# Posts from 2014

## Revenue Multiples And Growth

When you say “the stock is trading at 20x revenues” people rightly shake their head and say “that is nuts.” I got a lot of tweets like that in reaction to my comments about the Uber valuation in the LeWeb breakfast chat.

However, what people fail to realize is these things happen in a moment in time and that stocks won’t trade at 20x revenues forever.

Let’s take a fictional company that has \$1bn in revenues in 2014 and goes public at \$20bn, 20x revenues. Let’s say it will double revenues in 2015, then grow 60% in 2016, and 40% in 2017, and 30% in 2018.

So here are the revenue numbers

(000s)20142015201620172018
Revs\$1,000,000\$2,000,000\$3,200,000\$4,480,000\$5,824,000
Yr/Yr %100%60%40%30%

So, let’s now look at profits, since valuations are ultimately a function of profits, not revenues.

Let’s say this fictional company is breakeven in 2014, but expects to make 10% EBITDA margins in 2015, growing to 25% EBITDA margins by 2018. So here are the EBITDA numbers that fall out of that.

(000s)
2014
2015
2016
2017
2018
EBITDA Margin0%10%15%20%25%
EBITDA\$0\$200\$480\$896\$1,456

Let’s say this fictional company’s stock will go up 10% a year each year until 2018. So the valuation goes from \$20bn today to \$29bn over five years.

(000s)
2014
2015
2016
2017
2018
Valuation\$20,000,000\$22,000,000\$24,200,000\$26,620,000\$29,282,000
Yr/Yr Growth10%10%10%10%

So here are the Revenue and EBITDA multiples that fall out of this thought exercise

2014
2015
2016
2017
2018
EBITDA Muiltple110.050.429.720.1
Revenue Multiple20.011.07.65.95.0

The point of all of these numbers is to show that if a company can grow very quickly over a five year period, and become highly profitable, the stock can perform well and the multiples can come down to earth pretty quickly.

That is a bunch of “ifs”, but every once in a while this actually happens. It happened with Google which now trades at 5-6x revenues, and it is happening with Facebook which is in the middle of this kind of a story. So my point is 20x revenues is a huge number, but every once in a while, a company actually deserves it.

For anyone who wants to dig into the numbers a bit more, here’s a link to the google sheet that I built as I wrote this post.

## The LeWeb Breakfast Chat

I blogged about this yesterday and the talk went up last night. So here it is. Its about 40mins but its a fun and wide ranging conversation.

## LeWeb Breakfast Chat

I just boarded a plane back to NYC and sadly we won’t have wifi on this flight so I’ll share some quick thoughts from my “breakfast chat” with Loic at LeWeb this morning and you can all discuss them as I fly home.

Six or seven years ago Loic and I had a very nice breakfast outside at a French bakery in San Francisco. So Loic decided to recreate that vibe on stage today and we sat at a table with coffee, croissants, and juice while we talked about where we are right now in the world of tech.

We covered a lot of ground but I thought the most interesting themes were

– the maturing/mainstreaming of the sharing economy and the likely IPOs of these companies in the next year or two which will cause them to become even more mainstream.

– whether wearables means watches (I don’t think so) or a whole ecosystem of devices/our personal mesh (I think so).

– the downturn in bitcoin which Loic thought means it’s over and I think means it’s a good time to invest

– European discomfort with tech innovation. Loic mentioned the Uber Paris issues and I mentioned Merkel’s wrongheaded stance on net neutrality

I’m fairly certain the video of our breakfast chat will be online soon and I will post it then. See you on the other side of the pond.

## Homescreen.is

If you want to see what mobile apps are the most popular, you can do a number of things.

You can look at the mobile apps that have the most downloads by checking out the leaderboards in the iOS and Android app stores. They will differ from country to country. You can use a service like AppAnnie to help you do this kind of work.

You can try to figure out what apps have the most MAUs and DAUs. That is a lot harder. There are some services out there that attempt to do that. comScore’s Mobile Metrix will give you that data. It’s a paid service so not everyone can afford it. Full disclosure, I used to be on comScore’s board and still own stock in the company.

