Venture Capital Valuations Ollie Curme General Partner, Battery Ventures 781 577.1240 olliebattery.c - PowerPoint PPT Presentation

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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
2
A 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
3
Battery 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)

4
Recent 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

5
Public Software Company Valuations
Public Software Valuations
Market Cap to Revenue Ratio
Net Profitability
Annual Growth Rate
6
Guess the Valuation Early Stage
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


NA 0 2,500 10,000 NA
(1,500) (2,000) (2,000)
  • 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
Early Stage
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


NA 0 2,500 10,000 NA
(1,500) (2,000) (2,000)
  • 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

8
Series C Expansion Round
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


171 3,800 7,500
15,000 (10,000) (8,000) (3,000)
2,000
  • Successful initial Product Launch
  • Company Successfully cut Burn Rate
  • Good Team, Little Competition
  • Huge Market in Financial Services

9
Series C Expansion Round
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


171 3,800 7,500
15,000 (10,000) (8,000) (3,000)
2,000
  • 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.

10
Real Company, Real Issues
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


6,000 7,500 10,000
20,000 (10,000) (8,000) (5,000)
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

11
Real Company, Real Issues
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


6,000 7,500 10,000
20,000 (10,000) (8,000) (5,000)
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

12
Consulting Company Transitioning 1
2003
( In Millions)
2000
2001
2002
7,000 15,000 30,000 60,000 (2,000)
(12,000) (4,000) 10,000
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

13
Consulting Company Transitioning 1
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


7,000 15,000 30,000 60,000 (2,000)
(12,000) (4,000) 10,000
  • 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.

14
Consulting Company Transitioning 2
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


5,000 6,000 15,000 30,000 (5,000)
(12,000) (10,000) 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

15
Consulting Company Transitioning 2
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


5,000 6,000 15,000 30,000 (5,000)
(12,000) (10,000) 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.

16
Big Burn Rocket
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


0 30,000 75,000 150,000 (40,000)
(30,000) 0 25,000
  • Huge Product Development Project
  • Very Successful First Year of Sales
  • Great Team
  • Big Broad Horizontal Market, but lots of
    competition

17
Big Burn Rocket
2003
( In Millions)
2000
2001
2002
Revenues Pre-Tax


0 30,000 75,000 150,000 (40,000)
(30,000) 0 25,000
  • Huge Product Development Project
  • Very Successful First Year of Sales
  • Great Team
  • Big Broad Horizontal Market, but lots of
    competition
  • 250MM pre, raising 25MM.

18
Conclusions
  • 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

19
Conclusions
  • 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?
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