Archive

Posts Tagged ‘LinkedIn’

Bootstrapped

October 13, 2008 1 comment

Well, last week was one heck of a week. Wall Street saw one of its worst weeks ever – actually the worst since 1933. After 8 consecutive days of decline the Dow lost 2,400 points, a 22.1% decrease in just 8 days.   Both the Dow 30 and the S&P 500 reached their all time high on October 9, 2007 closing at 14,164.53 and 1,565.15, respectively. The Dow is down 40% to 8451.19 and the S&P 500 is down 42.5 to 899.22, since October 9, 2007.  (Numbers as of October 10, 2008 close.)

Back in 2000 it was technology that drove the market down and this time around it’s the financials.  It will be interesting to see how much technology will be affected by this massive decline. The internet boom of the late 1990s and early 2000s was spurred by massive internet IPOs that saw stock prices skyrocket for companies with shaky foundations. Over the last 5 years there has been some massive internet valuations but most of them never went public – this could work to the internet’s advantage this time around. During the Web 2.0 era many of these startups were acquired or financed by established companies.  Of course some of these valuations were exorbitant, YouTube bought at $1.65 billion & Facebook valued at $15 billion, but they never IPOed.  Facebook has been flirting with an IPO over the last couple of years but given the current market they’re definitely not thinking about it now. One benefit of remaining in private hands is the ability to steer your company the way you see fit – not the way stockholders see fit which is often influenced by emotion.

One benefit of downturns is a startups ability (or need) to bootstrap operations, be creative and run a more efficient business model. Based on Bizak’s startup statistics over 40% of websites rely on advertising to generate revenues. Today is a good day in the markets but it will likely take years to get back to the levels we saw just weeks ago. The first department to feel this pinch will no doubt be the marketing department. Advertising across the web will decline affecting not only startups but also Google. For startups this will hopefully result in new & creative business models – hopefully more startups will generate product sales, services and subscription models. If a website can’t monetize their free content (advertising, Google Adsense) then they might be forced to charge (micro-payments maybe) for it. Adsense was already becoming worthless and these recent events will likely make it worse. 

Other startups will need to lower their burn rate to weather the uncertainty. I don’t think VC money will dry up as much as it did during the first half of the 2000s but it will probably take pause to access the trickle down effect. Right now the markets are running on a lot of emotion so we need time to pass before accessing the situation. Tough times tend to generate some of the most creative ideas – ideas that capitalize on the situation. Think of all the major web apps that you use today – Google, Myspace, YouTube, Facebook, LinkedIn.  All of these apps were post “internet bubble” products that were launched during a time when many thought the web was dead. They helped bring the tech sector back in force. This time around it’s the financials struggling and maybe it will be tech that pulls them out? 

All in all it’s a time to conserve and take the necessary steps to ensure the longevity of your application. According to Ron Conway, startups should heed the same advice he gave in 2000 which includes: 

  • If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible.
  • You must aggressively examine and pursue M&A opportunities (unless you have over 12 months of cash reserves!) ro insure you have critical mass (including funding, customers, rolodex power, market
    share, cash, synergy, etc.).
  • Be realistic on valuations – they will fall so be ready and willing to co-operate.
  • Look for corporate partners to invest so you can raise more money. You should also consider a sale of your company to your corporate partners.
  • While it’s safe to say entrepreneurs have had negotiating leverage with the “down draft” in the market, the VC community will start exercising their leverage.

For me I have two startups and three more on the way. None of these applications are funded and all of my “salary” is in equity which will require me to wait another 1-3 years. During this time I’ll continue to launch new and exciting applications but I also need to prepare for the unexpected. To accomplish this I’ll likely join/partner with a well funded startup/company where we can equally benefit during this exciting time. Interested?  My resume and my bio.

It’s an exciting time because social and economic events create a snow ball of technological innovation. Innovation that can grow quickly and adapt efficiently. Whether this is the end of Web 2.0 or not doesn’t matter since no matter how you define it the next wave of innovation has just begun.

Internet Valuations

October 7, 2008 Leave a comment

Digg, the user driven social content website, just last week secured $29 million in funding that values the company at $175 million.  As high as Digg’s valuation may sound they’re actually in line, or in many cases much lower, than some of the other well known internet valuations.  For example, in June LinkedIn was valued at $1 Billion and Twitter’s recent round of funding pegged them at $60 million even though they have zero revenues.  However, both are a mere fraction of Facebook’s outrageous $15 Billion valuation that resulted from Microsoft’s $240 million investment in the company.

In an attempt to place more realistic and comparative valuations on internet startups Bizak was launched to aggregate this data according to industry, business type and revenue source.  The following figures are the average valuations for internet startups who rely on the following revenue sources:  

  • Consulting Fees $5,472,028.20
  • In House Advertising $2,936,123.89
  • Subscriptions $1,468,436.00
  • Product Sales $1,324,358.88
  • Affiliate Marketing $631,657.49
  • Google Adsense $124,623.67

CBS Completes Acquisition of CNET

CNET AcquisitionToday, CBS completed its acquisition of CNET networks for $1.8 Billion.  The acquisition includes CNET.com, Download.com and CNET Reviews.  According to Compete.com, these three destinations receive approximately 18 million monthly visitors.  Trailing twelve month revenues for CNET is $408.24 Million. Entering these simple calculations (before costs) into the Bizak Calculator we get an EPV of $1.89 and a business valuation of $1.632 Billion.  CNET was purchased for a 45% premium to its stock price but only 10% more than my revenue valuation.  