Another interesting metric is homescreen real estate. Being on a user’s homescreen will tell you something about the loyalty the user has to the app and it is most likely correlated to MAUs and DAUs (why would you have an app on your homescreen that you don’t use regularly?).

I’ve been pretty obsessed with homescreen real estate and have posted my homescreen here on AVC a number of times. My homescreen moves around a lot, particularly when I’m traveling and need certain apps more than others. For example, the Delta and Uber apps are on my homescreen while I’m in europe because I’m using both frequently while I’m over here.

My friend John Borthwick is also obsessed about homescreen real estate and he and his colleagues at Betaworks have built a service to aggregate homescreens and then create a data service around them. The service is called homescreen.is and it’s pretty simple. If you have an iPhone, you download the app, you take a screenshot of your homescreen, and you upload it to homescreen.is via the mobile app.

Each user has a profile on the site with their current homescreen on it. Here is mine. There is a leaderboard, of course, which is here. And you can see some interesting things, like the top homescreen apps of people who follow someone on Twitter. Here’s that data for me. It turns out the top homescreen apps of my followers on Twitter is not much different from the top homescreen apps for all homescreen users.

Right now, this data is heavily skewed to the geek/tech insider crowd. You can see that in the data. 1Password, Pocket, and Overcast are top apps on Homescreen.is. They are not top 100 apps, maybe not even top 250 apps. But they are very popular in the same crowd that is using Homescreen right now.

Can Homescreen go viral and get mass adoption such that its data will be more mainstream? Maybe. Sharing homescreens seems like something everyone would want to do. Making Homescreen.is fun, engaging, and viral seems like the thing they need to do to get the app on everyone’s phones. An android version would be good too.

In the long run, Homescreen.is could be a great tool for discovery. The mobile app ecosystem could use some help with that.

## Learning To Code

Christina Cacioppo, who spent a few years with USV in our analyst program, spent the next two years after leaving USV teaching herself to code and making a bunch of products herself and with a few colleagues.

She recently wrote a post outlining her learnings from that experience. It’s good. For anyone who is teaching themselves to code or thinking about doing so, I highly recommend reading this.

## Video Of The Week: Gotham Gal’s Talk At 99U Conference

I like the theme of The Gotham Gal’s talk earlier this year at the 99U Conference, “dream big”

## Development Is Cheap. Production Is Not.

This is a line from a blog post written by my brother in law Jerry Solomon. He is talking about film production, specifically short form videos. But the point is true of all projects, from designing a building, a home, a film, an art project, a hardware project, a software project, or whatever.

The design process is relatively inexpensive. The build process is not.

In the kinds of companies we invest in the “development” work comes from the product organization. The “production” work comes from the engineering team.

I have seen engineering teams spin their wheels and burn through countless hours of writing code that ends up getting tossed out just because the design process was not right or not specific enough or not thought through enough.

While we might think these issues and challenges are unique to the world of tech, software, internet, and mobile, the truth is these issues pervade everywhere you are making something.

This is not so applicable to a startup trying to find product market fit. But it becomes very relevant once your company starts to scale. A commitment to thinking things through, getting it right at the start, and being efficient in the “production” process is something all great companies figure out how to do. It’s really important.

## A Day In Berlin

Man is Berlin cooking. I mean the tech startup community, not the temperature. The Gotham Gal and I flew to Berlin yesterday and it was -2 celsius when we landed and it did not get a lot warmer. But I managed to do three events and met at least fifty entrepreneurs, maybe a lot more, in less than 24 hours.

The highlight of the day was an event we did yesterday evening in partnership with the Tech Open Air folks. My partner Brad was in Berlin for two days of meetings with one of our Berlin based portfolio companies and we did a joint appearance at a cool event space.

Brad and I don’t do a lot of joint appearances but we’ve always had a way of finishing each other’s thoughts. Spending eighteen months together raising a venture fund in 2003 and 2004 will teach you how to do that and you don’t forget.

