Archive for VC

Web 2.0 startup valuation: Social Networks

  • MySpace.com (sold to NewsCorp) $580 million
  • Weblogs.com (sold to Verisign) $2.3 million
  • Skype (sold to eBay) $2.6 billion
  • Upcoming.org (sold to Yahoo!) $1 million (rumored)
  • del.icio.us (sold to Yahoo!) around $30 million (rumored)
  • MeasureMap (sold to Google) under $5 million
  • Writely (sold to Google) around $10 million (rumored)
  • Rojo (sold to SixApart) $10 million
  • YouTube (sold to Google) $1.65 billion
  • And the list goes on (feedburner,flickr,blogger etc). Valuation of a start-up is a complex process.It become even more complex when you have to deal with unreliable data,unproven bussiness models and mix of noise and hype.Unfortunely in case of web 2.0 companies we have to deal with these issues making valuation of SN very mysterious.

    Ok.Then how did we reached to numbers these numbers.? What factor affect valuation?  How objective is the process?

    I made a attempt to find answers to these questions by looking in to stories,news,blogs and follwoing comments around the most talked about startups of the world.

    1.Why It’s So Hard to Value Social Networking Sites.

      “You have little data on what kind of revenues they can generate and what their cost structure is.”

    Valuing advertising-driven sites is particularly hard because the same numbers — such as the number of users or page views — can mean different things depending on how the advertisers are billed”

    “But is Google a good benchmark? ”

    Analysts also like to factor in a company’s future prospects, using any number of calculations to derive a figure for “discounted cash flow.” Essentially, they look at expected revenues over a given number of years and subtract expenses to arrive at a figure for “free cash flow.” Then, using various assumptions about interest rates, they determine what money received in the future is worth in today’s terms. Analysts can never be sure about any company’s future revenues and expenses, but the problem is even worse when dealing with a young company in a fledgling industry. “

    2.Startup Valuation – The VC Method

    3.: Guess the Value: Basecamp 

    Virtual valuation game, in which reader are asked to guess the financial worth of a popular web app.

    4.Why Myspce is overpriced.

    “How much yearly profit would you expect from a $500 million purchase? How about a profit of just $10 million equating to a profit margin just under 2%. That’s right, the world’s largest social networking site, constantly in the top 10 web sites in the world, managed to make only $10 million on $550 million in revenue!”

    5.High Tech Startup Valuation Estimator

    This seems to be a highly objective process which include a multiplier for everything from size of market,stage of start-up,revenue,indusrty etc.But I doubt we can use this in case of SNs as calculation of multipiler is still a issue whihc is based on past history of industry,market,product and team.And yes ,we do have a fair amount of subjectivity here.

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    Web 2.0 Start-Up Field Guide – Idris Mootee

     Source: I find this here

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    Friendster story and lessons

    Gary Rivlin at the New York Times  his written great piece on Friendster. This could be considered as  best overview yet of the terrific bungle of social networking company,which sparked the social networking revolution by allowing friends to hook up with others.

    It is a great tale of how Jonathan Abrams started the site as a way to get a few dates, turned down a $30M buyout offer from Google (which would be worth around $1B in GOOG stock today), and opted to raise VC money from John Doerr of Kleiner Perkins and Bob Kagle of Benchmark — trying to create the next big thing.

    Friendster had everything a “dream Start-up” seek.Great idea, first mover advantage, was backed by best VCs the  in market.All this  failed to make Friendster  a “success “. 

    Friendster story tells us many thing  us we should do as well as few we should we should not do.It tell us about role  managment team play in success of a venture.It tell us  how important  its that we use and believe  in the product we create.Focus is crucial as we grow and CEO and managment arrogance can kill  grand product in no time.

    Friendster make a great case study for all aspiring WEB 2.0 enterpreneurs as we all know failure store more lessons for  us then a success.

    Here is a interesting discussion about Friendster  story on Techcrunch.

    Source:New York Times.
     

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    VC Funding 101

    Source:This was an etech talk by Marc Hedlund, Chief Product Officer, Wes more

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    Funding Options for Technology startups

    Source: AmitRanjan

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    Top 100 VC Bloggers

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    About Venture Capital

    Ben Holmes of Index Ventures‘s presentation on “Everything you need to know about Venture Capital- worth viewing.

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