Both Sides of the Table

SEPTEMBER 15, 2022

Should SaaS companies trade at a 24x Enterprise Value (EV) to Next Twelve Month (NTM) Revenue multiple as they did in November 2021? We drew this conclusion after a meeting we had with Morgan Stanley where they showed us historical 15 & 20 year valuation trends and we all discussed what we thought this meant.

Technical Review 416

Technical Review Pre-Money Valuation San Francisco Valuation 416

Startup Professionals Musings

MAY 26, 2023

Make sure new solutions offered actually build your brand, rather than dilute it. Even though many of these challenges may seem obvious to you, I still see them often overlooked by aggressive business leaders, resulting in a large percentage of expensive new initiatives that fall well short of growth and revenue expectations.

Product 354

Product Technical Review Artificial Inteligence Dividend 354

Gust

NOVEMBER 1, 2011

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. It is one of the useful methods for establishing the pre-money valuation of pre-revenue startup ventures. Then: Post-money Valuation = Terminal Value ÷ Anticipated ROI.

Venture Capital 161

Venture Capital Valuation Pre-Money Valuation Post-Money Valuation 161

Both Sides of the Table

SEPTEMBER 17, 2011

I know it’s much sexier to race around talking about buying up companies than it is tweaking your business operations to accelerate revenue, reduce churn and grow faster. Dilute your cash, equity or both. But it will not help your business grow faster. What will it do?

Operations 292

Operations CTO Hire Startup Early Stage 292

Both Sides of the Table

SEPTEMBER 16, 2010

As I’ve highlighted I believe we’re in a unique period similar to 2005-08 where the biggest tech firms of Silicon Valley (and some media companies) are scooping up small software companies as “talent acquisitions&# versus accretive revenue / profit generators. avoid being diluted). But it is. So know that going in.

Cap Table 283

Cap Table Angel Investor Liquidation Preference Dilution 283

Both Sides of the Table

MARCH 11, 2011

I thing I’ve learned over the years is that technology purists hate advertising even when it is that revenue stream that truthfully drives much of our industry. Too many entrepreneurs focus on dilution. But over-optimizing for dilution is a bad attribute relative to focusing on creating a big & winning company.

Product 350

Product Tuvalu Dilution Incubator 350

A Smart Bear: Startups and Marketing for Geeks

MARCH 1, 2010

Hanging your hat on just one advantage that you can own completely is stronger than diluting your message across many advantages. See, we don't line our pockets with that revenue, we spend it making you maximally effective. Don't dilute your message. And it's not just in face-to-face sales calls either. Do you have other tips?

Open Source 239

Open Source Dilution Software Development Software Developers 239

Both Sides of the Table

APRIL 27, 2010

and we ultimately sold when we hit $14 million and had more than $30 million in backlog revenue. I learned about revenue recognition. But the firm that funded my first startup was loyal to me for having stuck around in what they knew to be pretty tough times and having suffered much dilution. million, then $5.9m, $7.7m

Venture Capital 285

Venture Capital Hiring Software Review Stock Options 285

Both Sides of the Table

MAY 28, 2018

There are many things a VC is looking for in reviewing your business plan but beyond things the like the quality of revenue, margins, OPEX and CAPEX there’s a really simple rule I call, “Cash In, Cash Out, Milestones Achieved.” Usually that’s the point in the meeting where a VC realizes that this meeting isn’t going to go very well.

Burn Rate 247

Burn Rate Valuation Pre-Money Valuation Dilution 247

Both Sides of the Table

OCTOBER 1, 2009

Consumer spending is 70% of the economy and will continue to be stretched – We can look all we want at tech innovation, VC funding cycles and hot M&A deals, but ultimately growth and therefore investment must be underpinned by revenue. This is tied to having consumers who feel confident enough to spend. million – take it.

Technical Review 269

Technical Review Stock Hawaii Early Stage 269

YoungUpstarts

APRIL 19, 2012

When not approached carefully, growth can destroy value as it outstrips a company’s managerial capacity, processes, quality, and financial controls, or substantially dilutes customer value propositions. Growth can dilute a business’s culture and customer value proposition and put the business in a different competitive space.

Dilution 209

Dilution Virginia Management Washington 209

Both Sides of the Table

NOVEMBER 14, 2017

Throughout the first year we made many fixes and saw our revenue base in these markets accelerate so we felt we were ready to attack Los Angeles, amongst the most important storage markets in the country. An example of the systems companies build are pricing & revenue management tools to best help to optimize yield.