I’m hopping on a plane in a couple mins and don’t have much more time for this blog post. But I would like to thank everyone who made our day in Berlin so great and to say to all the Berlin based entrepreneurs that I met that you are all very impressive. Makes me want to come back more often. Which we will do for sure.

## Veniam

I’ve been talking a lot and writing a lot about mesh networking. I think it has the potential to wrest control of the last mile of the wired and wireless internet from the carriers who mostly control it around the world. Peter Kafka noticed yesterday that we had finally put those words to work with a mesh networking investment:

We made this investment, in a neat company called Veniam that comes out of Porto Portugal, some time earlier this year but they finally got around to announcing it yesterday.

My partner Brad talked about it in a short post on usv.com yesterday. And our partner in the investment Om Malik talked about it here.

I had breakfast with Om in NYC earlier this year and told him about Veniam. Those breakfasts do pay dividends eventually. This is how Om describes that breakfast and what came of it:

Union Square Ventures’ Fred Wilson introduced me to João after a long, spirited discussion about network neutrality, new models of networks, and policies that will influence the future of the internet. As we walked back to our office (aka my favorite cafe), he said, “You should talk to this guy in Portugal that my partner Brad [Burnham] has been in touch with. He has some interesting ideas.” An email introduction with João followed, and we were soon talking to each other via Skype. He quickly came to San Francisco, and we met for coffee on the weekend and then again the next day. João likes to talk: It is his super power. And here we are.

So enough about all of that. What does Veniam do? They make a “stack” of wireless technology that lets moving objects (think buses, garbage trucks, cars, vans, etc) carry a wifi access point/router and mesh with each other and anyone else who wants to join the network. With enough density, buses driving around your city can provision a wireless mesh that anyone can use on their smartphone when they are out and about. It’s a big vision and will take a lot of work (and luck) to realize, but this or something like it is eventually going to work and we are going to have a better way to access the internet on our phones than we have today.

Here’s a video of Veniam’s technology in action in Porto. I suspect you will want this in your city too. I certainly do.

## The Grind vs The Pivot

Everyone knows what a pivot is. You launch something, it fails to get product market fit, so you change direction and launch something different. There are many examples of successful pivots. Flickr, Twitter, Slack, and Kik all came out of pivots.

But there is another approach to finding product market fit and I call it the “Grind.” The Grind is when you launch something, it fails to get product market fit, and you grind on it, week after week, month after month, year after year, until it does. Usually the entrepreneur who chooses The Grind is obsessed with the problem they are trying to solve and can’t let it go. This tenacity is often rewarded if everyone is patient enough.

A good example of a USV portfolio company that has executed The Grind is Brewster.

Brewster is a service that aims to do for contacts what Dropbox has done for files – keep them in sync and make them easily available on every device you use.

Brewster launched in July 2012 and I wrote about it here. While Brewster’s mission has not changed one bit, the way they have attacked it has changed a lot.

In the initial version, Brewster was a mobile app that could coexist or replace your native contacts app. It connected with all of your social networks and attempted to keep your address book up to date and also provide intelligence about your contacts. It turned out that most people didn’t really need or want a new address book, but they did want their contacts kept up to date and sync’d to whatever device they were on.

So slowly but surely Brewster evolved. But there was never a pivot. The service has evolved into a one that, today, largely works behind the scenes in the cloud to make sure the contacts you have on your phone and your desktop and tablet are the same, that they are in sync, and when another Brewster user you are connected to changes their contact information, your contacts are automatically updated. This evolution required the company to solve some difficult technical problems.

Brewster works in the background to power your contacts, providing auto-fill when writing emails in Gmail and access to all contacts from the dialer, text messaging, and email. It’ll also make finding your friends on social messaging apps, including Kik, WhatsApp, Snapchat, a more fun and easy experience.

Over this thanksgiving weekend, The Gotham Gal joined me in trying out the iPhone again. She got an iPhone 6+ and I helped her move all of her apps and activity from her Nexus 5 to her iPhone 6+. Moving her contacts was trivial with Brewster. Here’s how I did it: