I have met with Patrick grove two or three times last 10 years. Always impressed me with his deal making prowess. He has done it again by getting REA to pay 28.7 times last 12 month sales (not profit!). Furthermore on a forward earnings basis, iProp is expected to do about A$35-40M if they maintain growth rate of > 50%. Divide by A$750M valuation and we get about 19-20 times forward sales. Either way we look at it, this is a super high valuation that exceeds what all companies including SAAS companies get which is about 10 to 20 times sales. It eclipses both the Zopim and Hungrygowhere multiple by a factor of 2! Also to note, it has not even broken even and is slightly loss making though MY is solidly profitable.
So what could prompt REA to pay so much? Obviously it is a new geographical market in countries where buyers are like Australians pretty crazy about property. iProp operates in Malaysia, HK, SG, ID and Thailand. So from a geographical synergy point of view, it makes great sense. REA has also tested waters owning a <20% minority stake in iProp for quite a while already. So they are clearly comfortable with the ex REA management team that Patrick has gathered for iProp.
In addition, the demographics are in favour of Asian property portals. The population here is huge and HK is an entry into the China market. Both make for excellent long term stories to investors of REA.
The other synergy could be in terms of putting REA practices to help leapfrog what iProp does to really rule the region. iProp is relatively basic classifieds system and maybe with REA better products and processes, it can accelerate growth even quicker and take a lead over chief competitor Propguru in the region.
Of course REA can afford the acquisition, they have about 280M EBITDA, strong cash position of A$80M which will allow them to finance the needed 480M debt comfortably. On the competitor side, Propertyguru will probably view this as a positive as it takes time for new management to effect positive change and this kind of valuation will probably help them in their next rounds or IPO. Propertyguru has raised a lot of cash last few years and so will probably be able to take iProp on even with REA as a shareholder. A possibility could be for REA to do what SEEK did (bought out both JobsDB and Jobstreet) and buy out both iProp and Propguru since in terms of revenues, I believe the overlap is not huge with Propguru being so dominant in SG while iProp does so in MY.
SO WHO GETS WHAT?
In terms of shareholders, iProperty major beneficiary will be the shareholders of Catcha Pte Ltd which owns 16.7% or about 31M shares worth A$124M. Patrick last I checked owns about 61.5% of Catcha Pte Ltd, so that is a A$76M payday. Very similar to what Jobstreet Mark Chang got for his sale of Jobstreet last year. He has only 2 other partners, Luke and Ken who own the rest of the 38.5% with Ken having more. Very nice pay day for them too.
Another positive thing is that this deal also gives the shareholders of the companies which Patrick acquired to build up iProp a nice bonus. These smaller shareholders took cash and iProperty shares at various prices over the years depending on when he acquired them. If they held on they would have gotten a nice premium due to this sale. Its a great win win which will help Patrick be even more credible in his future deals when he stitches for more companies together.
The last lesson I have from Patrick is that deal making can be a supremely effective skill set for an entrepreneur. Besides iProp, Patrick via Catcha Group has his fingers in Ensogo, Rev media, iFlix, iCarsasia and also a VC fund! He has leveraged his smallish sized print publishing Malaysian catcha media into a veritable internet empire! And most of it has been done by buying out smaller players who don't have his ability to sell a regional vision and to tap the capital markets in ASX.
Will be waiting to see if he can do the same with the other companies in his portfolio. My hats off to this deal maker!
Ps: there is a break deal penalty of 7.5m and the deal will only complete 1q or 2q next year. So as usual everything needs to look lovely both ways and it ain't over till the money's in the bank!
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
Showing posts with label acquisition. Show all posts
Showing posts with label acquisition. Show all posts
Thursday, November 5, 2015
Sunday, July 12, 2015
Analysis on Luxola Deal
This is a nice deal all round. For investors, management and hopefully for sephora over time. I first met Alexis at Blk 71 at a closed door event for a European politician. Not enough time to know her well but it was a positive one. Very no nonsense and strong lady. At that time luxola probably just raised the 2+m gree round and so it was all very much early days business wise.
Fast forward 2 ish years and she has sold her business to sephora. Though Acra has neither reflected the transfer of shares or any new invested capital, perhaps that will come in time.. No reason to doubt her, so I am sure all forthcoming. Though I would urge readers to not count our chickens until they are hatched. For me, that means no press releases until shares transfered and money in the bank.
Summary of key points.
1) luxola started in 2011 by Alexis who is American and another cofounder Todd. Idea is to do niche ecommerce in women's cosmetics and skincare. Learned from another ecommerce investment that nicheing is the way to higher gross margins which is super important for Ecommerce firms. General sites live wth 5-15% gross profit margins of General Merchandise Value (GMV). Niche sites should be higher. Also, GMV x gross margins gives us in a sense ,the real revenue of the startup. And you need that real revenue run rate to hit 50/60k a month to raise series A. So if your gross margin is 10%, you need at least 500k sales per mth. If a niche site with 40% gross, then you just need 150k ish GMV.
2) Luxola in year end 31st March 2014 did 2.654m sgd with 2.253m cogs. That means gross margin is 17.8%. That is actually rather low for a niche site. Could be because have not scaled up yet so no bulk discount on purchases and other economies of scale. Anyway I am sure most of that revenue is in 1q2014 which explains confidence by transcosmo, Priolo, global brain and others to invest the series B round of 10-12m usd.
3) before that luxola also had gree investing 2.456m sgd in April 2013 and wavemaker investing 600k usd or so in 2011/12. These 2 funds are good winners esp the latter.
4) sephora probably sees the team and audience as something they want in asean. I am not a cosmetic or fmcg expert. So will leave it as that. Perhaps someone else can fill in who knows more. Ecommerce multiples are now 3-4 times GMV. Used to be 2 to 2.5 just 1 year ago. But I guess niche maybe worth a bit more. Let's use 3 GMV and assume from 2.6m to 15m in GMV which is pretty fast for 2 years work. That means sale price is 45m sgd + 7.5m remainder cash or about 52.5m total sale price which is pretty close to what press seems to say. That's about sgd 10.8 per share.
5) so who gets what? And is it a good deal?
a) Alexis and Todd are main founders owning about 550k shares and 230k or about 6m sgd and 2.5m for 4-5 years work. Kudos to them! It also appears that Company gave up 3m worth of options to staff including Todd. This is very generous and seems to have come from Alexis shares.
b) wavemaker is a big winner. They paid about 1.66 per share. Make about 6 times their money in 3/4 years! So 600k usd to 3.6m usd or so. And if this was an nrf deal, even better irr!
c) gree also win. About 4 times their 2.45m investment in 2 years!
d) the latest round Priolo guys not so good. About 18% gain since they paid usd 7 per share. But they do have liquidity pref.
Note : the pref shares esp from various round have 6-8% liquidity preference. So probably ordinary guys like mgmt and wavemaker get a bit less than what I counted. Also the sale price of 52.5m is guesstimate. It could he 40m or 65m.
One thing that strikes me writing as a Singaporean is that there is minimal Singaporean shareholders in this deal. While having luxola based here does create jobs , build talent pool and help our buzz, it is a bit like viki. Minimal capital gain benefit to any sporean vc or mgmt. This is not a bad thing by itself so long as we also have deals like zopim, Streetsine, JobsCentral (all majority sporean owners) at the same time.
The other thing is that if indeed Alexis was the one who gave 300k shares to staff as option pool, she is a very generous lady! She has also been paying herself and Todd together about 105k in fy2014. That is a very fair salary for even 1 pax who owns 10-15% of company. Wrote on this before.
Last of all, I find the multiple of 3 on gmv quite high. Just 2-3 years ago it was 1-2 times. And I actually think it should stabilize at 1-2 times max depending on gross margins and ultimately profits. But that is just conservative me. Those of you running ecommerce firms should make hay while the sun shines!
As usual best effort based on Acra reports. Take what I write with pinch of salt and feel free to comment. I do this to help promote transparency and help share on how I think about deals. So if you find it helpful, please share your knowledge openly too and give a helping hand to fellow entrepreneurs.