Operations 286

Operations New York City Technical Review Startup 286

VC Cafe

FEBRUARY 27, 2024

especially if the startup already has a product and revenue? To reduce the impact of dilution, the expectation is that startup valuation should more or less double between the pre-seed to the seed, and seed to series A (ideally backed by reasonable traction/ revenue multiples).

Valuation 186

Valuation Software Review Generative AI Technical Review 186

View from Seed

OCTOBER 24, 2019

The reality is that if a founder raised every one of these rounds, and lead investors always got their “target” ownership, the level of dilution would be ridiculous. No good investor would want the founder/CEO of a company to have insufficient ownership by the series A, and every founder I know is sensitive to taking too much dilution.

Dilution 149

Dilution B2B Burn Rate Early Stage 149

Both Sides of the Table

JANUARY 4, 2014

It either needed to get more aggressive in pricing, pivot to a new business or business model or raise more capital (and take the dilution) in order to have more time to figure things out. He felt the CEO was willing to “sell his soul” for revenue and wanted things to be more pure. We sat down the three of us.

Founder 340

Founder Cofounder Sacramento Technical Review 340

Both Sides of the Table

JUNE 5, 2011

But the reality is that you’re faced with two problems: 1) the earlier the stage the riskier and thus more write-offs so you need to have enough ownership percentage in your winners to make up for the losers and 2) the earlier stage your check the more likely the company will need many more funding rounds behind you and thus you face dilution.

Pre-Money Valuation 336

Pre-Money Valuation Valuation Silicon Valley Stock 336

Both Sides of the Table

DECEMBER 18, 2009

And for all of this we had no dilution and paid no money. million in recurring revenue of which $600k came from Germany. We signed deals worth $1.2 million over 2 years that made us profitable in Germany from day 1. Any customer not willing to commit we didn’t sign. That was our first year of sales. But we did $2.1

Germany 298

Germany Entrepreneur Merger Los Angeles 298

David Teten

AUGUST 19, 2019

So you’re interested in raising capital from a Revenue-Based Investor VC. A new wave of Revenue-Based Investors (“RBI”) are emerging. For background, see Revenue-Based Investing: A New Option for Founders who Care About Control. Rational burn profile, up to 50% of revenue at close, scaling down. Bigfoot Capital.

Revenue 60

Revenue Technical Review Software Review Equity 60

Steve Blank

OCTOBER 22, 2024

Outsiders confuse a successful venture investment with companies that generate lots of revenue and profit. What are the physical specs – unique hardware needed ( dilution cryostats , et al) power required , connectivity, etc. Financial engineering. That’s not always true. How will the computer be programmed?

Technical Review 267

Technical Review Illinois Algorithm Software Review 267

Steve Blank

APRIL 10, 2019

We slept under the tables, and pulled all-nighters to get to first customer ship, man the booths at trade shows or ship products to make quarterly revenue – all because it was “our” company. There are four problems: First, as the company raises more money, the value of your initial stock option grant gets diluted by the new money in.

Stock Options 335

Stock Options Stock Vesting Common Stock 335

David Teten

JANUARY 21, 2021

This essay is part of a series on alternative VC: I: Revenue-Based Investing: a new option for founders who care about control. II: Who are the major Revenue-Based Investing VCs? III: Why are Revenue-Based VCs investing in so many women and underrepresented founders? IV: Should your new VC fund use Revenue-Based Investing?

Equity 78

Equity Revenue Cofounder Colorado 78

Gust

OCTOBER 18, 2011

It is one of the most useful methods for establishing the pre-money valuation of pre-revenue startup ventures. in the case of one investment round, no subsequent investment and therefore no dilution). Return on Investment (ROI) = Terminal (or Harvest) Value ÷ Post-money Valuation. (in The Dave Berkus Method.

Valuation 174

Valuation Pre-Money Valuation Southern California Post-Money Valuation 174

Both Sides of the Table

FEBRUARY 25, 2010

But we weren’t optimizing for dilution – we were building a $1 billion+ company and we wanted the runway to succeed. If it’s a biz deal you might care about IP protection, revenue share, investment commitments to joint marketing – whatever. We ended up agreeing a term sheet for $16.5 million at a $15 million pre-money valuation.

Technical Review 301

Technical Review Term Sheet Due Diligence Venture Capital 301

Both Sides of the Table

SEPTEMBER 29, 2009

Huge downturns have a real impact on the revenue line of start-ups and therefore the pressure on valuations. As a personal story, I sat on the board of one company with a very unhealthy burn rate relative to revenue or expected growth. They also make M&A activity more difficult and with lower outcomes.

