The big news (so far) this week was Mint‘s acquisition by Intuit for $ 170M.
I love this deal. It shows that the VC model of rapid funding and
growth can work. And it puts Internet M & A back on the map. Median
exits in the sector have been sub $ 50M and most deals did not have a
value disclosed (i.e. they were small).
Still, for all the
fanfare about this (with I think every VC involved posting about it), I
can’t help but notice the returns are way lower than what used to be
considered a big win not that long ago. With $32M of capital raised,
even if the VCs owned 80% of the company they would have collectively
generated a 4.25X multiple on their cash ($170M * 80% / $ 32M). I don’t
believe the founders would have parted with 80% of their company in two
years, so the returns are likely much lower.
The first money in (First Round Capital)
would have made a killing, but overall, this is only a good outcome by
past standards. Yes, given that the company is less than two years old,
the IRR must be great, but the multiples are not.
What
I’m wondering is – is this the new reality? Are the fabled 10X
multiples that investors talk about a thing of the past? Or will they
continue to use potential for 10X as a real benchmark in evaluating
dealflow?
Speaking for the
entrepreneur side, I truly hope that VCs can and will embrace lower
multiples as an ongoing fact of life. We all know that the true home
run plays are very rare and shooting for them excludes many great
companies from funding. It also kills many companies that do get funded
but are shooting for a goal that they will never attain.
I posted
some thoughts a while back on how VC could adjust to the reality of
smaller returns. That post contemplated exits well below $ 170M and
capital requirements way below $ 32M. Still, while its great to see
this big exit, I hope the industry is gearing itself for long term
success even when the exit values are well below what Mint got this
week.
(Originally posted on http://startupcfo.ca)
(Image source: ridgeonline.files)
