Mary Juetten, CEO of Traklight and Efrat Kasznik, Foresight Valuation
Crowdfunding is expected to become a leading source of financing in the early stage, on both rewards and equity platforms. It is likely to add more transparency to startup valuations and, at the same time, contribute to an upward trend in valuations. However, the lack of attention to IP protection or infringement during the campaign can have negative implications on the valuation of your startup. The topic of IP protection should therefore be top of mind for entrepreneurs engaged in crowdfunding, as it is critical to their survival and success long after the campaign has ended.
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If you back a Kickstarter crowdfunding project by a company that ends up selling to Facebook for $2 billion, do you deserve to get a return on your campaign donation? This is the q
uestion raised by some of the backers of the September 2012 crowdfunding campaign of the Oculus Rift virtual reality headset, which successfully raised $2.4
million on Kickstarter, a rewards-based crowdfunding platform.
Rewards platforms are not considered equity investment portals. Instead, they offer ways for companies and projects to find supporters who make a monetary contribution (donation) in return for a set of rewards – ranging from merchandise such as a t-shirt all the way to pre-ordering the actual product itself. One Forbes analyst calculated that a campaign backer who put $300 into Oculus as an equity investment could have made a return of $20,000 when Facebook bought Oculus 18 months later for $2 billion. However compelling, this argument is largely flawed, as a rewards-based donation is technically not an equity investment. Equity crowdfunding is still pending in the United States, awaiting the Securities and Exchange Commission (SEC) regulations required for the implementation of the Jumpstart Our Business Startups (JOBS) Act, the 2012 legislation destined to open up equity crowdfunding to non-accredited investors in the United States for the first time in history. Several key valuation issues are worth discussing in the context of crowdfunding which are very specific to the crowdfunding platform and the regulations surrounding it. Continue reading
Churn Is King: How SaaS Business Models Affect Software Company Valuations
In 2012 Oracle CEO Larry Ellison announced the availability of Oracle Cloud, declaring cloud computing “a fantastic opportunity for technology companies to help customers simplify IT”. Software vendors across the world are embracing the ‘software as a service’ (SaaS) cloud-based business model in growing numbers. According to San Diego-based investment firm Software Equity Group, SaaS software revenues will likely represent approximately 25% of the overall
software market in the next five years. Research firm Gartner estimated that global spending on
SaaS will reach $22.1 billion by 2015. Some software vendors are converting their software delivery and revenue models to SaaS, while others acquire SaaS companies to gain access to this market. Ad
obe is a recent example of that shift: in May 2013 the company announced that it was halting future updates of its flagship product, Adobe Creative Suite, in favour of expanding the subscription-based Adobe Creative Cloud. On the M&A front, SaaS M&A transactions grew 25% last year and the median SaaS exit multiple was more than double that paid for traditional, on-premise software targets, according to the Software Equity Group. Continue reading