Monday Morning Memo

and-were-back

And we’re baaaaaackkkk!!!  C:V. has returned from our annual vacation and we have some cool new things ahead as well as getting back to the special sauce that is all things C:V.

Recap of Week Before Last: We finished out our Valuation World Cup!

What Lies Ahead: We will be getting back to our Round of the Week and expect a new feature post this week on a new spin on valuation!

P.S. We have a new twitter handle – check it out and follow us @CapitalVentured

 

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Valuation World Cup: A Champion is Crowned!!

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*Editor’s Note: Keep up to date on all things Valuation World Cup here!

The day we have all been waiting for is here!  Two of the early favorites have lived up to the hype and advanced to the VWC Finals!  Though the methods have taken different paths, they both remained committed to their team and investment rationale.

Matchup:

Group B Winner (EV/Sales) vs. Group D Winner (Acquisition Value (Attach Rate))

Highlights:

Acquisition Value (Attach Rate) had been a nearly unstoppable force throughout the tournament with timely scoring and full team efforts and this beginning of this game was no exception.  They got out to an early 1-0 lead due to their ability to size up the competition regardless of market factors and ensure its fit within the business model of the acquiring company.  EV/Sales took this initial deficit in stride and made an inspired push to end the 1st half but could not equalize.

When the pundits look back at the Inaugural Valuation World Cup in the history books 20 years from now, they will most remember the final as a tale of two halves.  The first half was Acquisition Value (Attach Rate) continuing its dominant pace of play that had gotten it this far. It was the hot metric, with some big name press as of late. When Mr. Andreessen tweets 14 times about something, you take note.  But you know else got a lot of press this World Cup? Tyranno-Suarez Rex.

In the second half, the Acquisition Value (Attach Rate) supporters’ deepest fears were confirmed in that the Achilles heel of the entire team was the fact that the Attach Rate was only as good as the acquiring company’s analysis and as a result could be fairly niche and hard to value at times.  This confusion was brought on by EV/Sales change in formation from a pedestrian 4-4-2-1 to an attacking 4-2-3-2 and only made worse by an own goal.  Acquisition Value (Attach Rate) was accustomed to the initial formation and when EV/Sales switched, it fell into an unrecoverable spiral similar to when a company buys a target and then it turns out to be a horrible deal for the acquirer (we see you HP-Autonomy…).

After the formation change, Acquisition Value (Attach Rate) looked as bad as Wesley Sneijder’s repeated failed attempts to cross a ball into the box in the Argentina game and it was all downhill from there.  EV/Sales caps off the comeback and with an absolute FIRECRACKER in the 85minute due to their reliance on a tried and true method.

Outcome:

EV/Sales 2 : 1 Acquisition Value (Attach Rate)

And a Bonus!

Golden Metric Award:

Despite a tough loss in the final, the Golden Metric was awarded to Acquisition Value (Attach Rate). They won all three games in their Wild Card Group D against some wily opposition, outscored opponents 9-1 in their first two knockout stage games, and gave the mighty EV/Sales a run for their money (get it?) in the final. As technology behemoths sit on PILES of cash and command high stock prices, we could see a buyer’s market for years to come.

Valuation World Cup: Semifinal 2 – Attach Rate advances!

*Editor’s Note: Keep up to date on all things Valuation World Cup here!

The semifinals conclude in excellent fashion!

Matchup:

Group A Winner (Adjusting the Average) vs. Group D Winner (Acquisition Value (Attach Rate))

Highlights:

The powerhouse of Acquisition Value (Attach Rate) versus the tactician’s dream of Adjusting the Average was an excellent match.  Both teams used their ability to holistically view an opportunity from the start and scored early.  The game continued to be evenly matched up until the half, but Adjusting the Average made a few unusual errors that ended up costing them the game.

Usually a bedrock of both relevant talent mixed with strong subjective game management from the coaching staff, Adjusting the Average’s head coach made a questionable defensive substitution in the 65′ (we hear this is now called “Van Gaal-ing”…) This allowed Acquisition Value (Attach Rate) to change its formation and exploit the weakened back line similar to the way they dismiss current market valuations for the proper target company and find valuable deals that fit their company’s specific ecosystem.

Outcome:

Adjusting the Average 1 – 3 Acquisition Value (Attach Rate)

Valuation World Cup: Semifinal 1 – To PK’s we go!

*Editor’s Note: Keep up to date on all things Valuation World Cup here!

The Semifinals begin!

It All Comes Down to Penalty “Quicks”

Matchup:

Group C Winner (EV/LCV) vs. Group B Winner (EV/Sales)

Highlights:

It’s been a physically brutal first 120’, and neither team could make any decided advances. Hmmm where have we seen that before… So here we sit, 0-0 with five quick “rounds” to go: five chances to get that valuation right or face elimination.

