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Subject: Re: UKNM: Internet startup values
From: Sean Phelan
Date: Wed, 15 Jul 1998 10:43:07 +0100


See last week's Business Week for an article on valuation of search engines
Yahoo & Excite. Some U.S. analysts just look at revenue multiples - the
article points out that Yahoo is at 80x revenues, as was Netscape after its
IPO. Excite is only 12x revenue.

If you have a forecast that actually shows profitability in the near term,
you might want to just value it on the basis of a highish P/E - I have put
figures of 20 or 25 in business plans myself, which is low by US standards
but perhaps realistic over here.

The idea of calculating NPV is interesting, but I'm not sure that it would
provide a result that would be helpful in terms of gaining finance. You
could look at the published figures for, again, Yahoo etc. and calculate
an NPV and hence a discount rate. However, the figures you come up with
for major UK and US players will bear no resemblence to their current
share price or the values of recent acquisitions.

I think that some of the work from both the online and FMCG worlds on the
valuation of brands is more helpful. Firms like Yahoo have high valuations
because they have stong brands, name recognition, etc. and management teams
that know how to build, maintain and exploit the brand.

The other approach is build up a firm with unique technology skills and
people, which can be valued on the assumption that it will be an acquisition
target, cf. muscat in the UK, countless firms acquired by Microsoft, etc.
I suspect you could look back over such acquisitions and work out an average
value per professional employee, but I don't have any research to back this


>This is my first time on the list, so hello everyone.
>I'm looking forward to sharing some valuable dialogue on Net marketing in
>the UK.
>I'm launching an Internet startup company, and trying to value it for my
>investors. I have a projected cashflow and P&L, but don't know what discount
>rate would be appropriate for an Net Present Value calculation. Other
>valuation options are (getting complex here, but any idea would be great!) a
>multiple of forecast cashflow or a forecast EBIT (PBIT) and/or earnings
>multiple, however again I don't know what an appropriate multiple would be.
>If ayone has research, experience or precedents for this, it'd be much
>davidatchameleon [dot] co [dot] uk

Sean Phelan seanatmultimap [dot] com http://www.multimap.com
phone (within UK): 0171 433 0460 fax (UK): 0171 209 5194
phone (Int'l): +44 171 433 0460 fax: +44 171 209 5194

  UKNM: Internet startup values, Francesco Benincasa

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