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How Much Equity Do VCs Really Get?

In challenging economic times like this many folk are tempted to break out of their personal economic straight jackets by launching a technology startup. ‘Capital-light’ startups are the rage today, thanks to the extremely low costs of hosted services and the plethora of open source infrastructure software solutions. Many newbie entrepreneurs look to venture capital as the best way to finance the launch and development of their business. A common question raised by many of these entrepreneurs is ‘how much equity do VCs typically get?” Thanks to the folks at OwnYourVenture.com, entrepreneurs can now use a web based tool to model the impact of multiple rounds of venture capital funding. This post explores not only the math behind how founders’ equity gets diluted by venture capital, but it also models what founders’ ultimate payoffs can be in various exit scenarios. One pof the key takeaways is that you should worry more about how much VCs will own at the end of the fund raising process and what your exit will look like versus how much equity you give away in your Seed or Series A round.

SaaS Valuation Update January 2010

Interest in public company SaaS valuation trends continue to grow. This post presents an update on key valuation metrics for public SaaS companies as of January 2010. Includes metrics on Enterprise Value, EV/Revenue, EV/EBITDA, Gross Margins, EBITDA MArgins, Revenue Growth Rates, and YoY Stock Market Returns.

What the Proposed Carried Interest Tax Means for Private Equity Portfolio Companies

Congress is looking to raise $24 billion over the next 10 years by changing how private equity firms are taxed on the profits of their investments. If you are a senior executive at a private equity backed portfolio company you need to understand how this tax change will impact your owners and their attitudes toward your business. As noted in a recent Wall Street Journal article there are very different opinions about the tax law change. “Private equity will endure, but the draconian tax hike, if enacted, will unquestionably slow the flow of capital to companies struggling to get back on their feet during this very fragile economic recovery,” said Doug Lowenstein, president of the Private Equity Council, a trade group. “It’s amazing to me that at the same time the U.K. is imposing a 50% excise tax on bankers’ bonuses, the private-equity guys aren’t even willing to pay the usual ordinary income rate,” Mr. Fleischer said. “You would think they would recognize a fair deal when it’s offered.”

Whether the tax is fair or not is not the major issue for portfolio company executives. The real issue is that private equity owners could push for the sale of your business in 2010, at significantly reduced prices, to maximize their yield on the investment in your firm. Click through to read the whole post and take a look at the math and its implications for your business.

Amend, Extend & Pretend

2009 saw a record number of PE-backed firms filing for Chapter 11 protection. 83 firms went bust in 2009, versus 46 in 2008 and just 2 in 2007. The numbers could have been significantly higher in 2009 if the infamous ‘amend, extend, & pretend’ phenomenon didn’t start kicking in after Q1 2009. Click through to the full post to see the detail behind the numbers.

Mary Meeker on Steroids

Morgan Stanley’s Mary Meeker, the “Queen of the Net”, is famous for her in-depth analyses of technology markets. In 2009 Mary and her team have been heavily promoting mobile Internet as the next big wave in the technology market. Several copies of her 68 slide October “Economy & Internet Trends” presentation from the Web 2.0 Summit have circulated around the web. Recently Morgan Stanley released the 671 slide presentation, the Mobile Internet Key Themes Report, that underlies Mary and her team’s research. Click through to the full post to review the entire presentation or to download it from Morgan Stanley.

Supply Chain Management Exits

Supply Chain Management is not the most glamorous or valuable software market. In Q309 public Supply Chain Management companies had media EV/Revenue metrics of 1.3x and EV/EBITDA metrics of 9.8x. According to the Software Equity Group Supply Chain Management ranks 19th out of the 24 software technology categories they track. Interestingly enough, there have six major exit/corporate development events in the past two months in this market space including a major dividend, two major acquisitions/mergers, a large secondary offering, and two IPO filings. If boring old Supply Chain Management can generate this much activity then perhaps the rest of the tech market can look forward to a happy new year as well.

Suing Gartner Doesn’t Work After All

Recently ZL Technologies Federal lawsuit against Gartner was dismissed by the Federal Court for the Northern District of California. ZL had sued Gartner over their placement in the email arching Magic Quadrant and Gartner’s supposed bad acts that had cost ZL millions in sales. ZL will not be able to cash in on the $1.696 billion in damages they had claimed. This post explores the details behind the Court’s ruling on the seven claims ZL made. We also provide some advice from a noted industry expert on how companies like ZL can actually use marketing, sales, and branding to positively influence their relative MQ positioning.

Product Management Financial Literacy

Earnings for tech companies continue to grow, but revenues are declining. Tech heavyweights like Microsoft, SAP, Oracle, & IBM saw their revenues declined anywhere from 7% to 31% in the third quarter. If these tech giants are struggling to grow their top lines, then you are probably having a hard time as well. One of the most common complaints cited by sales teams and sales management is that prospects simply cannot appreciate the value a company’s offerings bring to the table and the significant economic benefits they could achieve if they simply implemented your solutions. Often, the root cause of these problems is that product managers and product marketeers lack the financial literacy skills needed to express compelling value equations for their products and services. This post explores the importance of financial literacy for product managers, a quick test to assess your team’s financial literacy, and some resources to help close any knowledge gaps that might exist.

SaaS Company Valuation Trends

How does the market value SaaS companies in comparison to other software companies? Out of 25 different categories of software companies, pure play SaaS companies are the third most valuable category. Not surprisingly, SaaS companies are faring well on exits as well. In this post we will take a look at SaaS valuation and exit trends as well as some interesting trends that potentially foretell a significant slowdown in SaaS company revenue growth and valuations.

Mary Meeker Internet Trends October 2009

Everyone is looking for the looking for the next big wave to ride in the tech marketplace. While social media has exploded in the past year it has not created a wave of hyper-valuable new companies aside from Facebook, MySpace, Twitter, and Zynga. Morgan Stanley’s Mary Meeker thinks the next big wave will be Mobile Internet. Mary details her thinking in her Web 2.0 Summit presentation “Economy & Internet Trends” As TechCrunch’s MG Siegler noted “She thinks the mobile web will be 10 times as big as the more traditional desktop Internet, and that it will grow much faster.” The entire presentation is embedded in the post, along with a copy of the presentation she developed in March 2009 that described the background of the current recession along with her perception of the emerging Internet and Social Media opportunities.


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