We were lucky enough to be invited to last week’s Angel Meetup in Dublin. Brilliantly organised by Diane Roberts of Xcell Partners (and now also Colman Equity), the event brought together some of the country’s leading Angels; Gavin Duffy from RTE’s Dragons’ Den, Bill Liao of SOS Ventures and CoderDojo, Tadhg O’Toole of Bloom Equity and Eoghan Jennings of Startupbootcamp Dublin. Legendary US angel Bill Payne also delivered the morning’s keynote address on valuation and trends in US angel investing.
I closed the event with a talk on my experiences as an entrepreneur and investor. I looked back at the Wombat story, offered what advice I had to the founders in the room and did a little Q and A with Gavin and the audience. (The presentation is included below.)
The part of the talk that seemed to resonate most with those in the room (and online in terms of RTs and Mentions, at least) was the issue of fundraising and some core views based on my observations of the Fintech sector in recent years – what I deemed the $200 million secret.
In my experience, one of the most difficult things about driving value when selling a company or managing an investment round is that VCs, acquirers or lay investors will see your projections anything up to nine months before a deal closes; hitting those numbers needs to be in your DNA. You disappoint, you die.
Any top-class enterprise sales executive understands the difference between a short-cycle sale and a long-cycle sale. In a short-cycle sale (think bartering at a market stall) the sale process is short, intense, and comes to an immediate conclusion. It is all about the banter. In a long-cycle sale the buyer has ample time to consider, reflect, see new information, etc., and will reevaluate the decision (and valuation) based on every new detail that crosses the table. Set the expectations wrong and you can only disappoint.
Nowhere is this truer than in M&A; where the valuation of a company is generally tied to its earnings projections. The buyer sees the management’s projections for the rest of the year in March, but the deal may not close until December. Miss those projections and you are dead.
Professional buyers understand that it is extremely difficult for a management team to juggle a drawn-out M&A process and, simultaneously, deliver their numbers. They will deliberately drag the process out to force a miss and drive down the price (in the full knowledge that one or two bad quarters won’t necessarily undermine the long term potential of the business). Why pay $100m in an acquisition when you can wait three months until after the miss and pay $25m.
This week we’ve seen Facebook report its first quarter-to-quarter revenue slide in almost two years, and only weeks before the company goes public in what will likely be the biggest ever Internet IPO. It would seem the internet’s largest social network has broken the $200 million rule or in this case, the $5 billion rule (the amount the company looks set to raise with the forthcoming IPO).
Now it is unlikely Facebook will die as a result of this ill-timed revenue slide (the company’s updated filing with the SEC noted that Facebook had surpassed 900 million monthly active users in Q1) but there can be no doubt that this week’s news will worry would-be investors. The big question is how worried will they be? My guess, it will still be a massive IPO, one of the biggest ever but as one industry insider put it yesterday, investors should expect a bumpy ride. Just look a Zynga.
Looking back again to last week’s Angel Meetup. The event itself took place in the Factory on Barrow Street, home to Startupbootcamp accelerator, run by Eoghan Jennings. It’s a fantastic venue, previously used by the likes of U2 and David Bowie for gigs and rehearsal. As a backdrop to the Angel Meetup, 10 start-ups, choosen to take part in the three-month accelerator, were busy beavering away on their products and demoing to delegates, no doubt dreaming of that first funding round. My advice to them (and Mark Zuckerberg) is simple: Hit your numbers and the rest will take care of itself.