Company 1: “Handlr”  A Prosthetics Delivery Firm

EV/LCV quickly realizes that each customer has a low lifetime value because of low margins, and therefore will require significant growth in customer base which would be hard to achieve in the prosthetics industry. EV/Sales sees high topline figures for a young company aaand… overvalues. 1-0 EV/LCV.

Company 2: “Campr”  An Online Video Game for Pre-Teens

Both teams recognize that these developers can continue to churn out new games. EV/LCV adjusts up their current figures for that option of future value; EV/Sales used high growth comparables to reflect the potential. 2-1 EV/LCV.

Company 3: “Fishrman”  Analytics for Fishing Vessels

The tides turn as EV/Sales finds reasonable comps by using both analytic companies anchored by those in the food industry. EV/LCV, on the other hand, undervalues because early customers have been small independent fisheries whereas the future growth will come from larger corporate operations with much higher revenue coupled with lower onboarding costs of focused efforts. Even at 2-2.

Company 4: “Advr-tizr”  Digital Media Content for Millenials

Here’s where EV/Sales flexibility comes into play. This company is growing too fast to use current year revenues, so a one-year forward multiple is used. EV/LCV is up to the task as well, noting that their customer acquisition costs are decreasing, driving Advr-tizr’s LCV up in the future. Even at 3-3.

Company 5: “Smeltr”  Late-Stage Hardware Manufacturer

EV/LCV thinks they have it. They recognize the sales to academic research institutions and run with the notion that these high-value customers will continue to drive value. However, this market has already been saturated with their products. Any new sales with be fewer and further between. Their valuation sails over the crossbar! EV/Sales used late-stage comps and didn’t overweight the growth opportunities, securing their place in the final!!! EV/Sales wins 4-3.

Outcome:

EV/Sales 1-0 EV/LCV PK’s (4-3).

Valuation World Cup: Quarterfinal 4 – MAU Goes Down!

*Editor’s Note: Keep up to date on all things Valuation World Cup here!

Day two of the Quarterfinals continues!

Matchup:

Group C Runner Up (EV/MAU) vs. Group D Winner (Acquisition Value (Attach Rate))

Highlights:

The potential to be a Jekyll and Hyde team that has plagued EV/MAU all through qualifying finally reared its ugly head in the matchup against Acquisition Value (Attach Rate).  EV/MAU were simply outclassed on all fronts by Acquisition Value (Attach Rate)’s ability to holistically value an opportunity.  EV/MAU demonstrated strong user growth in the opening minutes but could not sustain the traction and growth needed to compete with the stronger side that was Acquisition Value (Attach Rate).  The game ended in a route similar to Germany’s embarrassment of Brazil in Belo Horizonte today…

Outcome:

Acquisition Value (Attach Rate) 6 : 0 EV/MAU

 

Valuation World Cup: Quarterfinal 3 – The Customer continues to be right!

*Editor’s Note: Keep up to date on all things Valuation World Cup here!

Day two of the Quarterfinals begins!

Matchup:

Group C Winner (EV/LCV) vs. Group D Runner Up (Ownership %)

Highlights:

Ownership % arrived ready to play and given its simplicity it was doing pretty well against the EV/LCV balanced attack.  It wasn’t until a key sending off against Ownership % in the 50th minute gave EV/LCV the ability to reassess their game plan and really push the pace.  Much like how Croatia was able to take care of Cameroon after a red card in Group play, EV/LCV was able to properly gauge their customer demographic and as a result cruised to the victory in the end.

Outcome:

EV/LCV 3 : 0 Ownership %

Valuation World Cup: Quarterfinal 2 – Financial Powerhouse Upset!

*Editor’s Note: Keep up to date on all things Valuation World Cup here!

Knockout round play continues!

Matchup:

Group A Winner (Adjusting the Average) vs. Group B Runner Up (EV/EBITDA)

Highlights:

While superpowers march headfirst into one another in the World Cup, here at C:V in the Valuation World Cup we love an underdog. Adjusting the Average pulled out to an early 1-0 lead. After all, they were our group stage Angel winner and are situated nicely for pre-revenue, let alone pre-earnings, companies. Late in the second half, early favorite EV/EBITDA finally clicked and looked to have that late-round prowess, but never could find an equalizer. That push left little doubt that, had this game gone into extra time (or gone public), they would have moved forward… but too little, too late for this competition. This matchup draws comparison to Germany’s parked bus after a 13’ goal against the French. Plenty of Benzem-ian efforts for EV/EBITDA, but like him, they will be watching the semis from their couches.

Outcome:

EV/EBITDA 0-1 Adjusting the Average