Fast forward 2 ish years and she has sold her business to sephora. Though Acra has neither reflected the transfer of shares or any new invested capital, perhaps that will come in time.. No reason to doubt her, so I am sure all forthcoming. Though I would urge readers to not count our chickens until they are hatched. For me, that means no press releases until shares transfered and money in the bank.
Summary of key points.
1) luxola started in 2011 by Alexis who is American and another cofounder Todd. Idea is to do niche ecommerce in women's cosmetics and skincare. Learned from another ecommerce investment that nicheing is the way to higher gross margins which is super important for Ecommerce firms. General sites live wth 5-15% gross profit margins of General Merchandise Value (GMV). Niche sites should be higher. Also, GMV x gross margins gives us in a sense ,the real revenue of the startup. And you need that real revenue run rate to hit 50/60k a month to raise series A. So if your gross margin is 10%, you need at least 500k sales per mth. If a niche site with 40% gross, then you just need 150k ish GMV.
2) Luxola in year end 31st March 2014 did 2.654m sgd with 2.253m cogs. That means gross margin is 17.8%. That is actually rather low for a niche site. Could be because have not scaled up yet so no bulk discount on purchases and other economies of scale. Anyway I am sure most of that revenue is in 1q2014 which explains confidence by transcosmo, Priolo, global brain and others to invest the series B round of 10-12m usd.
3) before that luxola also had gree investing 2.456m sgd in April 2013 and wavemaker investing 600k usd or so in 2011/12. These 2 funds are good winners esp the latter.
4) sephora probably sees the team and audience as something they want in asean. I am not a cosmetic or fmcg expert. So will leave it as that. Perhaps someone else can fill in who knows more. Ecommerce multiples are now 3-4 times GMV. Used to be 2 to 2.5 just 1 year ago. But I guess niche maybe worth a bit more. Let's use 3 GMV and assume from 2.6m to 15m in GMV which is pretty fast for 2 years work. That means sale price is 45m sgd + 7.5m remainder cash or about 52.5m total sale price which is pretty close to what press seems to say. That's about sgd 10.8 per share.
5) so who gets what? And is it a good deal?
a) Alexis and Todd are main founders owning about 550k shares and 230k or about 6m sgd and 2.5m for 4-5 years work. Kudos to them! It also appears that Company gave up 3m worth of options to staff including Todd. This is very generous and seems to have come from Alexis shares.
b) wavemaker is a big winner. They paid about 1.66 per share. Make about 6 times their money in 3/4 years! So 600k usd to 3.6m usd or so. And if this was an nrf deal, even better irr!
c) gree also win. About 4 times their 2.45m investment in 2 years!
d) the latest round Priolo guys not so good. About 18% gain since they paid usd 7 per share. But they do have liquidity pref.
Note : the pref shares esp from various round have 6-8% liquidity preference. So probably ordinary guys like mgmt and wavemaker get a bit less than what I counted. Also the sale price of 52.5m is guesstimate. It could he 40m or 65m.
One thing that strikes me writing as a Singaporean is that there is minimal Singaporean shareholders in this deal. While having luxola based here does create jobs , build talent pool and help our buzz, it is a bit like viki. Minimal capital gain benefit to any sporean vc or mgmt. This is not a bad thing by itself so long as we also have deals like zopim, Streetsine, JobsCentral (all majority sporean owners) at the same time.
The other thing is that if indeed Alexis was the one who gave 300k shares to staff as option pool, she is a very generous lady! She has also been paying herself and Todd together about 105k in fy2014. That is a very fair salary for even 1 pax who owns 10-15% of company. Wrote on this before.
Last of all, I find the multiple of 3 on gmv quite high. Just 2-3 years ago it was 1-2 times. And I actually think it should stabilize at 1-2 times max depending on gross margins and ultimately profits. But that is just conservative me. Those of you running ecommerce firms should make hay while the sun shines!
As usual best effort based on Acra reports. Take what I write with pinch of salt and feel free to comment. I do this to help promote transparency and help share on how I think about deals. So if you find it helpful, please share your knowledge openly too and give a helping hand to fellow entrepreneurs.
Sunday, April 13, 2014
Entrepreneurs - How to Manage That Windfall !
Entrepreneurs who have a liquidity event are often like lottery winners. They are not well equipped to know how to manage the money esp if they are not from a wealthy family and have always lived a more normal/middle class lifestyle. They can end up being too conservative or too risk taking and the worst part is that they may not even be aware of it. Entrepreneurs also have an added problem of usually having a big ego, always optimistic and wanting to make all the decisions ourselves. Good recipe for investment failure.
I am writing this article so share some learning experiences which i had over the years. Both from reading, own experience and from others. Please feel free to comment and add experiences.
1) Don't touch bulk of money for next 6-12 months
Say you suddenly now have X million in the bank after a trade sale. There is a further prospect of another Y million over the next 2-3 years. You feel rich and super liberated. At the same time, everyone seems to expect you to give back and to start showing the moolah.
I would suggest to just do nothing major with the money. Put 90% of it in FD or a few 6 mth super safe bond. Let yourself and your family get used to your new found wealth. By all means, go for nice $$$$ dinner, buy a cartier ring or hermes bag for your loved one. Or take a 5 star vacation with the family for once. But don't spend anything more than 1% max 2% of your new net worth on these extravagant purchases. For Singapore, it means don't go buy a sports car that costs $500K right away unless you have $25M or more.
Note i don't mean that we should not buy the sports car unless we have 25M or more. What i mean is that we should let the money sink in and let our brains adjust first. Then if 1-2 years later, you still think that 500K sports car or 100K luxury watch is worth buying, then go get it!
After 6-12 months is up, if you have been doing your homework below, you will have an idea how to invest or work it. Your sense of value will also have adjusted and you will be less prone to impulse buys or dumb financial decisions.
I would suggest to just do nothing major with the money. Put 90% of it in FD or a few 6 mth super safe bond. Let yourself and your family get used to your new found wealth. By all means, go for nice $$$$ dinner, buy a cartier ring or hermes bag for your loved one. Or take a 5 star vacation with the family for once. But don't spend anything more than 1% max 2% of your new net worth on these extravagant purchases. For Singapore, it means don't go buy a sports car that costs $500K right away unless you have $25M or more.
Note i don't mean that we should not buy the sports car unless we have 25M or more. What i mean is that we should let the money sink in and let our brains adjust first. Then if 1-2 years later, you still think that 500K sports car or 100K luxury watch is worth buying, then go get it!
After 6-12 months is up, if you have been doing your homework below, you will have an idea how to invest or work it. Your sense of value will also have adjusted and you will be less prone to impulse buys or dumb financial decisions.
2) Admit you are not a financial planning expert.
Entrepreneurs do well because we are experts in our own micro area. Whether it is software, internet, manufacturing, F&B etc. We need to admit we are not experts in the field of financial planning and portfolio management. So get a private banker(s) to help you.
Most private banks will let you open an account with min US$1M USD and especially if you show you have more to come or with other banks. Be discerning, there are private client solutions out there which is a sandwich tier between Priority Banking and Private Banking. Not so good because their fees tend to be higher. Go for the actual private banks and if possible get a referral so you start with a good relationship manager.
Apply your same determination to build your business to understanding the world of personal finance. Be patient and take the time to learn from others. For starters, learn indepth about the following terms :
Fixed income, equities, interest rates, private equity, hedge funds, portfolio allocation, rebalancing, yield, ROI, options, structured notes, dividends, commodities, gold, property, leverage, inflation.
Most private banks will let you open an account with min US$1M USD and especially if you show you have more to come or with other banks. Be discerning, there are private client solutions out there which is a sandwich tier between Priority Banking and Private Banking. Not so good because their fees tend to be higher. Go for the actual private banks and if possible get a referral so you start with a good relationship manager.
Apply your same determination to build your business to understanding the world of personal finance. Be patient and take the time to learn from others. For starters, learn indepth about the following terms :
Fixed income, equities, interest rates, private equity, hedge funds, portfolio allocation, rebalancing, yield, ROI, options, structured notes, dividends, commodities, gold, property, leverage, inflation.
3) Set Goals for the Money
Now that you have a lump sum, you need to decide what goals you have for it. Is it to preserve and grow this capital? Is it to take high risks with it? This topic is frequently tied up to the actual number you require for financial freedom. For most living standards in SG, it is about S$3-5M range that will allow for retirement in your 40s to 50s. For people who live it up more, even $10M is not enough - skies the limit.
