2013 vs 2014: Exits

With January now upon us, it’s time for the obligatory start of the year post reflecting on the past year and making predictions for the year to come. I’ll be doing this over a series of blog posts.

NB: This won’t be a comprehensive list. It will only focus on some areas I’m interested in.

NB2: The posts will also be heavily biased based on the startups and founders I’ve been exposed to and like i.e. I’ve made no real effort to scour the startup landscape and to provide some sort of unbiased list of perceived excellence.

EXITS 

Exits matter. And there aren’t enough of them from Australian startups. I’m not talking about billion dollar exits, I mean exits at all stage of the exit continuum.

I’m going to focus on the largest exits below but my belief is that unless we see an increased number of exits in all stages, and more specifically in the early parts of that continuum (i.e. the $5M-$50M range) we will never truly have a sustainable startup ecosystem. This is a topic that deserves its own post, so I’ll leave it there for now.

How do you compare exits?  They can be measured and compared in multiple ways depending on where your focus is. For example:

  • If you view exits as being an important foundation in the creation of a solid funding environment then investor exit size  (and, as such, multiple) should matter.
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  • If you view exits for founders as being critical to incentivise future entrepreneurial activity then the size of the exit for the founder matters (and that can be vastly different to the reported exit size, particularly as the business grows in size and takes on more investment)
    -
  • If you view exits for founders and employees as a core part of creating a new class of cashed up entrepreneurs and investors (e.g. PayPal) then the existence of an ESOP and the size of each employee’s option pool matters as does the structure of the exit for the founder (earn outs and how ties they are to the acquirer etc.
    -
  • And then of course, if you look at IPOs as an exit path what’s really an exit? What’s notional paper wealth and who sold out at IPO vs who’s still in (especially where the price has popped)?

With all of that in mind – here are my thoughts on 2013 and 2014’s big exits.

2013 – The Year in Big Exits (in no particular order…)

1. Freelancer

  • Valuation at Exit: $218M
  • Market Cap: $643M

The Freelancer IPO could very possibly go down as the exit that once again proves that Australian public markets are a valid exit path for local startups (and their investors). You’d think that home bias in equity markets, the growing interest in tech stocks, and the relative dearth of tech investment opportunities for local investors would have seen more companies considering this route, but that doesn’t appear to have been the case. Perhaps then, the Freelancer IPO will be the reference event that was needed to get things moving.

You can (mostly) ignore some of the comments asuggesting the small initial allocation and the offering price, along with the very public rejection of a $400M acquisition offer appear to have been engineered to create a pop in the share price post IPO.  There are valid reasons for why you would want to do this other than the marketing / PR benefit e.g. Think of it as lean listing methodology i.e. release an MVP (small initial offering volume) in order to test the market and optimise for a larger, better priced, release of equity to the public markets at some later stage.

No matter which story you prefer though (valid financial strategy or marketing-driven hype) this could be the most important exit for Aussie startups since the dot com days if more startups follow Matt Barrie’s lead.

2. OzForex

  • Valuation at Exit: $480M
  • Market Cap: $684M

Another good IPO exit for an Aussie “startup”. For me, the most important thing here (other than the fact that an awesome Aussie company had been built) was the size of Accel and Carlyle’s exposure to the company. This will be a good signal to other large foreign Private Equity firms that there are good investment opportunities in the Australian startup ecosystem.

3. RetailMeNot

  • Valuation at Exit: US$1.05 billion
  • Market Cap: US$1.92B

OK – so not really an Aussie startup anymore, but I want to highlight this one. RetailMeNot was started by Guy King and Bevan Clarke in Melbourne. In 2010 the company was acquired by Whale Shark Media in a rumoured ~$90-$100M deal. In 2012 Whale Shark, which was a coupon site aggregation play, changed it’s name to RetailMeNot, raised a bunch of additional funding from a range of investors, including Google Ventures.

This year they IPO’d and now have a market cap of just under US$2 Billion.

Your first thought may be that the eventual IPO had little to do with Guy and Bevan’s work, but according RetailMeNot’s   S1, RetailMeNot.com (the site Guy and Bevan created and scaled)  accounted for $113.4M of the $144.7M in net revenue (78%) the parent company achieved in 2012  – i.e. there’s good cause to say that a large chunk of that market cap is heavily attributable to Guy and Bevan.

Of the 2 founders, I’ve spent more time speaking to Guy and he is exactly the type of person we want as a cashed up investor in Australia right now. Independently wealthy, deeply experienced in the cut throat world of user acquisition and conversion and already using technology to take a more data-driven approach to investment.

2014 – The Year in Big Exits…to come

This will be a short one as the rumour mill has been cranking over for months that Atlassian is due to IPO soon. Whether they list in Australia, London or New York is still yet to be seen but based on all of the factors above (founder exit size, investor exit size, from what I understand there’s a solid ESOP in place, reference success for incentivising other entrepreneurs etc.) this could be a game changer for the local community.

Here’s hoping, however, that there are a few surprises (there are certainly a couple of others that could have a big year) but also, that we get much more exit activity across the whole of the continuum.

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