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 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
7Early 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
8Series 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
9Series 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.
10Real 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
11Real 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
12Consulting 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
13Consulting 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.
14Consulting 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
15Consulting 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.
16Big 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
17Big 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.
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?