Title: Venture Capital Valuations Ollie Curme General Partner, Battery Ventures 781 577.1240 olliebattery.c
1 Venture Capital ValuationsOllie
CurmeGeneral Partner Battery Ventures(781)
577.1240ollie_at_battery.com
BV
Mass Software Internet Council
January 25 2002
2A venture capital partnership focusing on
investments in communications software and
internet/e-commerce.
20 William Street Wellesley MA 02481 Tel.
(781) 577-1000 Fax (781) 577-1001
901 Mariners Island Blvd. San Mateo CA
94404 Tel. (650) 372-3939 Fax (650) 372-3930
3Battery Ventures
- Battery Ventures
- 6 Funds With Committed Capital of Approximately
1.8 Billion - Information Technology Focus Communications
Software and Internet/e-commerce - Diversified Approach With Start-up and Early
Stage Emphasis - Major Institutional Investors
- Offices in Wellesley (MA) and San Mateo (CA)
4Recent Software Investments
- ProfitLogic Cambridge MA
- Revenue Optimization Software for Retaillers
- Decision Point Applications Portland OR
- Analytical Applications for ERP Systems
- Crystallize Ann Arbor MI
- Expert System for ERP Change Management
- BladeLogic Cambridge MA
- Server/Application Management Utilities
- IBEX Process Technology Lowell MA
- Advanced Process Control Software for
Semiconductor Manufacturers
5Public Software Company Valuations
Public Software Valuations
Market Cap to Revenue Ratio
Net Profitability
Annual Growth Rate
6Guess the Valuation Early Stage
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
NA 0 2500 10000 NA
(1500) (2000) (2000)
- New Unproven but big potential vertical market
- Great Scientists with deep patent protection
- Just finishing very successful Beta Tests
- New CEO Recruited but need Sales and Marketing
7Early Stage
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
NA 0 2500 10000 NA
(1500) (2000) (2000)
- New Unproven but big potential vertical market
- Great Scientists with deep patent protection
- Just finishing very successful Beta Tests
- New CEO Recruited but need Sales and Marketing
- 7.5MM pre 12.5MM post raising 5MM
- No Step up from seed round
8Series C Expansion Round
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
171 3800 7500
15000 (10000) (8000) (3000)
2000
- Successful initial Product Launch
- Company Successfully cut Burn Rate
- Good Team Little Competition
- Huge Market in Financial Services
9Series C Expansion Round
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
171 3800 7500
15000 (10000) (8000) (3000)
2000
- Successful initial Product Launch
- Company Successfully cut Burn Rate
- Good Team Little Competition
- Huge Market in Financial Services
- Company Shut Down! Investors Scared of Recession.
10Real Company Real Issues
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
6000 7500 10000
20000 (10000) (8000) (5000)
0
- Company performance good not great Team
Replaced - ½ of team in place halfway through expense cuts
- Product excellent but needs additional work
before it really takes off - Potential Category Leader in Very large and
interesting category
11Real Company Real Issues
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
6000 7500 10000
20000 (10000) (8000) (5000)
0
- Company performance good not great Team
Replaced - ½ of team in place halfway through expense cuts
- Product excellent but needs additional work
before it really takes off - Potential Category Leader in Very large and
interesting category - Restructuring round. 0 pre raising 12MM
12Consulting Company Transitioning 1
2003
( In Millions)
2000
2001
2002
7000 15000 30000 60000 (2000)
(12000) (4000) 10000
Revenues Pre-Tax
- Company Transitioning from Consulting to Products
- 2001 License Revenue only 1MM
- Deep industry vertical knowledge but need
complete business team - Good near term potential for product uncertain
ultimate market size
13Consulting Company Transitioning 1
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
7000 15000 30000 60000 (2000)
(12000) (4000) 10000
- Company Transitioning from Consulting to Products
- 2001 License Revenue only 1MM
- Deep industry vertical knowledge but need
complete business team - Good near term potential for product uncertain
ultimate market size - 35MM pre raising 15MM.
14Consulting Company Transitioning 2
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
5000 6000 15000 30000 (5000)
(12000) (10000) 0
- Company Transitioning from Consulting to Products
- 2001 License Revenue 3MM One big customer
several pilots - Good Team but only half built
- Attractive near term vertical market but lots of
potential competition
15Consulting Company Transitioning 2
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
5000 6000 15000 30000 (5000)
(12000) (10000) 0
- Company Transitioning from Consulting to Products
- 2001 License Revenue 3MM One big customer
several pilots - Good Team but only half built
- Attractive near term vertical market but lots of
potential competition - 15MM pre raising 20MM.
16Big Burn Rocket
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
0 30000 75000 150000 (40000)
(30000) 0 25000
- Huge Product Development Project
- Very Successful First Year of Sales
- Great Team
- Big Broad Horizontal Market but lots of
competition
17Big Burn Rocket
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax
0 30000 75000 150000 (40000)
(30000) 0 25000
- Huge Product Development Project
- Very Successful First Year of Sales
- Great Team
- Big Broad Horizontal Market but lots of
competition - 250MM pre raising 25MM.
18Conclusions
- Lots of out there but it is nervous money
- Great Deals get Great Valuations lots of money
- Good Deals get Low Valuations
- OK deals or problem deals dont get funded
- Existing Companies get recapitalized if
existing investors arent all very supportive
19Conclusions
- Valuation prediction requires a complex highly
nonlinear model incorporating the following
factors - 1) Management Amazing Track Records is key
- 2) Potential Revenue Growth How fast can you
get to 100MM in revenues - 3) Capital Efficiency Get there with as little
cash as possible - 4) Market Can it be huge How much
competition What are the odds of this company
being the category leader - 5) Risk of Loss What is the chance the company
will go under OR need more money in another
round which could lead to a wipeout