1. Positioning Private Companies for the
Public Markets
July 18, 2012
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2. Kris Tuttle
1970’s
Company Advisory Building Microcomputers
Research & Analysis
IPO Coverage 1980’s
Applied AI, CMU, IBM
Funding, M&A Intel
1990’s
Equity Research, Banking
2000’s
Angel Investing, Entrepreneur
2010’s
Building out SoundView
2

3. Overview

5. 5

6. Timeline
$27M
$11M Series B
Series A Matrix
Index Ventures Peter Thiel
Valuation: ~$100M ~$400M
2009 2010 2011 2012
Initial Launch Now what?
&
Private Beta Mobile
“Stumble”
“Pinterest”
Scoble Bump
6

7. Key Factors
+ Strong position in social network via the best “interest graphs”
+ Credibility and content quality has remained high
o Management talent is limited and may need a substantial upgrade
o Still working on the shift from early adopters to “early majority”
o This may turn out to be a very small market segment
- Lack of a clear business model and path to profitability
- So far ignoring the substantial enterprise opportunity
- Poor transparency and secrecy is inconsistent with user-focused strategy
© SoundView Technology Group 2012 7

8. Ecosystem & Valuation
Company Traffic “Users” Rev/UV TEV/ UV
Facebook 160M $25 $390
Wikipedia 90M
LinkedIn 25M 161M $32 $411
Slideshare 2M 29M $60
Scribd.com 4M
StackExchange 5M* 2M
Angie’s List 3M 2M $42 $260
Quora 800K $500
Also related are squidoo.com @ 8M, hubpages.com @ 8M, and Yahoo Answers @ 45M.
Recent valuation reflects more than current fundamentals.
* Across 87 different sites.
8

9. Finding a Business Model
Fee Model – LinkedIn, Angie’s List, Craigslist
Advertising Model – Demand Media, Facebook, Twitter
Paid Content – With revenue sharing?
Premium Mobile Applications – Voice interface?
Free Consumer/ Fee Corporate – Automattic (WordPress)
9

10. Conclusions
Probably not a big enough opportunity to be a stand-alone company.
Management could change this – our first choice would be to go enterprise.
Unique position and strong Interest graphs make for an attractive acquisition.
Can be any of the “usual suspects” – Facebook, Google, LinkedIn but
companies like Twitter or even Yahoo may be more motivated.
A combination is possible (EverNote? DuckDuckGo?) that would create a
company with greater market opportunity.
Recent valuation is probably too high for most investors but low enough for a
2-3x return on an acquisition – if the management team executes.
© SoundView Technology Group 2012 10

11. 11

12. 12

13. Timeline
$1M
Series A
Seed USV $3.2M $27M $20M
Series B/C $40M
Funding Flicker Series D Series E
USV Series F
$400K Founders Accel Index
Valuation: ~$100M ~$300M ~$700M
2005 2006 2007 2008 2009 2010 2011 2012
Sales: $3.8M $26M $87.5M $180M $314M $526M $815M est.
Ironic
Comedy
Rescue
Credits: Reset Button Photo Credit Johnny Grim, Etsy vs. Urban Outfitters JZ McBride 13

14. Consumer Retail is Changing
14

15. Key Factors
+ Category leader in arts and crafts online marketplace. Nobody else is close.
+ Solid revenue growth, high potential ROIC
+ Trends towards artisan products, local goods and small businesses
+ Community focus has kept marketing and customer acquisition costs low
+ International expansion and execution better than average.
o Management structure and company culture still developing.
o Technology expertise and execution has been so-so.
o “Seller success” initiative promising but lacks planning & definition.
- Not yet safe from incursions by majors like eBay and Amazon.
- Unclear strategy and policy on fraud, scams, and user IP protection.
© SoundView Technology Group 2012 15

16. Business Model
$0.20 listing fee plus 3.5% commission on sale.
2011 sales of $525M equate to $656/shop, $30/member, $12/visitor.
Things we are factoring in:
• Etsy will add services that very gradually increase
their “take rate” to 6.5%. (vs eBay @8%)
• They will make sustained investments in marketing at 5% of net revenues
• Planning horizon operating margins are 4.5%
16

17. Valuation
© SoundView Technology Group 2012 17

18. Conclusions
Etsy is in a durable and leading position in a growing part of the online
commerce market.
Breadth and well understood nature of opportunity can support a
successful IPO.
Management will be forced to shift away from “roots” as a craft
marketplace which will probably create some “bumps” in the road.
Online business building remains an overly complex endeavor which
creates numerous opportunities for Esty. (platform, payments, SaaS,
credit)
Etsy will be an attractive acquisition target for Amazon (Zappos, Woot)
but not so much for eBay (other than to limit competition.)
© SoundView Technology Group 2012 18

19. 19

20. Timeline
$75M $85M
Series A
Series E Series F
Greylock
NEA T.Rowe, MS
Duffield
IndoUS Janus, Bezos
Valuation: ~$750M ~$2B
2005 2006 2007 2008 2009 2010 2011 2012
Bookings: $85M $160M $300M $525M est.
Starts as Acquires Customer Mark Peek
“New CapeClear Momentum New CFO
IPO?
Generation Launches Begins VMWare
of ERP.” Integration- Amazon.com
On-Demand
20

21. Strong Positioning
HCM Base
Payroll
Financials
Procurement/Expenses
Dynamic Views
On-Demand Analytics
Faster Implementation
Improved Integration
January 2012 “The Forrester Wave™: Human Resource Management Systems, Q1 2012”
21

22. Key Factors
+ Top management team, strategic long-term focus.
+ High bookings growth, grade A customer momentum and positioning.
+ Customer critical mass, recurring revenues, “strategic” vendor.
+ Workday might be able to become the back-end equivalent of Salesforce.com.
+ IPO market is receptive to similar companies (NOW, GWRE, DWRE, SPLK, CSOD)
+ Technology advantages drive best-of-breed functionality.
o Oracle could turn into a more effective competitor and slow progress.
o Expansion into additional areas to enable “suite” strategy will require investment.
- “Prickly” attitude to external analysis and investors can impact transition to public stock.
- Early hype and high valuation may limit post IPO near-term upside.
© SoundView Technology Group 2012 22

23. Ecosystem & Valuation
Company Revenues TEV TEV/Rev
ServiceNow (NOW) $200M $2.9B 14.5x
GuideWire (GWRE) $230M $1.1B 5.3x
DemandWare (DWRE) $75M $637M 8.5x
Cornerstone (CSOD) $90M $1.1B 12.2x
Jive (JIVE) $100M $993M 9.9x
Netsuite (N) $270M $3.4B 12.6x
Salesforce.com (CRM) $2.5B $17B 6.8x
Ultimate SW (ULTI) $300M $2.27B 7.6x
Concur (CNQR) $400M $3.3B 8.3x
Average 9.5x
23

24. Conclusions
Workday has filed for an IPO under the JOBS act so it will stay private
until the offering is closer (word is October.)
The valuation will be high but the deal will get done anyway. Goldman,
JPM and Morgan Stanley are said to have the books.
Best guess for the filing range is $2.5B with a wink and a nod towards
raising the range and increasing deal size during marketing.
Generally speaking post pricing and early trading shares tend to
consolidate and often provide better entry points six months after
their IPO.
As the Workday IPO kicks off we will issue an updated view with a
complete IV model.
24

25. Closing/Contact Slide
To discuss SoundView Technology Group services, or for any questions, requests
or comments please contact me:
kris@soundviewadvisory.com or call 617-828-6462.
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