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Day: September 25, 2021

The New Era of Media Companies

by dunkhippo33
This post is by dunkhippo33 from Elizabeth Yin

For many years now, VCs have absolutely “hated” investing in media companies. If you were starting a blog or a newsletter, it would be very challenging to raise money from traditional VCs unless you had proven out a ton of traction (with a fast growth trajectory).

But I think it’s important to understand why, because we’re starting to see an inflection point that will shift the entire industry.

Side note: my view on this topic is fairly strong and comes from working with a lot of newsletter companies over the years in running my startup, which was an email ad network.

What’s wrong with media companies?

VCs typically have not liked these criteria about media companies:

Low exit multiples on ad revenue (often 1-2x on annual revenue)
Hard to acquire users quickly & scalably (CAC is too high at scale)
In a recession, companies reduce ad spend – especially brand advertising

All of these things have been traditionally true — especially if you’re looking to sell your business in 5 years.

But what if you thought more long-term? Not a 5 year horizon but 10-20 years or even 20-30 years out? How would you think about your business differently? What would your strategy be?

Regardless of your business, you might do something like:

Gather an audience – maybe start a newsletter to get loyal fans
Launch a product to that audience
Launch many products to that audience to upsell them etc..

And maybe you sell ads or event tickets in (Read more...)

Growing Into Reset Startup Valuations

by David Cummings

One of the popular topics right now is asset prices and valuations. Everywhere you look, things are priced at all-time highs — public companies, startups, homes, cars, etc. Whether investing, or consuming, the current market dynamics are highly unusual. In startup land, with the BVP Cloud Index publishing an average revenue multiple of 23x, public Internet companies are priced to perfection. But does that matter?

Let’s say the valuation of all public (and therefore private) cloud companies are cut in half — 11.5x revenue multiples. The BVP Cloud Index average growth rate is 37%. Assuming growth stays the same (which it won’t), and valuation multiples are halved, how long will it take to grow into the previous valuations?

Let’s break down the math:

Current Valuation is $1 billion

At a valuation multiple of 23x revenue, revenue is $43.5 million.

If the new valuations were cut in half, $43.5M * 11.5 = ~$500M.

Assuming a constant growth rate of 37%, let’s look at how long it takes for the $500M valuation to get back to a $1B valuation.

Year 1

$43.5M * 1.37 = $59.6M revenue

$59.6M revenue * 11.5 multiple = $685M valuation

Year 2

$59.6M * 1.37 = $81.6M

$81.6M revenue * 11.5 multiple = $940M valuation

Now we know: if valuations get cut in half, it’ll take just over 24 months to grow back into the previous valuation, assuming a constant growth rate. And, assuming continued growth, the startups will dramatically appreciate in value once again post valuation (Read more...)

Growing Into Reset Startup Valuations

by David Cummings

One of the popular topics right now is asset prices and valuations. Everywhere you look, things are priced at all-time highs — public companies, startups, homes, cars, etc. Whether investing, or consuming, the current market dynamics are highly unusual. In startup land, with the BVP Cloud Index publishing an average revenue multiple of 23x, public Internet companies are priced to perfection. But does that matter?

Let’s say the valuation of all public (and therefore private) cloud companies are cut in half — 11.5x revenue multiples. The BVP Cloud Index average growth rate is 37%. Assuming growth stays the same (which it won’t), and valuation multiples are halved, how long will it take to grow into the previous valuations?

Let’s break down the math:

Current Valuation is $1 billion

At a valuation multiple of 23x revenue, revenue is $43.5 million.

If the new valuations were cut in half, $43.5M * 11.5 = ~$500M.

Assuming a constant growth rate of 37%, let’s look at how long it takes for the $500M valuation to get back to a $1B valuation.

Year 1

$43.5M * 1.37 = $59.6M revenue

$59.6M revenue * 11.5 multiple = $685M valuation

Year 2

$59.6M * 1.37 = $81.6M

$81.6M revenue * 11.5 multiple = $940M valuation

Now we know: if valuations get cut in half, it’ll take just over 24 months to grow back into the previous valuation, assuming a constant growth rate. And, assuming continued growth, the startups will dramatically appreciate in value once again post valuation (Read more...)

What Happens If Interest Rates Rise – A TextBook Refresher

by Howard Lindzon
This post is by Howard Lindzon from Howard Lindzon

My friend Steve Strazza had a great primer on what might happen if interest rates rise. The gist:

We finally got a major resolution in what we consider one of the most important charts in the world these days.

I’m talking about the US 10-year yield reclaiming that critical 1.40% level this week. And this begs the question as to what a rising rate environment might mean for investor portfolios.

Well, one thing we know for sure is we want to stay away from bonds… unless we’re shorting them.

But how do we want to position ourselves in the stock market if yields are breaking out? It’s simple, really.

Some stocks do better with rising/higher rates, while others thrive in markets characterized by low growth and low yields. If this is the beginning of a fresh move higher for yields, then we want to be focused on buying the stocks that are likely to benefit the most.

It all goes back to the global growth, reflation, and reopening trade these days. It’s cyclical and value stocks. Those are the groups that should outperform.

Meanwhile, growth and tech stocks–and any long-duration assets, for that matter–could come under pressure, as they become relatively less attractive during periods where more economically sensitive areas are offering more appealing growth prospects.

Steve concludes with:

So, what are some of these implications?

Maybe these upside resolutions in yields are what the market needs to kick start a fresh leg higher. What we’re watching for now (Read more...)

All the answers

by Seth Godin
This post is by Seth Godin from Seth's Blog

In an expert-run industrialized economy, there’s a lot of pressure to be the one who’s sure, the person with all the answers.

Far more valuable is someone who has all the questions. The ability to figure out what hasn’t been figured out and see what hasn’t been seen is a significant advantage.

Rarest of all is the person with the humility (and confidence) to realize that even the list of questions can remain elusive. Finding the right questions might be the very thing we need to do.

Why Energy is the Best Predictor of Talent

by auren
This post is by auren from Summation by Auren Hoffman

Join the podcast: Daniel Gross on World of DaaS Spotting talent is really hard. Identifying A-players can feel impossible. Peter Thiel has one of the best interview questions for identifying talent, “What important truth do very few people agree with you on?” But Daniel Gross disagrees. Daniel believes easygoing questions like “What movies do you […]

The post Why Energy is the Best Predictor of Talent appeared first on Summation by Auren Hoffman.