Ezaro Media

Investment in EnterBío

We met Cosme, Iñigo and Rodrigo almost a year ago. They were beginning the always complex process of raising capital. From day one they gave the impresion of being a quality team surfing a fairly obvious macrotrend: organic produce.  

Since then they have gone through an absolute roller coaster. Ups, down, a lot of interest, a very difficult environment, attractive metrics, big question marks, soft committments received, fresh issues raised... Through it all though, they never gave up and demonstrated true resilience. 

A lot has being said about early-stage investing having all to do with joining dots. allowing for a trajectory to be observed and evaluated. If that is to be accepted, the EnterBío team has shown a lot of determination facing a great limitation of resources over these last few months.

With fresh cash in hand now is the time to demonstrate how the business can be consolidates and grown successfully. Best of luck to them!

 

Groupon's value evolution

The stock market's darling only a few days ago, Groupon is now trading at c.US$17, significantly below its IPO price of US$20.

On its roadshow presentation the company presented LTM revenues of 1.3 billion and said it planned to generate revenues in excess of US$1.5 billion (2011E) and US$4.0 billion (2012E) in the near future. Forecast operating profit visibility messages were much scarce. 

How has the valuation of Groupon evolved since inception? Let's have a quick look:

Date	Round	Cash in (US$ m)	Valuation (US$ m)
Nov-08	Seed / angel	1,0	N/D
Jan-09	Series A	4,8	N/D
Dec-09	Series B	30,0	N/D
Apr-10	Series C	135,0	1.350,0
Jan-11	Series D	950,0	4.750,0
Nov-11	IPO	<  700,0	12.746,0

Who said vertigo? Kudos to all pre IPO investors.

With Amazon and eBay trading at 2.4x and 4.0x LTM revenues, respectively. The banks behind the IPO pointed to other comps in the sector (Twitter, Facebook, Zynga, LinkedIn), valued at multiples well north of that (from 11x to 177x) to make Groupon look relatively cheap.

At the IPO price the company was indeed valued at c.10x LTM revenues (market cap of US$12.7 billion). Minuscule share offerings like this one (5.5% of shares floated) have a way to be particularly volatile, though. This can be great on the upside, like when trading begins at US$28, or 30% higher, valuing the company at US$240 per subscriber or c.US$350,000 per merchant, but it can turn into a vicious downward spiral pretty quickly too. 

No rating underpinned on anything different than earnings and cash flow can be sustainable in the long run.

 

Investment in Familia Fácil

The deal was announced a few weeks back. Ezaro Media participated in a dual role as a financial advisor and minority investor.  

Nieves Fernández, the entrepreneur behind Familia Fácil, is not your ordinary barely-turned-twenty new kid on the block. She has solid management credentials, as well as a good grasp of the sector she is targeting through her experience launching and running a comparable offline business in the past. Over time she has also demonstrated that she knows how to surround herself with a good team of complementary profiles.

From the beginning of 2011, we have had the chance of getting to know her new project in considerable detail,  working alongside her to help her secure an initial professional round of financing. Our belief is that Nieves has a little gem in her hands. Why do we think so? Familia Fácil fulfills a tangible market demand, does not fight an incumbent leader, burns cash at a very reasonable rate, relies on a well established business model and, above all, in eminently scalable.

At Ezaro Media we are sure we will be hearing a lot of good things from Familia Fácil in the near and not so near future. Go, Nieves, go! 

 

Online food ordering is hot!

There has been a lot of recent activity in the online food ordering space in the US. Competitors GrubHub and Seamless are putting their foot down, raising capital and acquiring smaller players. 

Earlier in September Chicago-based GrubHub announced the acquisition of Dotmenu, another US-based online food ordering company which operates the Allmenus and Campusfood sites out of New York. Only a couple of days ago Seamless (the former SeamlessWeb) somehow responded by agreeing to acquire MenuPages from New York magazine publisher New York Media.

It isn't easy to paint a good picture on the valuation reads of these recent deals. Seamless/MenuPages was priced at $15 million and the right reserved by the vendor to sell advertising against MenuPages' content for a year.

In GrubHub/Dotmenu we can't even nail down the exact price paid. The fact that it was announced on the same day GrubHub communicated they had received a furher $50 million equity inyection from its private equity backers has fueled the rumour that pretty much the entire round was used up to fund the acquisition.

