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Archive for February, 2008

Enterprise Software Startup Valuation

Sunday, February 10th, 2008

Not a blockbuster headline, but I just noticed that Workplace, Inc. bought Cape Clear. I had never heard of Workplace before, they sell various Enterprise applications using a SaaS model. I had heard of Cape Clear, they are (were?) a pretty welll known Irish startup in the Enterprise Integration\SOA space - providing Enterprise Services Bus middleware.

Most the articles I have seen about the acquisition focus on the aspect of how integration into existing systems is a key capability for SaaS players, and that the Enterprise middleware space is rapidly consolidating. Makes sense, but for me what is more interesting is what this says about enterprise software startups and their valuation. The details of the deal are confidential - but I am guessing that the deal isn’t a blockbuster (given the size of the acquirer), and I’d be surprised if the deal was for more than $50M (maybe much, much less), all stock. Now according to Joe Drumgoole’s blog about $48M has been invested in Cape Clear over the years - so a $50M exit doesn’t leave much for anyone. Here is his list of Cape Clear investments:

  • 2 Million in seed funding from ACT in 2000
  • 16 million in Series A funding from Accel and Greylock in 2001
  • 10 million in Series B funding from Accel and Greylock 2003
  • 5-10 million: A phantom series C round raised as a set of warrants amongst existing investors. It was never press released and their is no mention of it on the net.
  • 15 million in a series D round in the last few weeks (April 2006 - Jacob) with InterWest

Cape Clear seems to have been a “technology” acquisition for Workday - which brings me to my point about Enterprise Software startup valuations. It is very difficult to become a stand alone player in Enterprise software (especially with all of the consolidation going on), and if you aren’t a viable stand alone enterprise software company - well that means you need to plan for the fact you will be acquired - probably for technology. To make sure that a technology acquisition is a viable exit path you need to make sure your valuation isn’t too high in the early stages. Enterprise technology companies seem to sell for $15M-$100M, depending how strategic they are to the acquirer - but require a lot of money in the later sales and marketing phases.

So make sure you don’t over value your company early on, it will come back and bite you later.

Microhoo - My Thoughts on a Microsoft-Yahoo Merger

Sunday, February 3rd, 2008

Well, it is in the news everywhere, the possibility of a $44B Microsoft/Yahoo merger.  Given that I have spent a lot of ink discussing how to manage mergers after they happen - I find it hard to believe that this merger will actually end-up as a net positive for either company over time. The companies are just too different. Yahoo has been spending the last few years making itself into a media company (though lately they have been talking about getting back to their technical roots), and Microsoft is, in the end, a software and engineering company. My guess is that it will be hard for the merged “Microhoo” to be both a media and software company at the same time, which will cause enormous tension w.r.t to management attention and resource allocation. I wouldn’t want to be the one who has to make that merger work…

Another point that has been discussed ad-naseum is whether this will help or hurt the start-up eco-system. I attached a table taken from the Israeli government website about recent acquisitions of Israeli comapnies. Taken in a purely Israeli context it will probably be a net plus. First of all Yahoo has been a complete non-player in Israel, while Microsoft has both a large presence and made three acquisitions lately (see the table below). People are right that Microsoft will be busy for a while digesting the acquisition, which will slow its pace. The good news is that it will probably cause other players to pick up the pace of their acquisitions - AOL (which bought Quigo and Yedda which even aren’t on the list), Ebay which has bought Shopping.com and FraudScience (also not on the list). Maybe even some of the other advertising\internet players - e.g. Google, Amazon, IAC, News Corp. will start acquiring differentiating technology in Israel which would more than make up for any slowdown by Microsoft.

Recent Israeli m&a activity chart