Compare that to LinkedIn‘s $1 Billion Valuation (Bizak Estimate = $399,999,984), Facebook‘s $15 Billion Valuation (Bizak Estimate = $1,373,999,976), and YouTube‘s $1.65 Billion acquisition (Bizak Estimate = $360 Million).

Obviously the new web applications are being valued at a significant premium to their revenue valuations.  CNET, on the other hand, is a member of the original web (founded in 1992) and received a valuation in line with their revenues.  However, back in the 1990s many internet companies also received speculative valuations based on a huge premium to their revenues – if they had revenues.  Once a company has matured with proven revenues their valuation is more inline with industry standards – it’s the quest to find the next big thing that creates these premium (and speculative) valuations.      

 

Social Networks Worth

In a number of previous posts (below) I’ve used the Bizak Calculator to compute the revenue valuations of social networks and internet companies. These valuations put heavy emphasis on current revenues but it also gives credit for positive earnings per visitor (EPV).

Techcrunch recently compiled a very interesting (but at times very confusing) model on valuing social networks. The Techcrunch model values social networks according to the countries where individuals are using that application. They then use those numbers in conjunction with the internet advertising spending for each individual country to compute the value of social networks. Techcrunch can explain their math much better then me so read the Techcrunch article and compare them to the Bizak valuation of:

Other articles that focus on social networks include:

Articles focusing on Startups:

LinkedIn Valued at $1 Billion! Bizak Estimate = $398,799,984

June 19, 2008 1 comment

LinkedIn recently received a $53 million round of financing (Techcrunch) from Bain Capital which valued the popular business network at $1 billion.

Is LinkedIn worth a billion dollars?  GigaOM ran some numbers based on subscribers – I’ll take a look at revenues and compute their valuation using the Bizak Calculator.

USA Today estimates LinkedIn will have 2008 revenues of $75 to $100 million with 20 million subscribers and approximately 5.6 million monthly visitors.  Based on revenues of $100 million (with zero costs) LinkedIn is valued at $399,999,984 – 40% lower than their recent valuation of $1 billion.

Using the Bizak Calculator with 20 million subscribers you get earnings of $0.42 per subscriber. Computing EPV for the 5.6 million active visitors then LinkedIn earns $1.49 per visitor.

For comparative purposes YouTube’s valuation excluding costs was $360,000,000 (on revenues of $90 million).  Since video hosting is very expensive adding YouTube costs into the equation dropped their valuation to $318 million.  YouTube’s monthly costs are approximately $3.5 million.

LinkedIn’s costs have to be significantly lower than YouTube’s – let’s say $100,000/month for argument sake.  Based on $100,000 the Bizak valuation for LinkedIn drops slightly to $398,799,984 – $0.40 earnings per subscriber or $1.47 EPV.

I’m sure LinkedIn and Bain Capital have big plans to monetize the application which will justify this valuation.  As we know YouTube was purchased for a huge premium to their revenues and Facebook was recently valued at $15 billion with the Microsoft Corporation (NASDAQ:MSFT) investment.  The Facebook valuation may be a bit extreme but they’re a premium brand that will be a force for years to come.  YouTube is one of the major brands in all of business and they are definitely worth the $1.65 billion purchase price – even if their revenue valuation is only $318 million.

LinkedIn on the other hand is not a premium brand, however I assume that LinkedIn will be easier to monetize than Facebook.  The main reason being LinkedIn knows my entire work history whereas Facebook only knows who my friends are.  With my work history Bain likely has a iron clad plan to convert my connections into a cash cow for LinkedIn.  However, even with this profitability I don’t think LinkedIn will ever become a premium internet brand, but they’re probable a safer bet for investors.

Don’t Agree with My Calculations? Modify them using the Bizak Calculator and comment below with your numbers, valuation & feedback.

Top Social Networks According to Traffic

March 12, 2008 Leave a comment

Top Social Networking Sites

Compete.com has a great post on the top social networking sites (according to traffic) for the month of February 2008.  I find the statistics to be fascinating and quite enlightening since some of these sites I’ve never heard of – for example CafeMom.com.  What I find fascinating is that Myspace is still very comfortable in the number one position.  I’m fascinated by this since I rarely hear anyone talk about Myspace (it’s always Facebook, Facebook, Facebook) and it’s such crap.  It is however a great tool for musicians (that’s good) and spammers (not so good).  Myspace has however seen negative year over year growth in comparison to Facebook’s 77%, so I would expect their top position to eventually be history.  My guess is that they’ll eventually drop out of the top ten and I assume they thought that too since Myspace has been cleaning up their site a lot these days – looking more and more like Facebook.  LinkedIn is also looking more and more like Facebook minus all the spam of Myspace and to a lesser extent Facebook.  LinkedIn is boring though.

I’m surprised to see that Classmates.com is still relevant!  I never use them but you have to give them props for being a top social network for over 13 years!!