Wednesday, June 17, 2015

Startup Valuation - How to Value Startup

1.     Talabaat  - Kuwait’s Success Story with Tech Startup

Since Yahoo! acquired Maktoob in 2009 for $165 million the region has anticipated the next big exit. Today the German ecommerce group Rocket Internet is expanding its portfolio in the Middle East with its complete acquisition of Kuwait’s Talabat.com, a food takeaway platform, for the sum of 150 million Euros ($170 million USD).

Venture Art Value Proposition


“The Middle East is one of the most attractive markets with significant growth potential and highly attractive EBITDA [earnings before interest, tax, depreciation, and amortization] margins,” said Rocket Internet CEO Oliver Samwer in a statement. “The acquisition of Talabat.com is another important step in our long-term global Food & Groceries strategy.”
Rocket Internet acquires Kuwait’s Talabat for $170M, largest MENA tech acquisition since Maktoob
Founded in 2004, Talabat.com, which was sold once before by Abdulaziz Al Loughani in 2010 to Mohamed Jaafar, owner of the Kuwait London General Trading, has since become one of the largest online delivery services in the region, covering Oman, the UAE, Kuwait, KSA, Qatar, and Bahrain. The site operates with over 1,300 restaurants, including major brands like Burger King, KFC, Johnny Rocket’s, Hardees, TGI Fridays, and Subway.
Effect on Kuwait and the region
A Kuwait company by birth the acquisition of Talabat.com can only be seen as boon for the tech entrepreneur scene of the country. It is also an example of how big value cannot be created overnight; it took both Talabat.com and Maktoob 11 years to go from founding to exit.

1.1.         Souq.com Said Worth $1 Billion in Fundraising

 The Dubai-based online retailer Souq.com is seeking $300 million
Dubai-based online retailer Souq.com, backed by investors including Tiger Global Management, is seeking $300 million for expansion, according to three people with knowledge of the matter.
The fundraising would value the business at about $1 billion, the people said, asking not to be identified as the information is private. New York-based Tiger Global and South Africa’s Naspers, another existing investor in the company, are leading the fundraising, two of the people said.

Project Report - Feasibility Report - Venture Art


1.2.         The Daily Startup: Munchery is Valued at $300 Million in New Funding

Venture capitalists’ appetite for food-delivery and meal-kit services seems to be insatiable lately. The meal-delivery service Munchery the latest that is fundraising, and it is being valued at about $300 million in the new round, The Wall Street Journal’s Douglas MacMillan reports. The startup’s service delivers prepared meals that are then heated up at a person’s home.
 It was just a few weeks ago that the Journal also broke the news about meal-kit service Blue Apron out fundraising at a valuation of about $2 billion. Blue Apron’s service delivers boxes of ingredients that the user then prepares and cooks. Another venture-funding in the space was in late April when meal-delivery service Sprig raised $45 million. That service delivers meals, like Munchery, but that are already warmed. Other meal-kit services–including Plated, HelloFresh and Marley Spoon–also have sprouted in the last few years. Now many of them are looking to grow beyond San Francisco and New York–the tech hotbeds where they started–and other large cities.

2.     Silicon Valley Tech Investment and Exit Report

 Silicon Valley doubles funding and deal volume in the last five years. The internet and mobile sectors attract the lion’s share of funding in the region.
The internet sector has also consistently led deal share, which has remained very stable since 2009, only fluctuating by two percentage points. Computer hardware & services, electronics, and software have each decreased slightly, accounting for a combined 15% of deals in 2013. Mobile & telecom grew from 15% of deals in 2009 to 25% in 2013 as it takes share from sectors that are no longer en vogue.

2.1.         Startup Valuations Are A Combination Of Science, Smoke And Mirrors, And Hubris.

Seed round financings are also ballooning upwards –valuations for seed-stage companies have increased by 63% since 2008, averaging $5.3 million.
Series A round valuations are averaging $9.2 million, increasing at a modest rate of 23 percent.
Series B rounds, in contrast, are the one area of venture capital where the proportion of uprounds has contracted from 2012, although they still comprise 71% of Series B financings. The median B round valuation is $25.6 million.
Series C rounds rose by 93% in the first three quarters of 2013. The median Series C valuation is now $75 million.
The median valuation for Series D or later rounds is where numbers are really soaring — valuations spiked by 116% over the past five years and surpassed the $100 million threshold — it stands at $132 million.
The rise is even steeper in the software sector, which increased by 350%.
We have seen some incredible funding rounds and valuations in 2013 — Uber raised $285 million at a $3.5 million valuation, Snapchat is rumored to be raising $200 million at a $4 billion valuation, and Pinterest recently secured $225 million at a $3.8 billion valuation.

