1. The founders should own at least 75% of not more which gives them a neat 30M in this deal.
2. As others pointed out, why such a poor multiple on revenue? The possibility is that they had a service heavy business (ie bulk of revenue came from service to customers).
3. From point 2, they mostly had negligible or no IP. If they had significant IP and sold for this multiple then it is a poorly made deal.
4. They raised only 500K, ie equity capital. There is no mention about their debt & other liabilities. This could be another reason for the low multiple.
5. Deal type is key, if it was cash it is good but if it was equity/options, then not so good.
We closed our acquisition beginning of this year as follows:
Value: 9.5M USD Type: Cash Revenue: ~1M USD Valuation: 10X Investment: 300k USD Debt/Liability: nil Status: Profitable Investor returns: 5X Location: India
It’s possibly not as good an outcome for investors, and they might actually view this as a bad exit.
Am I wrong? Would most investors be pretty happy with this? Would most founders/employees be better of going for creating a unicorn?
So, ~20x return over 6 years for investors that are likely non-institutional. In short -- it's probably a very good deal for Angels. That's about a 65% YoY compounded return. It's likely that outside of the founders nobody is going to retire, but that's OK. It's only when deep institutional pockets get involved that <$100M exits are considered "weak."
How is raising $500,000 bootstrapping?
Finally, I reckon that the comment upstream about GDPR is probably correct. Suddenly facing way harsher terms for 30% of revenue (assuming standard breakdowns) is double-plus ungood, which may have sparked this.
To be fair, if I were them, I'd totally have taken the money and ran.
At $53M (CAD), that's just a little over a 1.7x multiple
Isn't that a little low? I've seen crappy AdSense websites go for 2x multiples
If someone offered me >10 million, I'd take the money and run.
That's a cookie cutter Internet ads DSP shop with few buzzwords painted over on top, namely the alleged "smart AI algorithm." Something now standard.
Investors shouldn't back Canadian startups because they're cheap. That's almost a distinctly Canadian view of investment -- get things cheap, undervalued, or with a low risk profile. (Sorry, Canada, somebody in Canadian VC is going to roll their eyes at me here but it's pretty accurate.)
They should back Canadian or Canadian-led startups because talent is undervalued, and with the right mentorship and a good talent aggregator (an ambitious company that can compete on the world stage), the ROI on product development is going to be through the roof. Don't think about it as getting talent on the cheap, think about it as: if you pay the talent what they're worth, they're going to do 10x the job for you.
Note: there's been a huge uptick in Canadian tech $ recently. Both Microsoft and Uber investing $750M combined in Toronto, announced just this month. People are noticing.
... but that's just my $0.02 :).
Edit: First thing you learn when you talk to sophisticated investors / founders in SV is nobody gives a shit about cheap. Bad investors chase "cheap." What's most important is total magnitude of the opportunity space: who cares what we pay today, how big could this be? Because if the answer is "there's a $3T opportunity here over the next decade" then it doesn't matter if you invest $1M or $10M from a $1B fund -- in fact you'd probably rather invest more to ensure the company you're funding stays capitalized.
You're not going to get top SV VCs dumping $ into Canada because they can make a few bucks on cheap deals. You'll get top SV VCs dumping $ into Canada when the collective Canadian psychology changes from, "we're cheap, invest in Canada" to "we're going to be the most technically sophisticated nation on the planet, and a primary home of the next five major $100B technology companies over the next 30 years."
Canada will get there. Already leading in AI. But not by being "cheap."
> Chinese venture capital firms and technology giants are increasingly taking note of Canada’s technology scene, with artificial intelligence as well as clean technology and life sciences some of the areas attracting interest.
> As well as the research capabilities, the lower valuations of Canadian technology companies compared to their US counterparts make them attractive to Chinese investors
https://www.scmp.com/business/article/2130409/canadas-tech-f...
Would they have walked if you told them you wanted it taken out of the agreement?
Why I ask: curious why people agree to gag orders and similar for no justifiable reason.
If there was, then it's not as great of an outcome, but to an institutional investor this would likely just have been a "let's see what happens" check -- which makes it pretty good regardless.