A good advice i got from a tech "qianbei" (older expert) is to build a stable property/bond/equity portfolio that generates cash flow that pays for all annual expenses. So if you spend $360K a year, then at 4% inflation adjusted real returns, this portfolio needs to be about S$9M excluding your residence. The extra money above this 9M can then be used for starting a new business or investing in startups etc.
One word about investing in startups. Be very careful and be prepared to lose all the money. A wise man told me before to spend not more than 10% of your net worth in such investments. Also, for this 10%, spread it out into 50K angel sizes and make sure you can invest in at least 10? Otherwise no diversification. If you can spare less than 500K, i think it makes more sense to be an LP with a venture fund. I know readers may disagree on this. Feel free to comment and share.
Now that you have a lump sum, you need to decide what goals you have for it. Is it to preserve and grow this capital? Is it to take high risks with it? This topic is frequently tied up to the actual number you require for financial freedom. For most living standards in SG, it is about S$3-5M range that will allow for retirement in your 40s to 50s. For people who live it up more, even $10M is not enough - skies the limit.
A good advice i got from a tech "qianbei" (older expert) is to build a stable property/bond/equity portfolio that generates cash flow that pays for all annual expenses. So if you spend $360K a year, then at 4% inflation adjusted real returns, this portfolio needs to be about S$9M excluding your residence. The extra money above this 9M can then be used for starting a new business or investing in startups etc.
One word about investing in startups. Be very careful and be prepared to lose all the money. A wise man told me before to spend not more than 10% of your net worth in such investments. Also, for this 10%, spread it out into 50K angel sizes and make sure you can invest in at least 10? Otherwise no diversification. If you can spare less than 500K, i think it makes more sense to be an LP with a venture fund. I know readers may disagree on this. Feel free to comment and share.
4) Be aware of vastly higher mountains, maintain humility, give generously.
Don't let money change you. We are still the same people. We just have more responsibility since we are lucky enough to have exited our businesses. Continue to be useful to your family and people around, continue to learn and be generous. One method that has worked very well for me is to interact with people who are both a lot more successful and a lot less successful in terms of wealth or career. Listening to the both groups share their experiences and perspective and observing keeps me grounded.
We can't take our money with us. So give generously annually if you can. Many people lose out on the genetic/life lottery which you won. So give back to society and worthy causes in a sustainable way.
5) Spend within your means!
Be careful not to be seduced by the ever upward spiraling lifestyle which one segment of society espouses. If you are below 35 and have self-made millions, there is a tendency to think believe you can duplicate it again and be overconfident in your next venture or investments. There is also a possibility you may upgrade your lifestyle to beyond your income and wealth. Note, i am not advocating to be stingy, upgrade your lifestyle by all means just don't go above it. A good rule of thumb is that you should aim for total spending <70% of total income per year.
You did not get to exit your business without brains, so apply it to model carefully what you can or cannot afford, use it to plan out your investment plans and act on it.
I hope the above 5 points help fellow fortunate entrepreneurs in terms of starting to think about what to do with their new found wealth. Feel free to email me or add comments.
Don't let money change you. We are still the same people. We just have more responsibility since we are lucky enough to have exited our businesses. Continue to be useful to your family and people around, continue to learn and be generous. One method that has worked very well for me is to interact with people who are both a lot more successful and a lot less successful in terms of wealth or career. Listening to the both groups share their experiences and perspective and observing keeps me grounded.
We can't take our money with us. So give generously annually if you can. Many people lose out on the genetic/life lottery which you won. So give back to society and worthy causes in a sustainable way.
5) Spend within your means!
Be careful not to be seduced by the ever upward spiraling lifestyle which one segment of society espouses. If you are below 35 and have self-made millions, there is a tendency to think believe you can duplicate it again and be overconfident in your next venture or investments. There is also a possibility you may upgrade your lifestyle to beyond your income and wealth. Note, i am not advocating to be stingy, upgrade your lifestyle by all means just don't go above it. A good rule of thumb is that you should aim for total spending <70% of total income per year.
You did not get to exit your business without brains, so apply it to model carefully what you can or cannot afford, use it to plan out your investment plans and act on it.
I hope the above 5 points help fellow fortunate entrepreneurs in terms of starting to think about what to do with their new found wealth. Feel free to email me or add comments.
Thursday, April 10, 2014
Analysis on Zopim acquistion by Zendesk
This deal is a great validation that it is possible to build a globally relevant business out of Singapore. I first encountered Zopim a few years ago and got JobsCentral to use their voice chat SAAS solution. They have a very simple and effective product and sold it on a freemium model which works great. I started hearing more about them and it is wonderful to know that they have negotiated a fair exit for themselves and shareholders. Here are some details and comments. For once, tech blogs have covered them pretty well :
http://www.techinasia.com/singapores-zopim-acquired-zendesk/
1) Revenue based on ACRA ending Mar 2013 is 1.8M in revenue as recognized properly. PBT is 362K. So it is quite safe to assume a continued 100+% growth rate and project revenue ending Mar 2014 is about min 3.5 to 4M with profit of at least 700K to 1M. My guess is closer to 1M since there is great economies of scale for SAAS.
Share table as shared by techinasia is accurate.
2) I particularly like this story because i know SAAS is the current highly valued wave. Zendesk is probably going to IPO at min 10 times sales of 73 or about 700-800M. They may even be able to do 1B IPO. So for players in the SAAS space, this is the best time to raise and to exit partially or fully. Zopim is also great because they are profitable.
3) Some have commented that exiting for 15.9M + 13.9M earnout is a little early since clearly Zopim is growing nicely and is profitable. So founders have time. I somewhat agree but i always feel outsiders do not know all the details and feelings which founders have. And anyway once the deal is done, founders should be happy with their decision. So ignore your detractors Royston and gang and enjoy the new found freedom.
Moveover, looking at the structure of the deal, Zopim is being valued 37M SGD. That is probably 10 times multiple to their revenue. Very fair as that is the IPO valuation likely for Zendesk. Of course, the devil is in the details of earnout. This one only founders and zendesk will know. My guess is that is a proportionate tied to revenue/EBITDA mix and the 13.9M is the cap performance.
10 times sales is actually a very high valuation which currently only biotech and SAAS tech companies are given. But it is not the record for Singapore. That is held by the hungrygowhere guys who sold for about 12 times sales although a smaller total value.
4) The earnout structure of about 50+% first in cash and stock and later the rest over 2-3 years will allow mgmt team to ride the upside both in their business and also in the overall market valuation of SAAS companies. If the market values Zendesk highly in the next 2-3 years, mgmt may find that their 15-20M in stock could double or triple in value. So from this angle, i think mgmt did not sell early but rather is betting on being part of a bigger entity as a route to get better valuation for Zopim.
All in all a very nice deal. And i think as there are more exits that earn the founders 5,10,15M or more, there is room for an article next on how to handle a entrepreneurship linked windfall. The story and learning just started.... Stay tuned.
http://www.techinasia.com/singapores-zopim-acquired-zendesk/
1) Revenue based on ACRA ending Mar 2013 is 1.8M in revenue as recognized properly. PBT is 362K. So it is quite safe to assume a continued 100+% growth rate and project revenue ending Mar 2014 is about min 3.5 to 4M with profit of at least 700K to 1M. My guess is closer to 1M since there is great economies of scale for SAAS.
Share table as shared by techinasia is accurate.
2) I particularly like this story because i know SAAS is the current highly valued wave. Zendesk is probably going to IPO at min 10 times sales of 73 or about 700-800M. They may even be able to do 1B IPO. So for players in the SAAS space, this is the best time to raise and to exit partially or fully. Zopim is also great because they are profitable.
3) Some have commented that exiting for 15.9M + 13.9M earnout is a little early since clearly Zopim is growing nicely and is profitable. So founders have time. I somewhat agree but i always feel outsiders do not know all the details and feelings which founders have. And anyway once the deal is done, founders should be happy with their decision. So ignore your detractors Royston and gang and enjoy the new found freedom.
