Valuations in VC: What does it mean?

1. Valuations: What is happening,
and does it matter?
Talia Goldberg & Jeremy Levine (Feb 2015)

2. 1
For the Amusement Park Goers

3. 2
For the Newtonian Physicists

4. 3
For the Park Goers
ENTREPRENEURS

5. 4
Quantitative Easing Means Easy Money
“So have you sent a note of
thanks yet to Ben Bernanke and
Janet Yellen? For all of your hard
work and delightful intelligence,
they arguably have had as much
to do with your fund's success as
you have.”
– Dan Primack (2/19/2015)

6. 5
Price really, really, really matters
Top tier fund
Barely in business
$500M
$1B
$1.5B
$2B

7. 6
What Did We Do?
• Looked at 4 public market segments relevant to most of our
investing:
1. Software as a Service
2. Marketplaces
3. Consumer Internet
4. E-Commerce
• Collected monthly valuation multiple and growth data for each
company from 1999 (or first year of public listing) through
February 2015
• Sanitized the data
1. Excluded companies with negative EBITDA from all charts
with EBITDA multiples (only in the period of negative
EBITDA)
2. Each sub segment has a minimum sample size of 5
companies
3. LTM EBITDA excludes stock based compensation expense

8. 7
We are nowhere close to bubble madness (phew!)
-
20.0x
40.0x
60.0x
80.0x
100.0x
120.0x
140.0x
-
100.0x
200.0x
300.0x
400.0x
500.0x
600.0x
700.0x
1/25/1999
1/25/2000
1/25/2001
1/25/2002
1/25/2003
1/25/2004
1/25/2005
1/25/2006
1/25/2007
1/25/2008
1/25/2009
1/25/2010
1/25/2011
1/25/2012
1/25/2013
1/25/2014
1/25/2015
MedianRevenuemultiple
MedianEBITDAmultiple
Consumer Internet Multiples
EBITDA multiple Revenue Multiple
Consumer Internet public valuation multiples have held steady for 5 – 10
years.
Let’s zoom in:
Saas
Marketplaces
Consumer
Ecommerce

9. 8
Maybe a slight uptick in last 24 months
-
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
Medianmultiple
Consumer Internet Multiples
EBITDA multiples Revenue Multiples
Recent increase in EBITDA multiples is probably driven by newish batch of hyper-revenue
growth IPOs.
Saas
Marketplaces
Consumer
Ecommerce

10. 9
Growth clearly drives multiples
Be wary of massive multiple re-rating when growth dips below ~30%
-
5.0x
10.0x
15.0x
20.0x
25.0x
-40% -20% 0% 20% 40% 60% 80% 100% 120%
LTMrevenuemultiple
2014 revenue growth
Growth Rate vs. Revenue Multiples
Multiple
compression
begins at ~30%
Saas
Marketplaces
Consumer
Ecommerce

11. 10
$10 billion is the new $1 billion
Current public companies
>$10B market cap
Private companies with at
least $10B valuation
Saas
Marketplaces
Consumer
Ecommerce
In ~20 years, we got 10 US public Internet companies with > $10bn market
caps, and we have 5 new private ones in 5 years.

12. 11
E-commerce businesses aren’t worth much
-
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
20.0x
Ecommerce EBITDA Multiple
-
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
Ecommerce Revenue Multiple
*Data set includes traditional ecommerce, does not include ecommerce marketplace businesses
Many VC’s are paying 3-5x revenues for companies that are worth 1x in the
public markets.
Saas
Marketplaces
Consumer
Ecommerce

13. 12
Amazon is a special case
-
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
E-commerce vs. Amazon
Revenue Multiples
Amazon E-commerce
For ~5 years, Amazon has consistently traded at 2-3x higher multiples than other
public ecommerce companies
Saas
Marketplaces
Consumer
Ecommerce

14. 13
Marketplace models are highly valued
Valuation multiples are robust, but public markets have calmed down recently –
much more so than private markets.
-
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
E-commerce vs. Marketplace
Revenue Multiples
Marketplace E-commerce
Saas
Marketplaces
Consumer
Ecommerce

15. 14
Public Cloud Values are up 30-100%
It’s *much* harder to generate a 3x+ fund in this environment
-
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
70.0x
01-2007(7)
07-2007(7)
12-2007(6)
06-2008(5)
11-2008(7)
05-2009(7)
10-2009(7)
04-2010(9)
09-2010(11)
03-2011(10)
08-2011(11)
02-2012(9)
07-2012(9)
01-2013(11)
06-2013(9)
12-2013(11)
05-2014(10)
11-2014(10)
EBITDA multiples
-
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
01-2007(7)
07-2007(7)
12-2007(6)
06-2008(5)
11-2008(7)
05-2009(7)
10-2009(7)
04-2010(9)
09-2010(11)
03-2011(10)
08-2011(11)
02-2012(9)
07-2012(9)
01-2013(11)
06-2013(9)
12-2013(11)
05-2014(10)
11-2014(10)
Revenue multiples
*Companies with Market Cap’s >$2B
Financial crisis
Saas
Marketplaces
Consumer
Ecommerce
+ 100%
+ 30%

16. 15
It’s not a tech-wide issue, it’s just our sectors
While SaaS valuations have soared, their legacy
counterparts are stable with much less rich valuations
*Data set: SAP, Oracle, Adobe, Microsoft, HP, Cisco
-
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
"Legacy" revenue multiple
-
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
"Legacy" EBITDA multiple
Saas
Marketplaces
Consumer
Ecommerce

17. 16
SaaS investing was more fun in 2007!
It’s easier to make money betting ahead of the curve. It’s much harder when
everyone agrees with you.
-
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
SaaS vs. "Legacy" software revenue
multiples
SaaS Legacy
Saas
Marketplaces
Consumer
Ecommerce
“The interesting thing about
cloud computing is that we’ve
redefined cloud computing to
include everything that we
already do. ... The computer
industry is the only industry that
is more fashion-driven than
women’s fashion. Maybe I’m an
idiot, but I have no idea what
anyone is talking about. What is
it? It’s complete gibberish. It’s
insane. When is this idiocy going
to stop?"
-- Larry Ellison, Sept 2008