Show me the money

1

• Show me the money
• Web 2.0 Expo
• April 18th, 2007

Jeremy Liew Partner, Lightspeed Venture
Partners www.Lightspeedvp.com Lsvp.wordpress.com
2
Its cheaper than ever to start an internet
company
000s
Source Carsonified.com/SXSW Presentation
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and cheaper than ever to run an internet company
SAMPLE EXPENSE BUDGET
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
4
As a result, getting to breakeven isnt too hard
Illustrative
Media Media Media E-Commerce E-Commerce 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
5
but you still need to be big to be public
REVENUE NEEDED FOR 500M EV
PUBLIC COMPANY 07 REV MULTIPLES
MEDIA
E-COMMERCE
Assumed minimum public company scale to sustain
meaningful trading volume and analyst coverage
Source Goldman Sachs Research, March 25, 2007,
Lightspeed Analysis
6
Significant variation in revenue targeted for
internet companies to breakeven versus to be
public
BREAKEVEN
PUBLIC, 500M EV
2.8M 131M
7.0M 277M
MEDIA
E-COMMERCE
Based on median multiples
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• Media Companies

8
Advertising RPMs depend on your ability to
deliver a targeted audience
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
0.50 - 2
1-5
10-40
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
Facebook revenue estimate well over 100m,
Fandango revenue estimated to be around 50m
with half from advertising and half from
ticketing
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To reach breakeven, US traffic requirements can
become quite meaningful, depending on RPMs
PV/Mth to reach 2.8M in revenue
Sites with comparable US Traffic
RPM

• eHarmony 239M
• Real 237M
• Whitepages 230M
• Tagged 229M

• NFL.com 49M
• Nextag 48M
• Washton Post 47M
• Heavy 45M

Not necessarily demographically targeted

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

Not necessarily endemically targeted
Source Comscore, Lightspeed Analysis
10
US traffic requirements are even higher to reach
public company levels
PV/Mth to reach 131M in revenue
Sites with comparable US Traffic
RPM

• 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

Not necessarily demographically targeted

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

Not necessarily endemically targeted
Source Comscore, Lightspeed Analysis
11

• E-Commerce Companies

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Many e-commerce niches are large enough to
support 7M in revenue, our illustrative
breakeven level
Hats.com hats
Allheart.com nursing apparel
Ridegear.com motorcycle gear
Figleaves.com lingerie
Source Internet Retailer Top 500 Guide, 2006
Edition
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There are three ways to get to over 271M in
e-commerce revenues, public company type levels

• One online store with gt271M in revenue
• 5-10 online stores, each with 25-50M in revenue
• 100 online stores, each with up to 3M in
  average revenue

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Relatively few pure play e-commerce companies
have achieved over 271M in annual sales so far
Amazon.com
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
Newegg.com
Source Internet Retailer Top 500 Guide, 2006
Edition, Goldman Sachs
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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 Womens clothing Beauty Products Sheet Music 46M 45M 45M 44M 40M 39M 38M 34M 32M 27M
Source Internet Retailer Top 500 Guide, 2006
Edition
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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
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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 cant 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