The final panel I attended at SMX Advanced was the “How Did They Do That? Accounts of Recent SEM Business Investments and Sales” panel, given by Michelle Goldberg of Ignition Partners, Jon Kelly of QuinStreet, John P. White of Moorgate Capital Partners, and Richard Zwicky of Enquisite. This was a very realistic look at funding and M&A today.
Michelle was up first and covered the current environment to get venture capital today and the mergers and acquisitions landscape.
Thi year has been certainly tough financially. Debt securitization market is gone — which allowed companies to acquire others. The banking industry is on its way to healing, but not fully back. For large wealthy companies, like IBM, Cisco, etc., they will likely be able to do more acquisition than those with less positive balance sheets. So bottom line, capital, which was cheap and easy to get, is no longer that way. She believes there will be a glut of companies on the market in early 2010 to get funding, as they have been stretching to get through 2009. If you are looking for VC funding in the near term, begin building that relationship now.
From the VC perspective, it will go slower. There will be fewer exits and valuations will be lower. It can be a “bottom-feeders” market right now. Instead, it’s a good time to build value in your company. If you’re a services company, you will be valued differently than a services company. Usually, a services company sees 1-1.5x revenue, but in this market, it’s more like 0.6-1x revenue. Yikes!! They’re going to be looking at cash flow too — very important.
The good news is that “advertising infrastructure” is a strong area for venture financings — even in this tough market. Some recent SEM examples include Enquisite and others.
Strategic buyers are likely the ones that will be buying in 2009.
She also covered ad agency value and showed a slide where the tech digital agencies were expected to receive 6-7x EBIT (earnings before interest and taxes) for an acquisition, but she said that was likely too high of an estimate for 2009. So what should you do? Should you wait out 2009? Likely you should.
Richard started Enquisite in 2005 and was able to raise $8M in this negative financial environment. First, he said you have to have a vision to start a company that is financible. He quoted some SEMPO stats on the growth of the search market — basically a 50 to 1 value proposition for company value going forward.
First, it helps to have great leadership. He built a team, including a tech CEO — Mark Hoffman — the founder and CEO of Sybase and other tech companies. Decide whether you want to fundraise. It will take you 6-12 months to get financing done, so prepare.
How do you find the right venture partner? It’s a dance — find the right firm to work with. You’re making a sale — selling part of your company to a partner. Don’t fall in love with what you do or your product — you won’t be able to look at it objectively. Build out a strong team.
You’re only going to get one shot in front of an organization, so be sure to run through and be prepared! Don’t jump at the first offer, either. Look at the partnership OBJECTIVELY.
Enquisite’s timeline was:
- June 2005: built proof of concept/beta
- July-Dec: got feedback
- Jan 2006: funding decision — built checklist/strategy, solicited lots of advice
- Oct 2006: identified lead funding partner
- Dec 206: created fundable company
- Feb 2007: first funding
- Feb-Dec: build outs, proof of concept, modeling, tests, feedback
- Aug 2007: Major Decision: how to build the team
- Jan-Jun 2008: identified funding partners
- June 2008: completed series A funding
- Oct 2008: began raising B round
- Jan 2009: closed series B funding
Sorry guys, can’t cover the rest — have to bolt for a plane!
That’s a wrap for SMX Advanced 2009, everyone! Thanks for following these posts over the past two days. Hope you enjoyed them. Now, off to Portland for me!