Moveover, looking at the structure of the deal, Zopim is being valued 37M SGD. That is probably 10 times multiple to their revenue. Very fair as that is the IPO valuation likely for Zendesk. Of course, the devil is in the details of earnout. This one only founders and zendesk will know. My guess is that is a proportionate tied to revenue/EBITDA mix and the 13.9M is the cap performance.
10 times sales is actually a very high valuation which currently only biotech and SAAS tech companies are given. But it is not the record for Singapore. That is held by the hungrygowhere guys who sold for about 12 times sales although a smaller total value.
4) The earnout structure of about 50+% first in cash and stock and later the rest over 2-3 years will allow mgmt team to ride the upside both in their business and also in the overall market valuation of SAAS companies. If the market values Zendesk highly in the next 2-3 years, mgmt may find that their 15-20M in stock could double or triple in value. So from this angle, i think mgmt did not sell early but rather is betting on being part of a bigger entity as a route to get better valuation for Zopim.
All in all a very nice deal. And i think as there are more exits that earn the founders 5,10,15M or more, there is room for an article next on how to handle a entrepreneurship linked windfall. The story and learning just started.... Stay tuned.
Thursday, January 23, 2014
When to raise outside capital & what kind of dilution is ok.
Have been talking to quite a few entrepreneurs lately and i realize that many have very mixed views (rightly so) about raising capital from (semi)/ professional investors. Some also never seem to have thought about dilution and seem to have an almost ambivalent attitude about ownership.
So i thought i will pen down my thoughts on these issues both as an entrepreneur who tried to raise money before and as an investor in startups. DISCLAIMER : REGIONAL CONTEXT ONLY.
There is actually only 1 good reason why a tech startup raises money.
Company needs the cash to grow in SG or to expand into overseas markets which current organic cash flow projections cannot meet. Growing can be by organic or acquisition route. Usually your 5 or 3 or 2 year P&L projection shows great revenue growth but you need to spend money to get there and you are negative cashflow for a good period. Then you need funding to tide all that negative cashflow and then some. The extra is buffer.
So if you find that you are in the lucky situation where you are already profitable and cashflow positive. And you actually do not have a burning vision that you cannot execute due to lack of money, then perhaps you should not be fund raising. Even though usually, this is when VCs and investors and brokers will bug you the most to raise. They will tell you stuff like money in the bank is king, having a buffer is always good, you never know, how much network and strategic help they can give etc etc.
They are not wrong. But you need to weigh that against the distraction of fund raising, the distraction of dealing with investors, the value of network and also whether you actually need the money. I have known of at least 2 big internet companies who raised 800K and 1+M each and they actually almost did not touch the money at all until exit!
To be fair, I am not including the strategic help which a good investor can offer and that is valuable. This cannot be underestimated and i think if you find an investor who really helps and cares, then the story is different. For these cases, i have seen people do convertible notes so that valuation is higher later or just raise less money. You still get the help and network but dilute less.
How about dilution? How much is too much or too little for our tech space today?
It really depends on each entrepreneurs goal. But by and large, most entrepreneurs are highly competitive people who benchmark a lot. I think they also want to win and there are many measures of winning. It can be to control the biggest company by revenue or profit or user traffic etc. It can also be a combination of those factors.
1) My first non-contentious observation in SG is that it will be best to bootstrap and skip the angel round. Lets say we have a 2-3 founder team. They run through 100K to build their prototype and a further 50K to market the prototype and raise money. At this stage they still own 100% of the company.
So they raise the Seed round to hire a few pax, market more, build out software more. Lets say they raise 500K at 1.5M premoney. So now, the founders own 75% of the company. With this 500K, they build out SG and after another 1 year want to expand overseas and drive to SG profitability. Now in SG, it is usually a 1.5 to 2.5M raise. So lets say 2M raised at premoney 8M, now founders are down to 60%.
Wait, there is now employee option pool which varies from 5-10% usually paid jointly or out of founder pool. So lets say founders down to 55%.
This is where we depart from USA since our ASEAN market is a lot smaller. With this 2M raised, the tech company needs to grow into exit event. An exit event can be an IPO or a trade sale. There are some fewer cases of raising Series B to expand even further but most of the SG stories exit already - Hungrygowhere, Tencube, Brandtology, Groupon, Dealguru, sgcarmart, Travelmob, Asian food channel all exited after raising 1-2+M. The only ones i know who raise Series B or equivalent is Propguru and Reebonz. Maybe readers can add.
So back to the optimal stake. At 55% left for founders and average sale value of lets say 20M, that is 11M only for say 3 founders. Or about 3.66M each. Now imagine if this company raised a initial bootstrap round that took out 15%, they are left with 2.7M each for about 6 years work if divided evenly.
2) The 2nd observation i have is a lot more contentious. I have seen many teams where the 2-3 founders share the stake equally. While this feels right at the startup phase, it actually does not make sense. A company will require a CEO and driver. That person performs a role that is more stressful and more impactful than other founder roles. And in startup, pay cannot be used to compensate. So i would argue and indeed prefer configurations where the key leader has a much higher stake and plays a stronger role. So in the case of the 3 founders, maybe 50%, 30%, 20% or even 60/20/20. Of course, the founders should put in capital commensurate to their shareholding and i am all for equal or near equal pay among the 3 to show the solidarity.
On the flip side, i would not advocate any key founder having less than 10% equity from the start. Too little to feel any pain and to be aligned well. And after all the dilution, the person will be left with 5%. Too little for talent for our region. They will end up looking around and asking for near market rate salaries to compensate.
As an investor, one thing good about CEO owning the bulk is that we know even if the shit hits the fan, there is one clear person with the most to lose. And that is good alignment.
So i thought i will pen down my thoughts on these issues both as an entrepreneur who tried to raise money before and as an investor in startups. DISCLAIMER : REGIONAL CONTEXT ONLY.
There is actually only 1 good reason why a tech startup raises money.
Company needs the cash to grow in SG or to expand into overseas markets which current organic cash flow projections cannot meet. Growing can be by organic or acquisition route. Usually your 5 or 3 or 2 year P&L projection shows great revenue growth but you need to spend money to get there and you are negative cashflow for a good period. Then you need funding to tide all that negative cashflow and then some. The extra is buffer.
So if you find that you are in the lucky situation where you are already profitable and cashflow positive. And you actually do not have a burning vision that you cannot execute due to lack of money, then perhaps you should not be fund raising. Even though usually, this is when VCs and investors and brokers will bug you the most to raise. They will tell you stuff like money in the bank is king, having a buffer is always good, you never know, how much network and strategic help they can give etc etc.
They are not wrong. But you need to weigh that against the distraction of fund raising, the distraction of dealing with investors, the value of network and also whether you actually need the money. I have known of at least 2 big internet companies who raised 800K and 1+M each and they actually almost did not touch the money at all until exit!
To be fair, I am not including the strategic help which a good investor can offer and that is valuable. This cannot be underestimated and i think if you find an investor who really helps and cares, then the story is different. For these cases, i have seen people do convertible notes so that valuation is higher later or just raise less money. You still get the help and network but dilute less.
How about dilution? How much is too much or too little for our tech space today?
It really depends on each entrepreneurs goal. But by and large, most entrepreneurs are highly competitive people who benchmark a lot. I think they also want to win and there are many measures of winning. It can be to control the biggest company by revenue or profit or user traffic etc. It can also be a combination of those factors.
1) My first non-contentious observation in SG is that it will be best to bootstrap and skip the angel round. Lets say we have a 2-3 founder team. They run through 100K to build their prototype and a further 50K to market the prototype and raise money. At this stage they still own 100% of the company.
So they raise the Seed round to hire a few pax, market more, build out software more. Lets say they raise 500K at 1.5M premoney. So now, the founders own 75% of the company. With this 500K, they build out SG and after another 1 year want to expand overseas and drive to SG profitability. Now in SG, it is usually a 1.5 to 2.5M raise. So lets say 2M raised at premoney 8M, now founders are down to 60%.
Wait, there is now employee option pool which varies from 5-10% usually paid jointly or out of founder pool. So lets say founders down to 55%.
