -- Larry Ellison, Sept 2008

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