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Dropbox buys HelloSign (YC W11) for $230M

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Re: Dropbox buys HelloSign (YC W11) for $230M

#141

Post by mbesto »

tombert wrote: post #92

I don't mean to ask this ironically; how do these companies come up with these numbers during a sale? Jet.com was sold for $3 Billion, but Craftsman Tools was sold for only $900 Million. I don't really know anything about HelloSign, but can someone tell me roughly why they might have come up with the $230M number?

> but can someone tell me roughly why they might have come up with the $230M number?

M&A guy here. Generally companies are valued at EBITDA * Multiple. However when it's a strategic acquisition (which this is) then they tend to adjust EBITDA around an investment thesis. For tech companies, this adjustment can be fairly drastic and multiples can get crazy (general market is about 9x right now, but 15x+ for software providers). There are too many theses to enumerate here, but some commons examples cost takeout, customer cross-sell, resource consolidation, etc.

Re: Dropbox buys HelloSign (YC W11) for $230M

#142

Post by runako »

tombert wrote: post #92

I don't mean to ask this ironically; how do these companies come up with these numbers during a sale? Jet.com was sold for $3 Billion, but Craftsman Tools was sold for only $900 Million. I don't really know anything about HelloSign, but can someone tell me roughly why they might have come up with the $230M number?

Will chime in with another valuation metric for a company like HelloSign: attach rate [1]. In this case this concerns how much of DropBox's (much bigger) customer base can be persuaded to buy HelloSign's products due to single sales process, tight integration, etc.

DropBox has ~300k paid business accounts. HelloSign is ~$500/yr for their basic small-business (not solopreneur) plan (I believe HelloFax is separate and starts at ~$100/yr).

Assume DropBox can sell e-signing to a third of their business customers, that means HelloSign would be (relatively quickly) worth $50mm/yr in revenue to DropBox. This is before accounting for any sell-through of HelloSign to their ~11mm paid individual accounts, or any sales at all at HelloFax. (I'm sure both of these are a part of an actual investment thesis.)

Also note this assumes HelloSign comes into the deal with zero non-DBX customers, which is obviously not true. HelloSign is also doing valuable new work, so I would expect these numbers to be on the low side of expected outcomes.

Is $50mm/yr worth it? DBX currently trades ~7x revenue, so that $50mm in incremental revenue is, all things equal, worth about $350mm in market cap for DBX. So their backstop is they are buying $350mm++ in market cap for $230mm.

1 - https://en.wikipedia.org/wiki/Attach_rate

Re: Dropbox buys HelloSign (YC W11) for $230M

#143

Post by ct520 »

nihonde wrote: post #135
Aeolun wrote: post #133

Earlier quoted context omitted.

HelloSign also has a history of excessive price increases. We were using this in our app when it suddenly became ridiculously cost prohibitive to do so, so we had to remove it.

As a second data point, we looked at HS, too. We alter our templates so often that their inflexible pricing rendered them completely out of the running. Other e-sign solutions were just as bad in that respect. IAAL, and the dirty secret is that “handwritten” scrawls aren’t required to form valid electronic contracts. It’s purely a measure to assuage the social presumption that a thing is locked in when all the partie…

Correct it’s the intent. Capturing consent, auditable trail, with a dash of tamper seal and a sprinkle of sugar ;) (do not take my comment as literal advice, also my comments do not represent my company and are my own.)

Re: Dropbox buys HelloSign (YC W11) for $230M

#144

Post by ct520 »

deepGem wrote: post #50
gruez wrote: post #40

Earlier quoted context omitted.

>Because the ceremony of a signature Come to think of it, I remember "signing" pdfs in adobe reader by clicking a form field that produced a signature similar to[1]: John Smith Digitally signed by CN=John Smith [...] This would satisfy the "ceremony" requirement. According to adobe[2] it looks like you can do this with self signed certificates, so it's completely free as well. But this option is significantly less po…

You can even satisfy the ceremony of signature in a pdf document by inserting your hand drawn signature in Preview.

Goodluck with that holding up in court.

I think docusign has the best sustinct summary of the bare requirements needed for a electronicly signed document to be recognized as legally binding.

https://www.docusign.com/learn/us-electronic-signature-laws-...

Re: Dropbox buys HelloSign (YC W11) for $230M

#145

Post by ct520 »

mavhc wrote: post #130
gruez wrote: post #40

Earlier quoted context omitted.

>Because the ceremony of a signature Come to think of it, I remember "signing" pdfs in adobe reader by clicking a form field that produced a signature similar to[1]: John Smith Digitally signed by CN=John Smith [...] This would satisfy the "ceremony" requirement. According to adobe[2] it looks like you can do this with self signed certificates, so it's completely free as well. But this option is significantly less po…

Adobe's failure to make this easy and free is the problem. How HelloSign gets away with not also embedding digital signatures is the amazing part. Physical signatures are terrible security, at least when we switch to digital make it better, not worse.