This is where we depart from USA since our ASEAN market is a lot smaller. With this 2M raised, the tech company needs to grow into exit event. An exit event can be an IPO or a trade sale. There are some fewer cases of raising Series B to expand even further but most of the SG stories exit already - Hungrygowhere, Tencube, Brandtology, Groupon, Dealguru, sgcarmart, Travelmob, Asian food channel all exited after raising 1-2+M. The only ones i know who raise Series B or equivalent is Propguru and Reebonz. Maybe readers can add.
So back to the optimal stake. At 55% left for founders and average sale value of lets say 20M, that is 11M only for say 3 founders. Or about 3.66M each. Now imagine if this company raised a initial bootstrap round that took out 15%, they are left with 2.7M each for about 6 years work if divided evenly.
2) The 2nd observation i have is a lot more contentious. I have seen many teams where the 2-3 founders share the stake equally. While this feels right at the startup phase, it actually does not make sense. A company will require a CEO and driver. That person performs a role that is more stressful and more impactful than other founder roles. And in startup, pay cannot be used to compensate. So i would argue and indeed prefer configurations where the key leader has a much higher stake and plays a stronger role. So in the case of the 3 founders, maybe 50%, 30%, 20% or even 60/20/20. Of course, the founders should put in capital commensurate to their shareholding and i am all for equal or near equal pay among the 3 to show the solidarity.
On the flip side, i would not advocate any key founder having less than 10% equity from the start. Too little to feel any pain and to be aligned well. And after all the dilution, the person will be left with 5%. Too little for talent for our region. They will end up looking around and asking for near market rate salaries to compensate.
As an investor, one thing good about CEO owning the bulk is that we know even if the shit hits the fan, there is one clear person with the most to lose. And that is good alignment.
Tuesday, December 10, 2013
iBuy and DealGuru
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!
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!
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.
Wednesday, October 16, 2013
Brandtology Deal Thoughts
(Made some amendments to data about Brandtology numbers below after reading FY2012 statements and also included more about people behind it).This is one of the stories which have been quoted quite widely in media and rightly so! Here is what i have gathered.
Eddie Chau and a few other founders which include Kelly Choo and Roger Yuen of Clozette started Brandtology back in 2008 with great foresight that with social media growing, there will be a strong demand for media monitoring of these platforms coupled with analytics tools. From what i can see, they raised about 1.75M in ordinary share capital and built up the business. Then in 2009, they got funded by Walden Seed Fund for 2M for a 25% stake. So just 1 year later, the firm was valued at 8M post money.
Eddie is a seasoned entrepreneur having already built up and sold e-Cop prior to this venture. His other more outward facing cofounder is Kelly Choo who is a frequent startup event speaker. Nice guy whom i met before as co-panelist. Roger Yuen is probably an investor with about 2.5%. I chatted with Roger in his office at Clozette. Nice "qianbei" who has been in tech much longer than me.
Brandtology was sold to Media Monitor a largish private firm based on out Australia for an undisclosed sum in Feb 2011. This is a short 2 year later. From what i can see, it is a partial sale of about 50% for the working shareholders and a complete exit for Walden. That makes sense since revenue for FY ending March 2010 was only 1.4M or so and clearly acquirers were buying a future story and they need the team and not the VCs. And so that readers do not think this is a skyhigh valuation deal, i believe in 2011, 2012 revenue probably grew dramatically because by FY2012, revenue is at 9.3M or some with 1.3M profit if i can recall what i read accurately. So about 5-7 times sales is not unreasonable.
Shows us that keeping management around and incentives via earnout equivalent structures probably makes a lot of sense and Brandtology current numbers look good. According to their site, they have 200 staff now. Win win all round. Media Monitor (now called iScentia) gets a good growing company whose revenue x8 in 2 short years, Eddie and shareholders got to exit 5-6M in total and still retain half their stakes for upside.
Of course, valuation must have been above 8M for Walden to exit. Sale valuation should be about 12-15M to give a min IRR of 25% for the 2 years. This is pure speculations since we cannot obtain actual sale value publicly. Also, shareholding for the company to me is quite reflective of this kind of deal. Eddie had about 42% stake after Walden came in. I always believe in the CEO/key entrepreneur/owner approach whom the buck stops at. That person needs about min 35% and up. His 2-3 other individual shareholders/founders like Kelly have much smaller stakes (5+%). Whether that incentivises them is another story but my take is that salaries can always help to mitigate a lower equity stake for the cofounders. But to me 5% is about bare min but we have to pay these co-founders properly or increase their stake with time.
What is interesting in this deal is that Media Monitor too has undergone much change. They themselves have been acquired by a PE fund and integrated together with a bunch of other media assets. It will be interesting to see how the PE guys play this one. IPO? Trade Sale? Time will tell. Hopefully the Brandtology team can participate one more time in that exit given that they kept about 50% stake.From what i can see, as of 2013, they are still holding the stake.
Eddie Chau and a few other founders which include Kelly Choo and Roger Yuen of Clozette started Brandtology back in 2008 with great foresight that with social media growing, there will be a strong demand for media monitoring of these platforms coupled with analytics tools. From what i can see, they raised about 1.75M in ordinary share capital and built up the business. Then in 2009, they got funded by Walden Seed Fund for 2M for a 25% stake. So just 1 year later, the firm was valued at 8M post money.
Eddie is a seasoned entrepreneur having already built up and sold e-Cop prior to this venture. His other more outward facing cofounder is Kelly Choo who is a frequent startup event speaker. Nice guy whom i met before as co-panelist. Roger Yuen is probably an investor with about 2.5%. I chatted with Roger in his office at Clozette. Nice "qianbei" who has been in tech much longer than me.
Brandtology was sold to Media Monitor a largish private firm based on out Australia for an undisclosed sum in Feb 2011. This is a short 2 year later. From what i can see, it is a partial sale of about 50% for the working shareholders and a complete exit for Walden. That makes sense since revenue for FY ending March 2010 was only 1.4M or so and clearly acquirers were buying a future story and they need the team and not the VCs. And so that readers do not think this is a skyhigh valuation deal, i believe in 2011, 2012 revenue probably grew dramatically because by FY2012, revenue is at 9.3M or some with 1.3M profit if i can recall what i read accurately. So about 5-7 times sales is not unreasonable.
Shows us that keeping management around and incentives via earnout equivalent structures probably makes a lot of sense and Brandtology current numbers look good. According to their site, they have 200 staff now. Win win all round. Media Monitor (now called iScentia) gets a good growing company whose revenue x8 in 2 short years, Eddie and shareholders got to exit 5-6M in total and still retain half their stakes for upside.
Of course, valuation must have been above 8M for Walden to exit. Sale valuation should be about 12-15M to give a min IRR of 25% for the 2 years. This is pure speculations since we cannot obtain actual sale value publicly. Also, shareholding for the company to me is quite reflective of this kind of deal. Eddie had about 42% stake after Walden came in. I always believe in the CEO/key entrepreneur/owner approach whom the buck stops at. That person needs about min 35% and up. His 2-3 other individual shareholders/founders like Kelly have much smaller stakes (5+%). Whether that incentivises them is another story but my take is that salaries can always help to mitigate a lower equity stake for the cofounders. But to me 5% is about bare min but we have to pay these co-founders properly or increase their stake with time.
What is interesting in this deal is that Media Monitor too has undergone much change. They themselves have been acquired by a PE fund and integrated together with a bunch of other media assets. It will be interesting to see how the PE guys play this one. IPO? Trade Sale? Time will tell. Hopefully the Brandtology team can participate one more time in that exit given that they kept about 50% stake.From what i can see, as of 2013, they are still holding the stake.
Thursday, August 29, 2013
Studying the Hardwarezone deal
HWZ was one of the early pioneers of the internet business. They got
some funding and were bunch of NUS undergraduates who decided to make
their over-clocking hobby site into the CNET or ZDNET of asia. For those
of us who have such long memories, HWZ came up in the same timing as
firms like AsiaStockWatch, LycosAsia, MyScissors, ejazz, MPHonline
etc... crazy stuff in a crazy time. HWZ main leader is Jackie Lee who
now runs ClickTrue. Total business guy. Another founder/shareholder is
Eugene who is now Snr mgmt in SPH magazines.
So here is what i can see. As usual, best effort basis and do not guarantee accuracy of data.
