Web 2.0 Expo: Show Me The Money
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Transcript of Web 2.0 Expo: Show Me The Money
Show me the money
Web 2.0 ExpoApril 18th, 2007
Jeremy LiewPartner, Lightspeed Venture Partnerswww.Lightspeedvp.comLsvp.wordpress.com
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
2
Its cheaper than ever to start an internet company…
COST TO BUILD WEBSITE
200
70 6048
20
Wesabe Maya's Mom Mobissimo DropSend Freshbooks
$ ‘000s
Source: Carsonified.com/SXSW Presentation
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
3
… and cheaper than ever to run an internet company
Annual Fixed Costs
Assumptions
Staff Costs $1.0m 8 employees
$120k fully loaded
Infrastructure Costs
$0.2m $15k/month
Other Costs $0.2m Rent, Legal, etc
TOTAL $1.4m
SAMPLE EXPENSE BUDGET
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
4
As a result, getting to breakeven isn’t too hard…
Media E-Commerce
$ '000s % $ '000s %
Revenue 2,800 100% 7,000 100%
Cost of Goods 1,400 50%* 4,900 70%
Marketing - 0% 700 10%
Staff Costs 1,000 36% 1,000 14%
Infrastructure Costs 200 7% 200 3%
Other Costs 200 7% 200 3%
EBITDA - 0% - 0%
* Assumes ad sales by an ad network or ad rep firm
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
5
…but you still need to be big to be public
1.5x3.8x
12.2x
Low Median High
$333M
$131M$41M
High Median Low
$833M
$277M$87M
High Median Low
MEDIA
E-COMMERCE
PUBLIC COMPANY ’07 REV MULTIPLESREVENUE NEEDED FOR $500M EV*
0.6x1.8x
5.7x
Low Median High
* Assumed minimum public company scale to sustain meaningful trading volume and analyst coverageSource: Goldman Sachs Research, March 25, 2007, Lightspeed Analysis
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
6
Significant variation in revenue targeted for internet companies to breakeven versus to be public
$2.8M $131M
$7.0M $277M
MEDIA
E-COMMERCE
BREAKEVEN PUBLIC, $500M EV*
* Based on median multiples
Media Companies
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
8
Advertising RPMs* depend on your ability to deliver a targeted audience
Advertisng RPMs
EndemicAdvertising
Demographic
Broad Reach
Example
2007 Revenue
March
US PVs
Annual
US PVs RPM
Myspace
$271M 44B 524B $0.52
$150M**
12B 126B $1.03
Fandango
$25M** 50M 600M $41.67$10-40
$1-5
$0.50 - 2
** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from advertising and half from ticketing”
Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis* RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
9
To reach breakeven, US traffic requirements can become quite meaningful, depending on RPMs
$20
$5
$1
Endemic
Demo
Broad
12M
47M
233M
RPMPV/Mth to reach $2.8M in revenue
Sites with comparable US Traffic•eHarmony 239M
•Real 237M•Whitepages 230M•Tagged 229M
•NFL.com 49M•Nextag 48M•Wash’ton Post 47M•Heavy 45M
•Technorati 12M•WinAmp 12M•UFC.com 12M•Digg 11M
Source: Comscore, Lightspeed Analysis
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Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
10
US traffic requirements are even higher to reach public company levels
$20
$5
$1
Endemic
Demo
Broad
546M
2183M
10,917
M
RPMPV/Mth to reach $131M in revenue
•MSN 13,672M•Google 12,476M•Facebook 12,179M•AOL 10,609M
•Live.com 2,819M•Youtube 2,539M•Go.com 1,559M•Pogo 1,544M
•MSNBC 592M•Expedia 522M•Paypal 495M•Weather.com 488M
Source: Comscore, Lightspeed Analysis
Sites with comparable US Traffic
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E-Commerce Companies
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
12
Many e-commerce niches are large enough to support $7M in revenue, our illustrative breakeven level
Allheart.com – nursing apparel
Figleaves.com – lingerie
Hats.com – hats
Ridegear.com – motorcycle gear
Source: Internet Retailer Top 500 Guide, 2006 Edition
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
13
There are three ways to get to over $271M in e-commerce revenues, public company type levels
One online store with >$271M in revenue
5-10 online stores, each with $25-50M in revenue
100+ online stores, each with up to $3M in average revenue
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
14
Relatively few pure play e-commerce companies have achieved over $271M in annual sales so far
Company 2005 Revenue
Amazon
Newegg
Overstock
Netflix
Drugstore
Buy.com
Bluenile
Peapod
VistaPrint
Zappos
$8,490M
$1,300M
$804M
$688M
$399M
$345M
Below $271M in 2005 but projected over $271M in 2007
Amazon.com
Newegg.com
Source: Internet Retailer Top 500 Guide, 2006 Edition, Goldman Sachs
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
15
In 2005, there were at least 227 companies with e-commerce revenues over $25M, but none with multiple websites in this range
Company Products 2005 Revenue
Bodybuilding.com
Computer Geeks
Parts Train
Shoemall
Cooking.com
Decorative Product Source
Blinds.com
Shopbop
Gloss.com
Sheet Music Plus
Supplements
PC hardware
Auto parts
Shoes
Kitchen goods
Plumbing and Lighting
Blinds
Women’s clothing
Beauty Products
Sheet Music
$46M
$45M
$45M
$44M
$40M
$39M
$38M
$34M
$32M
$27M
Source: Internet Retailer Top 500 Guide, 2006 Edition
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
16
A number of companies have taken a portfolio approach, building large numbers of stores
Company Sample Websites (not exhaustive)
CSN Stores adirondack-furniture-direct.com, allairbeds.com, bedrooms.com, csnbunkbeds.com, everysafe.com
Home Décor Products
homeclick.com, absolutehome.com, barbeques.com, knobsandthings.com, poolclick.com
Mercantila Pilates-exercise-direct.com, Rowingmachines.com, sofabed-store.com, tennis-ball-machine-guide.com
Netshops Aquariumsdirect.com, croquet.com, daybeds.com, hammocks.com, justglobes.com, potracksgalore.com
Niche Retail bicycletrailers.com, highchairs.com, sparebed.com, suuntowatches.com, tricyclekids.com
Source: Internet Retailer Top 500 Guide, 2006 Edition, Company websites
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners
17
Conclusion
Easier than ever to start a consumer internet company Not too hard to get to cash flow breakeven
For long term value creation, plan A can’t be “get bought by Google”
Need to have a roadmap to be an independent public company Requires real scale Revenue sometimes lags costs when you are growing May need venture capital to bridge the gap