Burn Rate 263

Burn Rate Valuation Pre-Money Valuation Private Equity 263

YoungUpstarts

JUNE 13, 2011

years, and had reached an average revenue level of $60 million with the range being from $5 million to $350 million. They end up trying to do too much for too many, which dilutes their focus and often the quality of their product or service. The problem is that too many entrepreneurs never learn to say ‘NO!’ Growth is messy.

Indianapolis 219

Indianapolis Minneapolis Kentucky Virginia 219

Both Sides of the Table

FEBRUARY 8, 2016

If you raised money in the past 2 years and have grown it is possible that your next round valuation might be flat (or lower) even though you have a higher revenue because investors may value your multiple differently. Optimize for a W more than % dilution in these circumstances. Founders hate them because they’re dilutive.

Burn Rate 150

Burn Rate Cap Table Dilution Balance Sheet 150

VC Cafe

JUNE 10, 2022

As a result, founders are accepting increased dilution of the stakes they hold in their own companies. While these prices are still high compared to what we see in Israel, Investors have putting a stronger focus on revenue growth (and in particular startups that can reach substantial revenue targets) especially before series A.

Valuation 152

Valuation Marketing Israel Venture Capital 152

YoungUpstarts

JULY 31, 2019

Founders need seed capital to get their operations up and running, and to begin generating revenue. But “fundraising debt” comes into the picture when you raise too much too early, diluting your business at the beginning of the venture, with no real plan or unrealistic projections for how your business will scale.

Cofounder 127

Cofounder Burn Rate Technical Cofounder Seed Capital 127

ReadWriteStart

SEPTEMBER 10, 2010

They already have several customers including some telcos, and are at about $350,000 in revenues. You can get cash without diluting your ownership in the company. Because customer financing equals revenue, not equity. That's why, I advised Gio to keep going with further execution on his business and build more revenue traction.

Cloud 115

Cloud Silicon Valley Incubator Finance 115

A Smart Bear: Startups and Marketing for Geeks

FEBRUARY 26, 2019

Instead, watch payback period for acquisition efficiency, watch retention for product/market fit, watch expansion revenue for long-term growth, and watch gross margin for long-term profitability. Find and focus on one reliable distribution mechanism before diluting your time diversifying. Fix that now. Even just a few people.

Restful 202

Restful Founder Revenue Acquisition 202

ReadWriteStart

JUNE 1, 2020

The primary source of your funds should be your paying customers, i.e., your business should generate enough revenues and profits to fund the growth and expansion. These usually play a role in the very early stage of your business, primarily pre-revenue. Reasons for funding. ? Incubators and Accelerators. Government programs.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Both Sides of the Table

MAY 7, 2016

The founders and team develop a huge confidence level that appropriately increases risk-taking, output, expansion, deals, revenue, press and everything that is a consequence of initial successes. Or some teams who start driving revenue paper over the fact that they aren’t acquiring customers profitably. Everything seems possible.

Churn Rate 150

Churn Rate Vesting Dilution Europe 150

ConversionXL

JULY 22, 2021

Identifying and merging content targeting the same or similar keywords; Removing duplicate content that dilutes importance, and; Improving metadata so that users see what they’re looking for in search engine results pages (SERPs). It’s all about helping Google understand your website better so that pages show up for the right searches.

Technical Review 162

Technical Review SEO Software Review XML 162

Gust

MAY 24, 2012

A typical series of Preferred Stock in a venture-backed startup carries a liquidation preference, anti-dilution rights, dividend preference, a separate vote to fill its own seat(s) on the Board of Directors, “protective provisions” requiring the company to obtain a separate vote of the Preferred to take certain corporate actions, and more.

IPO 159

IPO Equity Common Stock Stock 159

The Next Web

SEPTEMBER 15, 2013

The most common example of an API strategy is around companies who aspire to build a developer community as a new revenue source or as the foundation of their business. They should not be trying to generate new revenue streams or reach new audiences through such programs. Twilio is an interesting example of such a company.

API 135

API Audience Dividend Programming 135

View from Seed

APRIL 30, 2015

Traction and revenue? Typically, the gross margins aren’t there compared to software, so revenue isn’t quite as important in the early stages of getting to market. NVV: Is there any dilution? The fact that the process can be much smoother and quicker can actually be a benefit. Business model? Previous capital raised?

Term Sheet 120

Term Sheet Equity Startup Seed Stage 120

Both Sides of the Table

JULY 16, 2013

Because at least while the VC spigot is open and flowing for high-potential individuals that fit a pattern that some VCs seem to favor they can access cheap capital that isn’t terribly dilutive and can use the to fund development and swing for the fences with limited focus on monetization. And the dilution that goes with it.

Burn Rate 412

Burn Rate Dilution Revenue Valuation 412