Business Model : Advertising in niche area of technology media
Platforms : Magazines, HWZ portal + super popular forum
USP : Bundled sales approach, so one stop for media buyers/marketing depts. Cleverly used Forum to boost overall traffic numbers.
Amount Funded : S$2.751M for 1.763M shares
Shareholders : Jackie - 25.9%, Eugene - 8.7% + 2 more even smaller individuals <5%, Angels & VCs - the rest or about 50%+.
Acquisition : Sold to SPH Magazines in 2006 in what was the first M&A of a profitable internet company after the dot com bust and the subsequent cold shoulder the world gave internet companies from 2001 to 2005! The firm was valued at 7.1M in cash up front with i am sure an earnout for subsequent 2-3 year performance. So maybe 10-12M in total? That is about 10 times profit which is what SPH will offer back then. Notice how they have changed tack for sgCarMart deals. really teaches us that timing matters a lot! But cash in pocket is cash in pocket.
2005 P&L is revenue of 5.9M with net profit 1.25M or about 21% net margins. Very good numbers considering it was back then in 2005! They were an obvious first mover and did so well. By then, their forum was already #1 in SG for all topics. I have met a few HWZ people over the years, the original team all good! So why did they not continue to grow the business overseas and scale further? Here is what i think happened - pure conjecture and could be totally wrong.
1)Market size they were reaching market potential in SG and cannot see themselves scaling up much further. HWZ was branching out in Golfing mags and other mags. The comment i have on this is that frequently such mgmt assessments are not too accurate and if we have an innovative and motivated team, there is always new areas to expand into. Also, going regional would also be a good decision since their platform is scalable, they have decent core SG revenues and profit to do so.
2)Founders tired. This one quite likely since i too faced such a situation 7-8 years into business. And perhaps their key mgmt shareholding did not motivate them enough since Angel/VC over 50% stake. A bit like the sgcarmart guys too who had a big passive shareholder. At 12M, Jackie took home 3.1M, not bad for 2006. If he bought a house, it would be worth 6M today. Anyway, whatever their reasons, i always maintain that selling is never wrong since the founders obviously were fine to sell and it is their company. Only they know all the details and situation so my advice is to never second guess yourself once you make a decision.
Fast forward to 2008 which is 2 years later and the HWZ revenue is now 9.3M so revenue growth of 57% over 2.5 years. Many of the HWZ people either have left or are integrated within the SPH Mag family. Eugene himself is now Deputy MD i believe. Jackie is more entrepreneurial so he has cleverly got SPH to own a minority in clicktrue and is out running it as the main founder/shareholder. All in all a good success story for all of us to learn from.
So here is what i can see. As usual, best effort basis and do not guarantee accuracy of data.
Business Model : Advertising in niche area of technology media
Platforms : Magazines, HWZ portal + super popular forum
USP : Bundled sales approach, so one stop for media buyers/marketing depts. Cleverly used Forum to boost overall traffic numbers.
Amount Funded : S$2.751M for 1.763M shares
Shareholders : Jackie - 25.9%, Eugene - 8.7% + 2 more even smaller individuals <5%, Angels & VCs - the rest or about 50%+.
Acquisition : Sold to SPH Magazines in 2006 in what was the first M&A of a profitable internet company after the dot com bust and the subsequent cold shoulder the world gave internet companies from 2001 to 2005! The firm was valued at 7.1M in cash up front with i am sure an earnout for subsequent 2-3 year performance. So maybe 10-12M in total? That is about 10 times profit which is what SPH will offer back then. Notice how they have changed tack for sgCarMart deals. really teaches us that timing matters a lot! But cash in pocket is cash in pocket.
2005 P&L is revenue of 5.9M with net profit 1.25M or about 21% net margins. Very good numbers considering it was back then in 2005! They were an obvious first mover and did so well. By then, their forum was already #1 in SG for all topics. I have met a few HWZ people over the years, the original team all good! So why did they not continue to grow the business overseas and scale further? Here is what i think happened - pure conjecture and could be totally wrong.
1)Market size they were reaching market potential in SG and cannot see themselves scaling up much further. HWZ was branching out in Golfing mags and other mags. The comment i have on this is that frequently such mgmt assessments are not too accurate and if we have an innovative and motivated team, there is always new areas to expand into. Also, going regional would also be a good decision since their platform is scalable, they have decent core SG revenues and profit to do so.
2)Founders tired. This one quite likely since i too faced such a situation 7-8 years into business. And perhaps their key mgmt shareholding did not motivate them enough since Angel/VC over 50% stake. A bit like the sgcarmart guys too who had a big passive shareholder. At 12M, Jackie took home 3.1M, not bad for 2006. If he bought a house, it would be worth 6M today. Anyway, whatever their reasons, i always maintain that selling is never wrong since the founders obviously were fine to sell and it is their company. Only they know all the details and situation so my advice is to never second guess yourself once you make a decision.
Fast forward to 2008 which is 2 years later and the HWZ revenue is now 9.3M so revenue growth of 57% over 2.5 years. Many of the HWZ people either have left or are integrated within the SPH Mag family. Eugene himself is now Deputy MD i believe. Jackie is more entrepreneurial so he has cleverly got SPH to own a minority in clicktrue and is out running it as the main founder/shareholder. All in all a good success story for all of us to learn from.
Thursday, April 18, 2013
Analysis on sgcarmart deal
Buyer : SPH
Seller : 3 main founders, 2 smaller co-founders, 40% investor JDB.
Terms : $60M cap.
My guess?
1) 2 year earnout ala Hardwarezone and shareinvestor. But with JDB a savvy player, most likely the earnout is a proportionate one rather than a cliff.
2) 60%, 25%, 15% payout.
Analysis? Deal makes a lot of sense for SPH. It costs a lot to set up and market a new portal and there is no guarantee they will win. See their efforts over the last 10 years on property, jobs and cars. So this way, at least the executives at SPH are sure to win for the next 3 years in the car space. Deal makes sense for founders. A valuation of 11 times sales or 25 times PE is very good and fair. Also, the shareholding does not fully incentivize the working founders as JDB took a big chunk in the early days for a low investment of $800K.
Pitfall? Can SPH integrate and run sgcarmart well together with the all-important founding team? That is the multi-million dollar question. We will wait and see.
Payout? Based on shareholding, gig winner JDB gets 24M pax, each key founder about 9.5M max. The 2 smaller ones less. This assumes max payout of course. Good deal all round.
======================================================================
update after getting hold of their P&L for FY 2012 and combining with SPH reports.
As expected, the deal was a fair one both ways. I was wrong on payout ratios though.
1) SPH paid 53M already. (see their latest annual report).
2) SGCM profit is 3M net on revenue about 8M give or take. So the 60M valuation is about 20 times historical PE, SPH did not overpay.
Still great deal all round but the valuation is far more reasonable and not a crazy one. So looks like the Hungrygowhere guys still the best deal in terms of valuation multiple.
Seller : 3 main founders, 2 smaller co-founders, 40% investor JDB.
Terms : $60M cap.
My guess?
1) 2 year earnout ala Hardwarezone and shareinvestor. But with JDB a savvy player, most likely the earnout is a proportionate one rather than a cliff.
2) 60%, 25%, 15% payout.
Analysis? Deal makes a lot of sense for SPH. It costs a lot to set up and market a new portal and there is no guarantee they will win. See their efforts over the last 10 years on property, jobs and cars. So this way, at least the executives at SPH are sure to win for the next 3 years in the car space. Deal makes sense for founders. A valuation of 11 times sales or 25 times PE is very good and fair. Also, the shareholding does not fully incentivize the working founders as JDB took a big chunk in the early days for a low investment of $800K.
Pitfall? Can SPH integrate and run sgcarmart well together with the all-important founding team? That is the multi-million dollar question. We will wait and see.
Payout? Based on shareholding, gig winner JDB gets 24M pax, each key founder about 9.5M max. The 2 smaller ones less. This assumes max payout of course. Good deal all round.
======================================================================
update after getting hold of their P&L for FY 2012 and combining with SPH reports.
As expected, the deal was a fair one both ways. I was wrong on payout ratios though.
1) SPH paid 53M already. (see their latest annual report).
2) SGCM profit is 3M net on revenue about 8M give or take. So the 60M valuation is about 20 times historical PE, SPH did not overpay.
