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Two Ways to Get to a $100 Million Valuation

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Re: Two Ways to Get to a $100 Million Valuation

#11

Post by pytrin »

qwerty_asdf wrote: post #9

Warning! The entire article is filled with arcane finance newspeak and obscure acronyms! tl;dr: 1. Have a high LTV:CAC ratio (what???) 2. Have high viral co-efficient. (okay.) ----- LTV = Loan to value, a ratio of the outstanding debt on a property to the market value of that property. (or is it "Lifetime value" of a customer?) ----- CAC = Customer acquisition cost is the resource a business needs to allocate in orde…

LTV = Life time value. Have a high ratio between customer acquisition costs and life time value in order to be profitable at scale when CAC goes up. Hope that makes sense now.

Re: Two Ways to Get to a $100 Million Valuation

#12

Post by andreipop »

The two options for a highly valuable company are to either spend heavily to acquire high value users (i.e. Palantir, LTV:CAC ratio), or spend nothing to acquire ubiquitous users (i.e. Facebook, high viral coefficient).

Another important factor not mentioned here (but highly relevant towards a $100M valuation) is market size, which can often provide a restrictive upper bound if the product is too niche (in either case above).

Re: Two Ways to Get to a $100 Million Valuation

#13

Post by mindcrime »

dsugarman wrote: post #5

what about businesses without users?

what about businesses without users?

Came here to say the same thing.

“Your business either has a high life time value per user, or your business has a high viral co-efficient,” said Wertz, mapping out the two paths to startup success.

This makes it sound like everything must be some kind of service, charged on a per/user basis. It completely ignores companies that have customers instead, who sell a product which is used by some unknown set of "users".

Or to put it a different way: Facebook, Google and Twitter have users... IBM, HP, Dell, CA, SAP, SAS, etc., have customers. Not quite the same thing, but the latter still manage to make a lot of money.

That said, the basic point still stands... you can either (A). have a high LTV for a given customer, or you can (B). sell to a large, and steadily expanding base of customers. I suppose you could argue whether introducing new products via brand extensions or line extensions and selling them to your existing customers is A or B or a 3rd option altogether...

Re: Two Ways to Get to a $100 Million Valuation

#14

Post by mindcrime »

beat wrote: post #6
dsugarman wrote: post #5

what about businesses without users?

What do you mean by "users"? A business has to have customers, at least in the long run. Those customers may or may not be the people who actually use the products (Google/Facebook/Yahoo/etc - you're not the customer, you're the product). But whether you're making tires or milk or websites or religious experiences or whatever, you have a product, and someone is using it.

I doubt anybody at Goodyear or B.F. Goodrich talk about people who buy their tires as "users". To my way of thinking, saying "users" implies something very specific about the nature of the business in question... eg, Google and Facebook have "users", whereas Goodyear, Proctor & Gamble, and Alcoa have "customers" (or "accounts").

Re: Two Ways to Get to a $100 Million Valuation

#16

Post by pkaler »

qwerty_asdf wrote: post #9

Warning! The entire article is filled with arcane finance newspeak and obscure acronyms! tl;dr: 1. Have a high LTV:CAC ratio (what???) 2. Have high viral co-efficient. (okay.) ----- LTV = Loan to value, a ratio of the outstanding debt on a property to the market value of that property. (or is it "Lifetime value" of a customer?) ----- CAC = Customer acquisition cost is the resource a business needs to allocate in orde…

> Warning! The entire article is filled with arcane finance newspeak and obscure acronyms!

Boris Wertz is a SaaS/e-commerce investor. LTV, CAC, ARPU, churn, etc are pretty standard metrics for those types of businesses.

Here is a good guide to SaaS Metrics: http://www.forentrepreneurs.com/saas-metrics/

Here is Bessemer's SaaS Reporting Template: http://www.bvp.com/system/files/reporting_saas.xls?download=...

The Smart Bear blog has a good series of SaaS metrics articles: http://blog.asmartbear.com/?s=saas+metrics

Re: Two Ways to Get to a $100 Million Valuation

#17

Post by bennesvig »

ryandrake wrote: post #7

"Do the exact opposite. Don’t spend money acquiring users, instead build your product to go viral, and then monetize through selling access to users (and their data) to advertisers." This idea that viral=free is pretty dangerous. "Viral" can be a very expensive way to acquire customers. Who develops these viral features? free developers? Who tests them, deploys them, scales systems to handle viral growth? Viral is on…

I'd think building virality into a product or service is one of the cheaper ways of acquiring customers. If you create something that works on its own, but is more fun when friends are using it, people are going to do the marketing for you. Instagram is a great example.

Re: Two Ways to Get to a $100 Million Valuation

#18

Post by pan69 »

ryandrake wrote: post #7

"Do the exact opposite. Don’t spend money acquiring users, instead build your product to go viral, and then monetize through selling access to users (and their data) to advertisers." This idea that viral=free is pretty dangerous. "Viral" can be a very expensive way to acquire customers. Who develops these viral features? free developers? Who tests them, deploys them, scales systems to handle viral growth? Viral is on…

The problem with viral is of course that it's not really a choice. When something is truly viral it became so by accident. You can't have a board meeting and decide; "OK guys, time for this thing to go viral!" and not expect to first have to launch an expensive media campaign.

Re: Two Ways to Get to a $100 Million Valuation

#19

Post by liquidise »

Acronyms Used: (trivial and otherwise)

--

SaaS: Software as a Service (might as well include it)

--

LTV: Life time Value (months of use * cost per month)

CAC: Customer Acquisition Cost

ARPU: Average Revenue per User (monthly)

Churn: Rate of customer loss (over specified period)

MAU: Monthly Active Users

--

WoM: Word of mouth

SEO: Search Engine Optimization

SEM: Search Engine Marketing

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