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Enterprise Software Startup Valuation

February 10th, 2008 by Jacob Ukelson

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.

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2 Responses to “Enterprise Software Startup Valuation”

  1. Joe Drumgoole Says:

    The problem with Cape Clear is they raised too much money too fast and failed to convert that capital into a significant sales or technology advantage. From first mover in the Webservices space the declined into a “me too” player and then turned down several earlier and more attractive acquisition offers by other companies.

    In the end the Workday acquisition will be at a firesale price which will leave very little for the earlier investors and/or common stock holders.

  2. Jacob Ukelson Says:

    Interesting. I can’t tell you the number of times that I have seen a VC backed startup turn down an interesting offer - not a blockbuster one, just a comfortable one, only to end up with a firesale a bit later. It is one of downsides of VC money - VC’s need the blockbuster sale, not a comfortable one - and sometimes end up throwing out the baby with the bathwater.

    From a VC perspective - the chance of a blcokbuster is worth the risk of a possible firesale.

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