Still great deal all round but the valuation is far more reasonable and not a crazy one. So looks like the Hungrygowhere guys still the best deal in terms of valuation multiple.
Analysis on Asian Food Channel Sale
I do not know Hian Goh or Maria. Usually i know the players in the internet space since many are my friends or i have met with them over the years of networking. But i am a very competitive person and so when someone gets a big newspaper announcement about their exit, i am driven to find out the details of the deal. I hope to write a lot more on this topic to help readers learn how to analyze such deals and to get a more transparent market. Information is usually obtained via internet search or ACRA reports. If they are estimates, i will say so.
1) AFC made about 8M USD in revenues and lost 2M USD in FY2011. So unless 2012 improved dramatically for them, chances are AFC is a loss making entity that Scripps bought with revenues of maybe 8M USD. I discounted the contra deals they booked as revenue in 2011.
2) Scripps is a medium size american MNC with about 10B market cap. So it is a genuine good buyer. This is important since there are some bs deals that somehow get mentioned. Eg. some startup buy another startup for no cash. Scripps trades at about 4 times sales and 15 times PE. These 2 metrics are important since they determine the rough range which Scripps will pay for.
3) Mr Hian Goh owns about 550K shares of the company. Maria slightly less. Company has issued about 8.8M shares in total over the years raising some S$20M. Amazing how they managed to convince investors to invest throughout years of losses. I would not invest but i guess i am not as rich as their investors. All big names.
4) Mr Finian Tan said he got back 100% returns on vickers investment on ST article. Vickers invested a few rounds so hard to say. But first round was about US$2.5 to $3 per share. Subsequent rounds were 3.5 each. So we can safely say company was sold for about $6 to $7 USD per share? With 8.8M shares that is a sale price of about 50 to 60M usd. Or about 5 to 6 times sales. Compare to scripps market valuation of 4 times, it feels about right. No PE valuation to speak of since i do not know their profit if any.
5) Founders Hian and Maria get to exit with about 3-4M USD and maybe a good job with scripps and some potential earnouts. I think they got some share options too which should add another 1+M for them. So total exit should be from 5-6M USD. Of course if my initial estimate of 50-60M USD is wrong then it will be lower. Possible to be lower as parent company only gets 4 times on market. Anyway, good for them!
1) AFC made about 8M USD in revenues and lost 2M USD in FY2011. So unless 2012 improved dramatically for them, chances are AFC is a loss making entity that Scripps bought with revenues of maybe 8M USD. I discounted the contra deals they booked as revenue in 2011.
2) Scripps is a medium size american MNC with about 10B market cap. So it is a genuine good buyer. This is important since there are some bs deals that somehow get mentioned. Eg. some startup buy another startup for no cash. Scripps trades at about 4 times sales and 15 times PE. These 2 metrics are important since they determine the rough range which Scripps will pay for.
3) Mr Hian Goh owns about 550K shares of the company. Maria slightly less. Company has issued about 8.8M shares in total over the years raising some S$20M. Amazing how they managed to convince investors to invest throughout years of losses. I would not invest but i guess i am not as rich as their investors. All big names.
4) Mr Finian Tan said he got back 100% returns on vickers investment on ST article. Vickers invested a few rounds so hard to say. But first round was about US$2.5 to $3 per share. Subsequent rounds were 3.5 each. So we can safely say company was sold for about $6 to $7 USD per share? With 8.8M shares that is a sale price of about 50 to 60M usd. Or about 5 to 6 times sales. Compare to scripps market valuation of 4 times, it feels about right. No PE valuation to speak of since i do not know their profit if any.
5) Founders Hian and Maria get to exit with about 3-4M USD and maybe a good job with scripps and some potential earnouts. I think they got some share options too which should add another 1+M for them. So total exit should be from 5-6M USD. Of course if my initial estimate of 50-60M USD is wrong then it will be lower. Possible to be lower as parent company only gets 4 times on market. Anyway, good for them!
Wednesday, April 17, 2013
Online Classifieds Heating up back now. Now all acquired!
Enough said. This is my industry so my comments back in 2007 almost all came through. I just feel short of mentioning that many acquisitions and investments will happen for the winners.
To update :
Real estate - Great guys at Propertyguru are SG #1. in MY it is iprop. Valuations in excess of 100M even though no total exits yet.
Jobs space - Only jobstreet left still independent. JobsCentral and JobsDB all acquired in 2010/2011. Jobs classifieds revenue probably 40-50M this year in SG alone.
Cars - Sgcarmart acquired by SPH in 2013 Buy/Sell - Mocca died due to execution issues, Ebay going strong. New ecommerce wave has commenced!
======================================================================= (Article first posted Aug 2007)
There has been a lot written on new internet businesses based on concepts like social networking, aggregation, mash ups etc. Singapore too has seen its fair share of such businesses but I think I am right to say that they are still very nascent and I do not know of any local ones with meaningful revenues. Except maybe xiaxue which is an excellent spunky site!
However, I do see a large battle coming up in the online classifieds space. See the number of online classifieds mass media ads running – ST701, Mocca, JobsDB, Jobstreet, JobsCentral, Monster etc. I predict much more to come. I have always felt this space warrants attention but so far few players have come in to do it. Online classifieds can be very profitable even in a small city like Singapore. I estimate the whole cars, jobs, real estate, buy/sell market is worth at least S$40M this year in online classifieds alone and it is poised to grow dramatically once someones figures out how to handle more than 1 vertical at a time.
Who are the players?
Real Estate – No clear player yet. So this space is wide open for someone to come in and make good$$. Jobs – 5 main players. Combined at about 15M revenue by my estimate. (monster, jobscentral, jobsdb, jobstreet, 701)
Cars – sgcarmart, onemotoring Buy/sell – Mocca, Yahoo!, EBay Personals – Fridae, Trevvy (all Gay sites though)… where is the local large personals for straight population? I think in the next 3 years, you will see lots more ads, lots more competition and the winner will start to emerge.
Ultimately, I feel newspaper classifieds should shrink as more people see the benefits of online classifieds with its unlimited space, search engines and transactional capability. So to all the readers who are keen on internet businesses, i think online classifieds will grow at about 30% per year min. With margins of 20+%, to me it is a very attractive business.
To update :
Real estate - Great guys at Propertyguru are SG #1. in MY it is iprop. Valuations in excess of 100M even though no total exits yet.
Jobs space - Only jobstreet left still independent. JobsCentral and JobsDB all acquired in 2010/2011. Jobs classifieds revenue probably 40-50M this year in SG alone.
Cars - Sgcarmart acquired by SPH in 2013 Buy/Sell - Mocca died due to execution issues, Ebay going strong. New ecommerce wave has commenced!
======================================================================= (Article first posted Aug 2007)
There has been a lot written on new internet businesses based on concepts like social networking, aggregation, mash ups etc. Singapore too has seen its fair share of such businesses but I think I am right to say that they are still very nascent and I do not know of any local ones with meaningful revenues. Except maybe xiaxue which is an excellent spunky site!
However, I do see a large battle coming up in the online classifieds space. See the number of online classifieds mass media ads running – ST701, Mocca, JobsDB, Jobstreet, JobsCentral, Monster etc. I predict much more to come. I have always felt this space warrants attention but so far few players have come in to do it. Online classifieds can be very profitable even in a small city like Singapore. I estimate the whole cars, jobs, real estate, buy/sell market is worth at least S$40M this year in online classifieds alone and it is poised to grow dramatically once someones figures out how to handle more than 1 vertical at a time.
Who are the players?
Real Estate – No clear player yet. So this space is wide open for someone to come in and make good$$. Jobs – 5 main players. Combined at about 15M revenue by my estimate. (monster, jobscentral, jobsdb, jobstreet, 701)
Cars – sgcarmart, onemotoring Buy/sell – Mocca, Yahoo!, EBay Personals – Fridae, Trevvy (all Gay sites though)… where is the local large personals for straight population? I think in the next 3 years, you will see lots more ads, lots more competition and the winner will start to emerge.
Ultimately, I feel newspaper classifieds should shrink as more people see the benefits of online classifieds with its unlimited space, search engines and transactional capability. So to all the readers who are keen on internet businesses, i think online classifieds will grow at about 30% per year min. With margins of 20+%, to me it is a very attractive business.