The only data points on which a valuation parameters comparison can be drawn is the (rough) value paid per each monthly unique visitor to the acquired groups' sites. The range stands at $10-14. It's not much, but it provides an initial rule-of-thumb approach to this space within the broader international tech/internet sector.

On HomeAway’s IPO

Seeking Alpha has published an article more than bearish on the soon-to-be-launched HomeAway (AWAY) IPO.

These were some of the negative claims on the explicitly titled “Stay away from HomeAway” piece:

1) “Only 19% of the IPO proceeds are allocated to AWAY, so this IPO is essentially an insider bailout.”

Where did they get that from? Of the shares in the offering, 5,931,335 shares are being offered by HomeAway and 2,068,665 shares are being offered by selling stockholders. The base case primary component (funds to the company) will hence represent 74% of the total proceeds. 19% vs. 74%; not close.

2) “Other financial ratios for the 12 months ended March 2011 include: Price to free cash flow, 38x; Price to EBITDA, 64x.”

Comparing profitability and cash flow generation metrics against equity value (market price of all the shares outstanding) is completely wrong. Enterprise Value (the sum of all claims on the profits and cash generated by the Company’s assets) is the appropriate metric, not Price. Let’s assume two businesses with the same equity value (market capitalization) and EBITDA. Their Price to EBITDA ratios will hence be the same. Now, let’s assume one has significant external indebtedness whilst the other one has a generous amount of cash on its Balance Sheet. Are the two businesses equally attractive/unattractive? Most certainly not. A look to Price to EBITDA ratios will offer a pretty useless comparison in a case like this.  Going beyond, any analyst should know that in fast growing business the focus ought to be on short, medium and long term financial projections, and not on historical figures. Dubbing an offering as expensive without considering any forward-looking ratios is just not a good enough job

3) “AWAY defines “free cash flow as our cash provided by operating activities, adjusted for cash interest expense and income, and subtracting capital expenditures”. But AWAY can’t stop capital expenditures, so its definition of free cash flow is not satisfying.”

As one commentator quickly spotted, it is precisely the other way around! Any self-respecting definition of free cash flow must indeed subtract capex from cash flow from operations, just as the company explains in its filings.  

Does this mean HomeAway’s IPO is a bargain? Not by a long way. The stock offering may or may not offer good prospects to potential investors (in its first day it has traded up) , but in order to make that call or simply draw lessons from the deal (e.g. comparability with other corporate situations) it is advisable to get the facts right.

On Open Data (in Spanish)

Published by FronteraD.  On the advancement of the Open Data agenda in Spain.

http://www.fronterad.com/?q=node/3200

Investment in O2C World

Yesterday we announced O2C’s €1.3 million financing round. Ezaro Media has participated and taken an active role in this high potential investment.

I paste the most relevant bits of the press release below:

• O2C is an online bookings and reservations platform focused on the tourism and leisure sectors that provides free technology to market operators to increase their competitiveness
• O2C’s technology reduces intermediation and brokerage costs by more than 50% for online internet sales of hotel accommodation and restaurant bookings

Madrid 26th April 2011.- O2C, the online low cost bookings platform for the tourism and leisure sectors has raised financing of 1.336.280  Euro. The investors participating in this round of financing include Caixa Capital Risc, Finaves IV, Ezaro Media, René de Jong Inversiones, Diego Fernández and CDTI.

The entry of new investors in O2C will support the company’s continued development in Spain and Europe. The company, currently in its initial stage of expansion in the hotel sector, expects to achieve 11 million euro in sales by 2013.

“The investment denotes the confidence in the project that was conceived with the clear goal of revolutionizing the standards in online booking for all types of services”, comments Iván Pérez Valderrama, founder of O2C.

In line with the investors’ strategy, the operation has been carried out to accelerate the growth of companies that, like O2C, are characterized by a high level of innovation and the capacity to generate a positive impact on society. O2C represents a unique opportunity for technological development and online distribution. Through the technology provided free of cost by O2C, hotels and other companies susceptible of commercializing their products or services online, can increase their competitiveness by selling on a real time basis and reducing their intermediation and sales commissions by over 50%.

 

The impact of lean start-ups and ever bigger VC funds

Silicon Valley, we are told, is witnessing a disrupting structural development: the true emergence of the lean start-up. These companies, typically started by young entrepreneurs, are below the radar screen of established VC firms when raising their modest initial financing rounds. In the past, technology financiers had no qualm delivering a ‘came back when you are bigger and need serious capital’ message.

