web 2.0 expo: show me the money

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Show me the money Web 2.0 Expo April 18 th , 2007 Jeremy Liew Partner, Lightspeed Venture Partners www.Lightspeedvp.com Lsvp.wordpress.com

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It's easier to build a website and reach breakeven, but tougher to become public. Interesting statistics present the financial landscape of today's web business, in both e-commerce and media websites. By Jeremy Liew

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Page 1: Web 2.0 Expo: Show Me The Money

Show me the money

Web 2.0 ExpoApril 18th, 2007

Jeremy LiewPartner, Lightspeed Venture Partnerswww.Lightspeedvp.comLsvp.wordpress.com

Page 2: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

2

Its cheaper than ever to start an internet company…

COST TO BUILD WEBSITE

200

70 6048

20

Wesabe Maya's Mom Mobissimo DropSend Freshbooks

$ ‘000s

Source: Carsonified.com/SXSW Presentation

Page 3: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

3

… and cheaper than ever to run an internet company

Annual Fixed Costs

Assumptions

Staff Costs $1.0m 8 employees

$120k fully loaded

Infrastructure Costs

$0.2m $15k/month

Other Costs $0.2m Rent, Legal, etc

TOTAL $1.4m

SAMPLE EXPENSE BUDGET

Page 4: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

4

As a result, getting to breakeven isn’t too hard…

Media E-Commerce

$ '000s % $ '000s %

Revenue 2,800 100% 7,000 100%

Cost of Goods 1,400 50%* 4,900 70%

Marketing - 0% 700 10%

Staff Costs 1,000 36% 1,000 14%

Infrastructure Costs 200 7% 200 3%

Other Costs 200 7% 200 3%

EBITDA - 0% - 0%

* Assumes ad sales by an ad network or ad rep firm

Page 5: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

5

…but you still need to be big to be public

1.5x3.8x

12.2x

Low Median High

$333M

$131M$41M

High Median Low

$833M

$277M$87M

High Median Low

MEDIA

E-COMMERCE

PUBLIC COMPANY ’07 REV MULTIPLESREVENUE NEEDED FOR $500M EV*

0.6x1.8x

5.7x

Low Median High

* Assumed minimum public company scale to sustain meaningful trading volume and analyst coverageSource: Goldman Sachs Research, March 25, 2007, Lightspeed Analysis

Page 6: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

6

Significant variation in revenue targeted for internet companies to breakeven versus to be public

$2.8M $131M

$7.0M $277M

MEDIA

E-COMMERCE

BREAKEVEN PUBLIC, $500M EV*

* Based on median multiples

Page 7: Web 2.0 Expo: Show Me The Money

Media Companies

Page 8: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

8

Advertising RPMs* depend on your ability to deliver a targeted audience

Advertisng RPMs

EndemicAdvertising

Demographic

Broad Reach

Example

2007 Revenue

March

US PVs

Annual

US PVs RPM

Myspace

$271M 44B 524B $0.52

Facebook

$150M**

12B 126B $1.03

Fandango

$25M** 50M 600M $41.67$10-40

$1-5

$0.50 - 2

** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from advertising and half from ticketing”

Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis* RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen

Page 9: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

9

To reach breakeven, US traffic requirements can become quite meaningful, depending on RPMs

$20

$5

$1

Endemic

Demo

Broad

12M

47M

233M

RPMPV/Mth to reach $2.8M in revenue

Sites with comparable US Traffic•eHarmony 239M

•Real 237M•Whitepages 230M•Tagged 229M

•NFL.com 49M•Nextag 48M•Wash’ton Post 47M•Heavy 45M

•Technorati 12M•WinAmp 12M•UFC.com 12M•Digg 11M

Source: Comscore, Lightspeed Analysis

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Page 10: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

10

US traffic requirements are even higher to reach public company levels

$20

$5

$1

Endemic

Demo

Broad

546M

2183M

10,917

M

RPMPV/Mth to reach $131M in revenue

•MSN 13,672M•Google 12,476M•Facebook 12,179M•AOL 10,609M

•Live.com 2,819M•Youtube 2,539M•Go.com 1,559M•Pogo 1,544M

•MSNBC 592M•Expedia 522M•Paypal 495M•Weather.com 488M

Source: Comscore, Lightspeed Analysis

Sites with comparable US Traffic

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Page 11: Web 2.0 Expo: Show Me The Money

E-Commerce Companies

Page 12: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

12

Many e-commerce niches are large enough to support $7M in revenue, our illustrative breakeven level

Allheart.com – nursing apparel

Figleaves.com – lingerie

Hats.com – hats

Ridegear.com – motorcycle gear

Source: Internet Retailer Top 500 Guide, 2006 Edition

Page 13: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

13

There are three ways to get to over $271M in e-commerce revenues, public company type levels

One online store with >$271M in revenue

5-10 online stores, each with $25-50M in revenue

100+ online stores, each with up to $3M in average revenue

Page 14: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

14

Relatively few pure play e-commerce companies have achieved over $271M in annual sales so far

Company 2005 Revenue

Amazon

Newegg

Overstock

Netflix

Drugstore

Buy.com

Bluenile

Peapod

VistaPrint

Zappos

$8,490M

$1,300M

$804M

$688M

$399M

$345M

Below $271M in 2005 but projected over $271M in 2007

Amazon.com

Newegg.com

Source: Internet Retailer Top 500 Guide, 2006 Edition, Goldman Sachs

Page 15: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

15

In 2005, there were at least 227 companies with e-commerce revenues over $25M, but none with multiple websites in this range

Company Products 2005 Revenue

Bodybuilding.com

Computer Geeks

Parts Train

Shoemall

Cooking.com

Decorative Product Source

Blinds.com

Shopbop

Gloss.com

Sheet Music Plus

Supplements

PC hardware

Auto parts

Shoes

Kitchen goods

Plumbing and Lighting

Blinds

Women’s clothing

Beauty Products

Sheet Music

$46M

$45M

$45M

$44M

$40M

$39M

$38M

$34M

$32M

$27M

Source: Internet Retailer Top 500 Guide, 2006 Edition

Page 16: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

16

A number of companies have taken a portfolio approach, building large numbers of stores

Company Sample Websites (not exhaustive)

CSN Stores adirondack-furniture-direct.com, allairbeds.com, bedrooms.com, csnbunkbeds.com, everysafe.com

Home Décor Products

homeclick.com, absolutehome.com, barbeques.com, knobsandthings.com, poolclick.com

Mercantila Pilates-exercise-direct.com, Rowingmachines.com, sofabed-store.com, tennis-ball-machine-guide.com

Netshops Aquariumsdirect.com, croquet.com, daybeds.com, hammocks.com, justglobes.com, potracksgalore.com

Niche Retail bicycletrailers.com, highchairs.com, sparebed.com, suuntowatches.com, tricyclekids.com

Source: Internet Retailer Top 500 Guide, 2006 Edition, Company websites

Page 17: Web 2.0 Expo: Show Me The Money

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

17

Conclusion

Easier than ever to start a consumer internet company Not too hard to get to cash flow breakeven

For long term value creation, plan A can’t be “get bought by Google”

Need to have a roadmap to be an independent public company Requires real scale Revenue sometimes lags costs when you are growing May need venture capital to bridge the gap