Making enough to retire at 35?
Wow! This is like reading a letter from myself written 7 years ago. How things have changed :
1)I did that half marathon. In fact, i did a full marathon the year after. Felt great to complete the marathon. Definitely one of the more memorable experiences in my life.
2) I was 1 year late. I sold my company in 2011 age 36. And yes, i collected enough immediately to have an option to retire at my standard of living. But of course, i did not retire and am still happily running the company i founded.
3) I failed totally in being less competitive. In fact, from 2006 to 2010 was my most competitive period of life. I would compare myself obsessively with other people in terms of achievements. I think that is what spurs me on. Today? I am somewhere inbetween. Still very competitive but now i try to compete on being happy and not just numbers.
4) Trip. I made many in these 7 years. Some with kids, some without. I am very blessed. been to Bhutan, Europe x 3 times, China x 3 times, Japan x 2 times, USA x 2 times, Phuket/bali/koh samui many many times etc
So do i feel i am an entrepreneur? It is a definite yes! Because I cannot imagine not running and owning a company if i am to work long term till i am in 50s. I may take breaks, I may do a corporate stint for couple of years but i will always be involved in startup scene as investor/director/advisor etc. Now i realize that entrepreneurship is part of life, it is not everything but it is very important to me. Only things more important is my family , wife, kids and mental/physical health.
===================================================================== (Article first appeared on sgentrepreneurs - July 2006)
Recently, it seems that God is trying to tell me something. I was a speaker and career panelist for Confluence 06 (for overseas students to speak to Teo Chee Hian and others) and had to speak to 200+ undergraduates on my experience in business and my aspirations. My company is helping EDB with a web site called Aspirations which is focused on providing career information to students. In both, the word “Aspirations” kept hitting me and got me thinking about what I wanted to do in life. I think most people would agree with me that we do not want to settle for a life less than exciting.
As entrepreneurs, people sometimes think that all we want to do is grow our business. For me personally, that is definitely not true by now. In fact, I see my “aspiration” as one whereby I am challenged daily but in a way that is not just mental but also physical and spiritual. And yet at the same time, I do not want to always be challenged. Sometimes, I just want to kick back, chill out and play with my kids, wife or just laze. Other times, I am so inspired by nature, I want to scuba dive the pacific islands or walk the appalachian trails. I wonder how other entreprenuers who are above 40 can plug away at the same task for a lifetime. Sheer one-dimensional passion? Lack of imagination of another type of life? What is the motivating factor that drives and more importantly satisfies? I examine some that I know thrill me.
Intellectual challenge.
This has always been fun for me. Whether it is the satisfaction of thinking of good work flow, business model, sales pitch etc. But when I compare it to the intellectual completeness of academic thought and the wit and beauty of literary and philosophical thought, then the intellectual challenge of running a business is so much more limited in scope and untidy. Physical challenge. There is an intrinsic beauty to being fit and being physically energized and challenged. I used to windsurf a lot and scuba dive. I still do a little but I think running your own business kind of occupies so much time that there is no time for the quietness that I used to enjoy with such sports.
Spiritual Challenge.
Entreprenuership fails even more on this count. To me to play the game of running a company is to play the game of capitalism. So it is always cost benefit in the long term that matters. And frankly there is little spiritual about commerce and money. So where do I go from here? As usual, the tedium of life will drag us down and remind us of the responsibilities we have to clients, staff and family. That is why subconsciously, I have always known I am not a true entreprenuer. I am like a pretend person, performing the role adequately but always aspiring for a deeper life. I know all about enjoying the journey while getting to the goals but it is tough to always focus when it is a fact that life as a business person is quite demanding in terms of time and energy.
Some key stuff I aspire for that will alleviate this sense of “ennui” or boredom/emptiness.
Run a half marathon (full is too much for me).
Make enough money to have option to quit by 35.
Be less competitive and not benchmark material acqusitions to much with others.
Need to sneak a trip (without kids) to some nature haven. Nepal? Tibet? …
Well.. this is the inner musing of an entrepreneur. I believe man are quite common in this respect. Some can articulate their inner thoughts, others cannot. But I would love to hear from others how each deals with this essential question.
1)I did that half marathon. In fact, i did a full marathon the year after. Felt great to complete the marathon. Definitely one of the more memorable experiences in my life.
2) I was 1 year late. I sold my company in 2011 age 36. And yes, i collected enough immediately to have an option to retire at my standard of living. But of course, i did not retire and am still happily running the company i founded.
3) I failed totally in being less competitive. In fact, from 2006 to 2010 was my most competitive period of life. I would compare myself obsessively with other people in terms of achievements. I think that is what spurs me on. Today? I am somewhere inbetween. Still very competitive but now i try to compete on being happy and not just numbers.
4) Trip. I made many in these 7 years. Some with kids, some without. I am very blessed. been to Bhutan, Europe x 3 times, China x 3 times, Japan x 2 times, USA x 2 times, Phuket/bali/koh samui many many times etc
So do i feel i am an entrepreneur? It is a definite yes! Because I cannot imagine not running and owning a company if i am to work long term till i am in 50s. I may take breaks, I may do a corporate stint for couple of years but i will always be involved in startup scene as investor/director/advisor etc. Now i realize that entrepreneurship is part of life, it is not everything but it is very important to me. Only things more important is my family , wife, kids and mental/physical health.
===================================================================== (Article first appeared on sgentrepreneurs - July 2006)
Recently, it seems that God is trying to tell me something. I was a speaker and career panelist for Confluence 06 (for overseas students to speak to Teo Chee Hian and others) and had to speak to 200+ undergraduates on my experience in business and my aspirations. My company is helping EDB with a web site called Aspirations which is focused on providing career information to students. In both, the word “Aspirations” kept hitting me and got me thinking about what I wanted to do in life. I think most people would agree with me that we do not want to settle for a life less than exciting.
As entrepreneurs, people sometimes think that all we want to do is grow our business. For me personally, that is definitely not true by now. In fact, I see my “aspiration” as one whereby I am challenged daily but in a way that is not just mental but also physical and spiritual. And yet at the same time, I do not want to always be challenged. Sometimes, I just want to kick back, chill out and play with my kids, wife or just laze. Other times, I am so inspired by nature, I want to scuba dive the pacific islands or walk the appalachian trails. I wonder how other entreprenuers who are above 40 can plug away at the same task for a lifetime. Sheer one-dimensional passion? Lack of imagination of another type of life? What is the motivating factor that drives and more importantly satisfies? I examine some that I know thrill me.
Intellectual challenge.
This has always been fun for me. Whether it is the satisfaction of thinking of good work flow, business model, sales pitch etc. But when I compare it to the intellectual completeness of academic thought and the wit and beauty of literary and philosophical thought, then the intellectual challenge of running a business is so much more limited in scope and untidy. Physical challenge. There is an intrinsic beauty to being fit and being physically energized and challenged. I used to windsurf a lot and scuba dive. I still do a little but I think running your own business kind of occupies so much time that there is no time for the quietness that I used to enjoy with such sports.
Spiritual Challenge.
Entreprenuership fails even more on this count. To me to play the game of running a company is to play the game of capitalism. So it is always cost benefit in the long term that matters. And frankly there is little spiritual about commerce and money. So where do I go from here? As usual, the tedium of life will drag us down and remind us of the responsibilities we have to clients, staff and family. That is why subconsciously, I have always known I am not a true entreprenuer. I am like a pretend person, performing the role adequately but always aspiring for a deeper life. I know all about enjoying the journey while getting to the goals but it is tough to always focus when it is a fact that life as a business person is quite demanding in terms of time and energy.
Some key stuff I aspire for that will alleviate this sense of “ennui” or boredom/emptiness.
Run a half marathon (full is too much for me).
Make enough money to have option to quit by 35.
Be less competitive and not benchmark material acqusitions to much with others.
Need to sneak a trip (without kids) to some nature haven. Nepal? Tibet? …
Well.. this is the inner musing of an entrepreneur. I believe man are quite common in this respect. Some can articulate their inner thoughts, others cannot. But I would love to hear from others how each deals with this essential question.
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