Adobe still gets a piece of the pie with their stupid certificate extortion scheme.

Want a green check box in reader, provider cumbersome instructions for your end users to trust public cert . Or pay adobe their annual fee for a special signing cert..

Re: Dropbox buys HelloSign (YC W11) for $230M

#146

Post by dpark »

mbesto wrote: post #141
tombert wrote: post #92

I don't mean to ask this ironically; how do these companies come up with these numbers during a sale? Jet.com was sold for $3 Billion, but Craftsman Tools was sold for only $900 Million. I don't really know anything about HelloSign, but can someone tell me roughly why they might have come up with the $230M number?

> but can someone tell me roughly why they might have come up with the $230M number? M&A guy here. Generally companies are valued at EBITDA * Multiple. However when it's a strategic acquisition (which this is) then they tend to adjust EBITDA around an investment thesis. For tech companies, this adjustment can be fairly drastic and multiples can get crazy (general market is about 9x right now, but 15x+ for software pr…

That’s all fine and dandy but EBITDA * X = Y is solvable for literally any Y so long as EBITDA is nonzero. You just have to pick the “right” X, which makes this formula essentially meaningless. You can have a negative EBITDA and still be purchased for millions (indeed this is “common” for startups).

The reality is that the buyer pays an amount they think they can make back in some reasonable timeframe by some means.

Re: Dropbox buys HelloSign (YC W11) for $230M

#147

Post by dpark »

mbesto wrote: post #140
fjp wrote: post #136

Earlier quoted context omitted.

Those issues end up being reflected in the multiple. Revenue * multiple is just a common way of talking about it, especially because companies within the same industry tend to have similar multiples. In reverse if you notice two public (since the information is easy to find)companies with seemingly-similar businesses that have very different multiple, you can start looking into why, and the quarterly financial report…

> Revenue * multiple is just a common way of talking about it, especially because companies within the same industry tend to have similar multiples. This is the common way media talks about it, either because they are (1) uniformed or (2) they only hear of top line revenue. Companies are typically acquired for EBITDA * Multiple. However when their is a "strategic" acquisition (which this one is) then there is all sor…

All acquisitions are “strategic”. Even holding companies acquire assets that they believe accrue toward their strategic vision.

The EBITDA calculation is at best a sanity check for the acquirer.

Re: Dropbox buys HelloSign (YC W11) for $230M

#148

Post by tomasien »

bogomipz wrote: post #119
tomasien wrote: post #93

Earlier quoted context omitted.

revenue * multiple let's say $10m in ARR * a 23x multiple The way you get to the multiple is a combination of how fast the revenue is growing, how long you think that will keep up, and the margin of the revenue. Craftsman Tools, for example, was probably not growing much or shrinking and likely had low margin revenue but I don't know.

In the formula you provided how is the number for the multiple arrived at? Is that the multiplier that will be realized at some future date based on the current rate of growth? If so what would that future date be - the next round of funding, an IPO, something else?

It depends on the margin of the revenue and the growth rate primarily

Re: Dropbox buys HelloSign (YC W11) for $230M

#149

Post by thomasjudge »

rrggrr wrote: post #5

This acquisition will fail if Whitney, Neal and the HelloSign team isn't given the freedom and authority to direct integration, marketing and product direction going forward. HelloSign has demonstrated competencies Dropbox has not. Great that Dropbox nailed sync, desktop integration and sharing years ago; but since then they've done little to show any vision or execution in marketing, sales or product direction. As a…

From the article: "Whitney Bouck, COO at HelloSign, who previously held stints at Box and EMC Documentum, said the company will remain an independent entity. That means it will continue to operate with its current management structure as part of the Dropbox family."

Re: Dropbox buys HelloSign (YC W11) for $230M

#150

Post by tomasien »

bufferoverflow wrote: post #124
tomasien wrote: post #93

Earlier quoted context omitted.

revenue * multiple let's say $10m in ARR * a 23x multiple The way you get to the multiple is a combination of how fast the revenue is growing, how long you think that will keep up, and the margin of the revenue. Craftsman Tools, for example, was probably not growing much or shrinking and likely had low margin revenue but I don't know.

Revenue is almost meaningless. At least use a multiple of profits or of net income. You know, you can have a crazy revenue, and still lose money, and your company can be bankrupt in a few months.

I said the multiple is based on the margin of the revenue, aka, how profitable the revenue is.

Revenue is the proper starting point as it is the thing that can or can not be optimized and grown. Profitability of the revenue (now vs. future) is obviously a huge driver but it is not the right starting point.

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