2.2.         The Age of Unicorns

 The billion-dollar tech startup was supposed to be the stuff of myth. Now they seem to be … everywhere.
Stewart Butterfield had one objective when he set out to raise money for his startup last fall: a billion dollars or nothing. If he couldn’t reach a $1 billion valuation for Slack, his San Francisco business software company, he wouldn’t bother. Slack was hardly starving for cash. It was a rocket ship, with thousands of people signing up for its workplace collaboration tools each week. What Slack needed, Butterfield believed, was the cachet of the billion-dollar mark.
It wasn’t long ago that the idea of a pre-IPO tech startup with a $1 billion market value was a fantasy. Google GOOG -0.43% was never worth $1 billion as a private company. Neither was Amazon AMZN -0.70% nor any other alumnus of the original dotcom class.
Today the technology industry is crowded with billion-dollar startups. When Cowboy Ventures founder Aileen Lee coined the term unicorn as a label for such corporate creatures in a November 2013 TechCrunch blog post, just 39 of the past decade’s VC-backed U.S. software startups had topped the $1 billion valuation mark. Now, casting a wider net, Fortune counts more than 80 startups that have been valued at $1 billion or more by venture capitalists (full list here). And given that these companies are privately held, a few are sure to have escaped our detection. The rise of the unicorn has occurred rapidly and without much warning, and it’s starting to freak some people out.
 Finally, there is the intangible element of perception. In the startup world, a valuation of $1 billion says that you’re no longer a fly-by-night startup with plans to quickly sell out to Google.
“It absolutely gives us credibility and the ability to hire some very important people,” says Apoorva Mehta, the 28-year-old CEO of on-demand grocery delivery service Instacart, which has been in business for only two years but reportedly is valued at $2 billion. “And it tells the world that we’re looking to build a long-lasting worldwide brand instead of looking to get acquired.”
 Facebook set tongues wagging when it paid $19 billion for instant-messaging startup WhatsApp. , then followed it up a month later by shelling out $2 billion for virtual reality headset maker Oculus VR. In 2014, Google paid $3.2 billion for smart thermostat maker Nest, Apple AAPL -1.08% acquired headphone maker Beats for $3 billion, and Microsoft spent $2.5 billion to own the Swedish gaming startup responsible for Minecraft. Even health care VCs cashed in, selling Seragon Pharmaceuticals to Genentech for upwards of $1.7 billion.
 That explains, in part, why a company like Instacart raised $120 million in new funding earlier this month at its reported $2 billion valuation just six months after raising $44 million at a $400 million valuation. Or why social media company Pinterest raised $625 million over three rounds of funding between February 2013 and May 2014, doubling its valuation from $2.5 billion to $5 billion.

3.     How to Calculate the Value of Your Early-Stage Startup

Valuing mature companies is a fairly straightforward — albeit somewhat subjective — process. Things like market capitalization and sales multiples give investors a solid foundation from which to work with when determining a company’s valuation. For early-stage startups, however, the process looks quite different.
Without years of financial data to rely on, startups and their investors (angels and venture capitalists) have had to rely on more creative ways to substitute for these inputs. In a nutshell, the process goes back to quantifying a bit of basic finance: ‘risk versus reward’. In startup terminology, it’s: ‘traction versus market size’.

3.1.         How does an early-stage investor value a startup?

The biggest determinant of your startup’s value are the market forces of the industry & sector in which it plays, which include the balance (or imbalance) between demand and supply of money, the regency and size of recent exits, the willingness for an investor to pay a premium to get into a deal, and the level of desperation of the entrepreneur looking for money.
Some of the valuation methods you may have have heard about include (links temporarily down due to Wikipedia’s position on SOPA and PIPA):
·         The DCF (Discounted Cash Flow)
·         The First Chicago method
·         Market & Transaction Comparables
·         Asset-Based Valuations such as the Book Value or the Liquidation value
An Investor Is Willing To Pay More For Your Company
·         It is in a hot sector: investors that come late into a sector may also be willing to pay more as one sees in public stock markets of later entrants into a hot stock.
·         If your management team is shit hot: serial entrepreneurs can command a better valuation (read my post of what an investor looks for in a management team). A good team gives investors faith that you can execute.
·         You have a functioning product (more for early stage companies)
·         You have traction: nothing shows value like customers telling the investor you have value.
  
3.2.         How Startup Valuation Works – Measuring a Company’s Potential

 Early-stage valuation is commonly described as “an art rather than a science,” which is not helpful. Let’s make it more like a science. Let’s see what factors influence valuation.
Traction. Out of all things that you could possibly show an investor, traction is the number one thing that will convince them. The point of a company’s existence is to get users, and if the investor sees users – the proof is in the pudding.
So, how many users?
If all other things are not going in your favor, but you have 100,000 users, you have a good shot at raising $1M (that is assuming you got them within about 6-8 months). The faster you get them, the more they are worth.
·         Reputation. There is the kind of reputation that someone like Jeff Bezos has that would warrant a high valuation no matter what his next idea is. Kevin worked at Google for two years, but other than that he had no major entrepreneurial success. Same story with Pinterest founder Ben Silbermann. In their cases, their respective VCs said they followed their intuition.
·         Revenues. Revenues are more important for the B-to-B startups than consumer startups. Revenues make the company easier to value.
·         Distribution Channel: Even though your product might be in very early stages, you might already have a distribution channel for it.
·         Hotness of industry. Investors travel in packs. If something is hot, they may pay a premium.