With the emergence of the lean start-up, however, these well-established large cap money managers are often puzzled to hear back that there won’t be a need to raise ‘serious capital’ further down the line. Break even is just around the corner.

This development is putting a lot of pressure on VC’s, as the so called  SuperAngels seem to be better positioned to meet the financing needs of this new breed of lean entrepreneurs, and in particular given the former’s ability to write larger checks, faster and with lower associated transaction costs, given their different due diligence requirements (if any at all).

While this is happening, on the other end of the technology professional investment spectrum, we learn that the strongest early stage VC firms are jumping heavily into a late stage investment frenzy. As fund sizes grow, being out of the juiciest late stage deals is just not an affordable option.

We may be witnessing a movement towards an investment environment where the so called ‘equity gap’, so often complained about in countries like Spain,  shifts gradually from the very early stage to the no man’s land in between SuperAngel / Incubator 2.0 territory and Mega/in lieu of-IPO deal land.

The exciting Open Data agenda

On February 15^th Pro Bono Publico and Access Info Europe organized the first Spanish barcamp on data driven journalism. The event took place in Madrid, at Medialab Prado. The videos can be accessed here.

The Open Data agenda has been pushed forward by the US and UK administrations since 2009. It focuses on making government data publicly available for its reuse, preferably in machine readable formats. The objectives sought by these policies are at least twofold: (1) introducing greater transparency in the political process; and, (2) the development of a new generation of public services.

Developers, designers and civic activists world-wide have covered a lot of ground over the last couple of years. New software applications have mashed up different datasets to create exciting, freely available new knowledge.

We can now, for instance, scrutinize public spending, address official questions to government, keep a closer eye on our political representatives, report deficiencies in public infrastructure, cross reference housing data with official crime statistics, etc.. All of this online. Specialist new media such as the Guardian Datablog (UK) or The Story (Ireland) are currently at the forefront of innovation in this area from a journalistic perspective in Europe.

Spain is currently lagging behind in this global movement. Different public administrations are dipping their toes in the water, but right now, with very few noteworthy exceptions, newspaper headlines are well ahead of reality. The datasets opened up by these administrations (central, regional and local) are just not up to the task. They lack genuine interest (content) and/or their quality is very deficient (format).

Other pending issues in Spain include the long-awaited legislation covering right of access to public information, or the unresolved approach to data licenses. There isn’t such a thing as open data unless license terms are adequate and clearly stated, setting forth, for instance, the framework for potential commercial exploitation.  

This notwithstanding, associations like Pro Bono Publico have begun to make significant contributions towards the advancement of this open Data Agenda. Its member David Cabo, for instance, has developed the Spanish equivalent of the UK’s Where Does My Money Go. It is called ‘Donde Van Mis Impuestos’. Other apps have been and will be developed in the context of the ‘Desafío AbreDatos’ contest.

At EZARO MEDIA we believe in the huge sociopolitical and commercial potential of this open data opportunity, and will be monitoring developments to try and be a part of it.

Lessons from Demand Media’s IPO

Demand Media is a US-based digital content and domain registration business with over 100 million monthly visitors. Its model is based on generating advertising revenues from commercial exploitation of its content (59% of revenues) and charging wholesale domain registration fees (41% of revenues). Demand Media obtains revenues both from its ‘Owned and OperatedWebsites’ as well as a ‘Network of Customer Websites’.

Demand Media went public yesterday in an IPO that was priced above the indicative range –at US$17 per share– and valued the company at US$1.4 billion.  According to Venture Source, this valuation made Demand Media the largest technology IPO since 2007. The company’s initial trading soon took that valuation to US$23 per share, implying a market capitalization of nearly US$1.8 billion. To reach an Enterprise Value proxy, we must deduct the proceeds from the IPO of US$151 million

In its pre IPO filing, the company reported 1H 2010 revenues of US$114 million. Using the company’s 2009 revenue distribution between the first and second semester, estimated full year 2010 revenues would stand at US$248 million. The company is still mildly loss-making. In contrast with most digital content businesses, Demand Media amortizes its incurred content generation costs over a 5-year timeline, hence lifting its short term profitability.

From a trading multiples perspective, the IPO implied a valuation of 5.0x LTM (Last Twelve Months) revenues, with the secondary market fast moving that valuation up to a lofty 6.6x LTM revenues. And this for non profit generating business with annual revenue growth in the 25% p.a. region. Not a bad marker in the sand for entrepreneurs and investors who own similar businesses elsewhere.