Edit : I made a mistake in Groupon multiple. Groupon trades at 2.5 times revenue not total sales transacted. Using sales transaction, Groupon trades at 1.4 times at current $12 shareprice of 8B market cap. So Dealguru sale at 50/38 = 1.3 times or so is quite fairly valued. It also means there is no obvious valuation upside for Dealguru holding on the ibuy shares.
This post follows from my post about Patrick Grove's Empire. Earlier this week, got news that iBuy ( a new vehicle which will list on ASX) has entered to buy DealGuru and 2 other deal sites in the region. The deal will form an instant A$70M revenue business and the CEO of the entity will be Patrick Linden from Dealguru.
This is again a good move from Patrick Grove of Catcha Group. He buys these companies via 1/3 cash and 2/3 share swap at 1 times past 12 months revenue and he will unlock value in their respective markets and then the ASX market will accord them a better multiple which will then result in win win for not just Patrick but for the guys who sold the business to him. Take note that Groupon is now valued at 2.5 times revenue past 12 months. So there is an easy 2.5 times capital gain here.
Whats more, because he intends to raise about 33M from IPO investors and probably some bond investors, this means he is using OPM for the combined entity. That is a cool Series B/C done via IPO route again! Really love the guy.
How about the guys who sold and what does it mean for the deal industry or ecommerce industry?
Well, i have only met Patrick Linden a long time ago before he started Dealguru. Came across as intelligent, nice and sharp person. Insead grad i think....
Anyway, he and his partner each own about 18% of the company, so they get S$2.25M cash first and end up owning about 4% of combined entity. I think it is a smart arrangement all ways. That way , they are committed to growing the business and if it grows 2.5 times, then Patrick and partner are looking at real money. For example, at present value, their stake is each worth about $7M give or that. But if share price increases 2.5 fold... then it is a deal worth about S$14M.
But they should take note that they need to replicate what iProperty did and they are up against much stronger players like Groupon, Taobao, Q100 etc. Basically there are so many big and small ecommerce players and deal sites are not focused yet.
So happy for Patrick and partner. And patrick linden has a new challenge to run as CEO with Patrick Grove as chairman. Rebate I guess will be happy since they own 62% and have a successful exit.
As for other deal site clones and other ecommerce players, this deal may not be that great. It offers a new competitor that is listed and regional. And it also values them at 1 time revenue which is quite a lot lower than the Series A rounds where i am hearing valuations of 1.5 to 2.5 or even higher valuations.
Feel free to comment and share!
Thoughts on startup scene in South East Asia. While effort is made to be accurate in terms of numbers, i may sometimes get the data wrong. My purpose is to share what i know and what i have learned over the past 23 years. Feel free to leave comments or to email me. And if you are keen to learn more about Angel Investing pls visit https://www.angelcentral.co/investors/membership
Tuesday, December 10, 2013
Monday, December 9, 2013
Patrick Grove's Empire.
Kudos to Patrick Grove again. He is truly a strong deal maker. For readers who do not know Patrick's background. I will cover the iBuy and Dealguru thoughts in another post. But first...
Patrick was from the first dot com boom and started this general portal called Catcha which was meant to be like Yahoo for SEA. They raised money and were all geared up for IPO. But market crashed in April 2000 and they missed the window. What happened next is quite a tough period as Patrick and partners bought out their investors and pivoted the business into an English magazine publisher based in KL. They grew that until some in 2007 or 2008 when he went back into the dot com area with his purchase of iProperty in malaysia and at the same time pushing the malaysian Catcha Media into becoming a reseller for MSN and other digital media properties.
What happened next is what i admire him for.
He somehow managed to string together a bunch of in principle aquisitions and concurrently IPO on ASX the iproperty group. Between 2008 to 2013, the company used Other Peoples Money from IPO, European investors and rights issues to expand regionally with mixed results. iProperty is super successful in Malaysia but has lost out to Propertyguru in SG. Current market valuation is A$355M or about S$400M. iProperty sales is at A$15M last 12 mths with a loss of 1.5M or so. Mostly winning in MY market.
He is a significant shareholder via Catcha Group which owns about 23% of iProperty. He is majority shareholder of Catcha group. So what he did is to structure the initial deal, build up a team of good executives from REA group (top Australian portal) and then get the business to work in this region. 1.5M loss is not a big deal if iProperty can continue to grow and scale. And their losses are reducing. So to outside investors, he has proven his ability to deliver to shareholders so far.
Also to note, this market valuation i am sure has helped Propertyguru get the price they wanted for their deal. So it is not always a bad thing that your competitors get good deals!
The next thing he did was to list the malaysia Catcha Media at a RM100M valuation. Much lower valuation since the market is KL and also magazine publishing is less sexy. In testament to his deal power, he has recently merged it with Says.com and has gotten the Says guys to try to grow this business well in MY. But i think the lesson is that KL investors value dot coms a lot less than in Australia. I believe investors right now are still valuing Catcha Media below IPO price.
The next deal he did was last year when he entered the car market but IPO yet another low revenue and profitless firm on ASX leveraging on his success with iProperty. iCarAsia is currently doing what iproperty did 5-6 years ago and trying to build up car portals in SEA. Market cap of A$71M on barely annualized 1.5M revenue!!!!
Whether iCarAsia can become another iProperty really depends on execution next few years. Will be interesting to watch.
So what he has effectively done is to seed fund privately and do his series A, B,C via the stock market. The ability to IPO at Series A/B round is where his magic is.
Most recently, he created a new company to enter ecommerce space via acquiring key deal sites in 3 countries. Will talk about iBuy in another post.
Patrick was from the first dot com boom and started this general portal called Catcha which was meant to be like Yahoo for SEA. They raised money and were all geared up for IPO. But market crashed in April 2000 and they missed the window. What happened next is quite a tough period as Patrick and partners bought out their investors and pivoted the business into an English magazine publisher based in KL. They grew that until some in 2007 or 2008 when he went back into the dot com area with his purchase of iProperty in malaysia and at the same time pushing the malaysian Catcha Media into becoming a reseller for MSN and other digital media properties.
What happened next is what i admire him for.
He somehow managed to string together a bunch of in principle aquisitions and concurrently IPO on ASX the iproperty group. Between 2008 to 2013, the company used Other Peoples Money from IPO, European investors and rights issues to expand regionally with mixed results. iProperty is super successful in Malaysia but has lost out to Propertyguru in SG. Current market valuation is A$355M or about S$400M. iProperty sales is at A$15M last 12 mths with a loss of 1.5M or so. Mostly winning in MY market.
He is a significant shareholder via Catcha Group which owns about 23% of iProperty. He is majority shareholder of Catcha group. So what he did is to structure the initial deal, build up a team of good executives from REA group (top Australian portal) and then get the business to work in this region. 1.5M loss is not a big deal if iProperty can continue to grow and scale. And their losses are reducing. So to outside investors, he has proven his ability to deliver to shareholders so far.
Also to note, this market valuation i am sure has helped Propertyguru get the price they wanted for their deal. So it is not always a bad thing that your competitors get good deals!
The next thing he did was to list the malaysia Catcha Media at a RM100M valuation. Much lower valuation since the market is KL and also magazine publishing is less sexy. In testament to his deal power, he has recently merged it with Says.com and has gotten the Says guys to try to grow this business well in MY. But i think the lesson is that KL investors value dot coms a lot less than in Australia. I believe investors right now are still valuing Catcha Media below IPO price.
The next deal he did was last year when he entered the car market but IPO yet another low revenue and profitless firm on ASX leveraging on his success with iProperty. iCarAsia is currently doing what iproperty did 5-6 years ago and trying to build up car portals in SEA. Market cap of A$71M on barely annualized 1.5M revenue!!!!
Whether iCarAsia can become another iProperty really depends on execution next few years. Will be interesting to watch.
So what he has effectively done is to seed fund privately and do his series A, B,C via the stock market. The ability to IPO at Series A/B round is where his magic is.
Most recently, he created a new company to enter ecommerce space via acquiring key deal sites in 3 countries. Will talk about iBuy in another post.
Monday, December 2, 2013
When to give up
I had a rather disturbing tea session with a passionate startup entrepreneur 1+ months ago. We chatted for about 2 hours and it was revealed that he has basically thrown in everything he has but the kitchen sink in terms of his personal resources and energy. The business has pivoted 2 times and he is hoping that 3rd time lucky this dec. Basically has enough cash for 1+ months of expenses left. Core team has changed a once over last 2+ years. And there is still no traction. He was almost in tears when he shared his experience and that is when i knew he was probably being very honest and perhaps it was a form of release to talk it out too.
Now I usually try my best not to tell people what to do because i believe there are many routes to success and sometimes there is no one size fit all answer for startup decision making. What i like to do is to share what happened to me and situations i know well and let the listening decide if i am relevant in what i am saying.
But in this case, i found myself quite sure he should give up. Here is my reasoning for when an entrepreneur should give up on a startup, take some time off, get a corporate job, regroup before deciding to startup again maybe 1or more years later.
If one or more of the below fit your circumstance, perhaps you should consider giving up.
1) KPIs for traction not happening despite 1 or 2 or more pivots. Usually a startup will set usage metrics for each month and key ones for every 3,6, 12 months. If you are not even remotely hitting these metrics (read 50% or more) in spite of spending on marketing and tech to iterate and improve, then perhaps the market is just not there as you envisage it.
2) Core team leaving in droves or all gone. Worse still, key founding partners change. This is a clear sign that the faith in the vision is gone. It can be due to (1), it can be due to your personal leadership style. Either way, it means you will have more problem getting the business growing. You will be spending time on people hiring, mgmt, on boarding and generally HR firefighting issues.
3) Pivoted more than twice with no results. And duration is more than 2 years. Personally, i would give anything up to 1.5 years for a startup to show some results. Results can be funding, revenue, traffic metrics etc. But i put it as 2 years as some people may be more patient than me.
It is also telling that in our digital space, 2 years is a very long time. eCommerce exploded in the last 2 years, so assumptions made in 2011 and probably being revised and pivoted now in 2013.
I know this can be contentious as there are companies that succeeded only after 2 years. But i think it depends on where you are at in (1), (2). If you are just getting by, some revenue, good team, then you have runway to hang on and try more times.
4) Mental and physical health facing major issues. If you are falling sick all the time, unable to concentrate, cannot sleep well, basically body going to hell and losing your mind, i think it is time to throw in the towel. Entrepreneurship is a great experience but not at the expense of your life. It is very selfish to expect your loved ones to suffer so greatly with you.
Feel free to comment and add on.
Now I usually try my best not to tell people what to do because i believe there are many routes to success and sometimes there is no one size fit all answer for startup decision making. What i like to do is to share what happened to me and situations i know well and let the listening decide if i am relevant in what i am saying.
But in this case, i found myself quite sure he should give up. Here is my reasoning for when an entrepreneur should give up on a startup, take some time off, get a corporate job, regroup before deciding to startup again maybe 1or more years later.
If one or more of the below fit your circumstance, perhaps you should consider giving up.
1) KPIs for traction not happening despite 1 or 2 or more pivots. Usually a startup will set usage metrics for each month and key ones for every 3,6, 12 months. If you are not even remotely hitting these metrics (read 50% or more) in spite of spending on marketing and tech to iterate and improve, then perhaps the market is just not there as you envisage it.
2) Core team leaving in droves or all gone. Worse still, key founding partners change. This is a clear sign that the faith in the vision is gone. It can be due to (1), it can be due to your personal leadership style. Either way, it means you will have more problem getting the business growing. You will be spending time on people hiring, mgmt, on boarding and generally HR firefighting issues.
3) Pivoted more than twice with no results. And duration is more than 2 years. Personally, i would give anything up to 1.5 years for a startup to show some results. Results can be funding, revenue, traffic metrics etc. But i put it as 2 years as some people may be more patient than me.
It is also telling that in our digital space, 2 years is a very long time. eCommerce exploded in the last 2 years, so assumptions made in 2011 and probably being revised and pivoted now in 2013.
I know this can be contentious as there are companies that succeeded only after 2 years. But i think it depends on where you are at in (1), (2). If you are just getting by, some revenue, good team, then you have runway to hang on and try more times.
4) Mental and physical health facing major issues. If you are falling sick all the time, unable to concentrate, cannot sleep well, basically body going to hell and losing your mind, i think it is time to throw in the towel. Entrepreneurship is a great experience but not at the expense of your life. It is very selfish to expect your loved ones to suffer so greatly with you.
Feel free to comment and add on.
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