Show me the money

Web 2.0 Expo April 18th, 2007

Jeremy Liew Partner, Lightspeed Venture Partners www.Lightspeedvp.com Lsvp.wordpress.com

Its cheaper than ever to start an internet company…
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COST TO BUILD WEBSITE
$ ‘000s

200

70

60

48 20

Wesabe

Maya's Mom

Mobissimo

DropSend

Freshbooks
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Source: Carsonified.com/SXSW Presentation

… and cheaper than ever to run an internet company
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SAMPLE EXPENSE BUDGET
Annual Fixed Costs Staff Costs Infrastructure Costs Other Costs TOTAL $1.0m $0.2m $0.2m $1.4m Assumptions 8 employees $120k fully loaded $15k/month Rent, Legal, etc

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As a result, getting to breakeven isn’t too hard…
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Media $ '000s Revenue Cost of Goods Marketing Staff Costs Infrastructure Costs Other Costs EBITDA
* Assumes ad sales by an ad network or ad rep firm

E-Commerce %
100% 50%* 0% 36% 7% 7% 0%

$ '000s 7,000 4,900 700 1,000 200 200 -

%
100% 70% 10% 14% 3% 3% 0%
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2,800 1,400 1,000 200 200 -

…but you still need to be big to be public
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PUBLIC COMPANY ’07 REV MULTIPLES MEDIA
3.8x 12.2x

REVENUE NEEDED FOR $500M EV*
$333M $131M $41M

1.5x
Low

Median

High

High

Median

Low

E-COMMERCE
1.8x 0.6x
Low Median

5.7x

$833M $277M $87M

High

High

Median

Low
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* Assumed minimum public company scale to sustain meaningful trading volume and analyst coverage Source: Goldman Sachs Research, March 25, 2007, Lightspeed Analysis

Significant variation in revenue targeted for internet companies to breakeven versus to be public
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BREAKEVEN

PUBLIC, $500M EV*

MEDIA

$2.8M

$131M

E-COMMERCE

$7.0M

$277M
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* Based on median multiples

Media Companies

Advertising RPMs* depend on your ability to deliver a targeted audience
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Advertisng RPMs
Example

2007 Revenue

March US PVs

Annual US PVs RPM

Broad Reach

$0.50 - 2

Myspace

$271M

44B

524B

$0.52

Demographic

$1-5

Facebook

$150M**

12B

126B

$1.03

Endemic Advertising

$10-40

Fandango

$25M**

50M

600M

$41.67

Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis * RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen ** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from 8 advertising and half from ticketing”

To reach breakeven, US traffic requirements can become quite meaningful, depending on RPMs
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RPM
Broad $1

PV/Mth to reach $2.8M in revenue

Sites with comparable US Traffic
•eHarmony •Real •Whitepages •Tagged 239M 237M 230M 229M
Not necessarily demographically targeted Not necessarily endemically targeted 9

233M

Demo

$5

47M

•NFL.com 49M •Nextag 48M •Wash’ton Post 47M •Heavy 45M •Technorati •WinAmp •UFC.com •Digg 12M 12M 12M 11M

Endemic

$20

12M

Source: Comscore, Lightspeed Analysis

US traffic requirements are even higher to reach public company levels
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RPM
Broad $1

PV/Mth to reach $131M in revenue
10,917 M

Sites with comparable US Traffic
•MSN •Google •Facebook •AOL •Live.com •Youtube •Go.com •Pogo •MSNBC •Expedia •Paypal •Weather.com 13,672M 12,476M 12,179M 10,609M 2,819M 2,539M 1,559M 1,544M 592M 522M 495M 488M
Not necessarily demographically targeted Not necessarily endemically targeted 10

Demo

$5

2183M

Endemic

$20

546M

Source: Comscore, Lightspeed Analysis

E-Commerce Companies

Many e-commerce niches are large enough to support $7M in revenue, our illustrative breakeven level
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Allheart.com – nursing apparel

Hats.com – hats

Figleaves.com – lingerie

Ridegear.com – motorcycle gear

Source: Internet Retailer Top 500 Guide, 2006 Edition

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There are three ways to get to over $271M in ecommerce revenues, public company type levels
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 One online store with >$271M in revenue  5-10 online stores, each with $25-50M in revenue  100+ online stores, each with up to $3M in average revenue

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Relatively few pure play e-commerce companies have achieved over $271M in annual sales so far
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Company Amazon Newegg Overstock Netflix Drugstore Buy.com Bluenile

2005 Revenue $8,490M $1,300M $804M $688M $399M $345M

Amazon.com

Newegg.com

Below $271M in 2005 but Peapod projected over VistaPrint $271M in 2007 Source: Internet Retailer Top 500 Guide, 2006 Edition, Goldman Sachs

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In 2005, there were at least 227 companies with e-commerce revenues over $25M, but none with multiple websites in this range
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Company Bodybuilding.com Computer Geeks Parts Train Shoemall Cooking.com Decorative Product Source Blinds.com Shopbop Gloss.com

Products Supplements PC hardware Auto parts Shoes Kitchen goods Plumbing and Lighting Blinds Women’s clothing Beauty Products

2005 Revenue $46M $45M $45M $44M $40M $39M $38M $34M $32M
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Source: Internet Retailer Top 500 Guide, 2006 Edition

A number of companies have taken a portfolio approach, building large numbers of stores
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Company CSN Stores Home Décor Products

Sample Websites (not exhaustive) adirondack-furniture-direct.com, allairbeds.com, bedrooms.com, csnbunkbeds.com, everysafe.com

homeclick.com, absolutehome.com, barbeques.com, knobsandthings.com, poolclick.com Mercantila Pilates-exercise-direct.com, Rowingmachines.com, sofabed-store.com, tennisball-machine-guide.com Netshops Aquariumsdirect.com, croquet.com, daybeds.com, hammocks.com, justglobes.com, potracksgalore.com Niche Retail bicycletrailers.com, highchairs.com, sparebed.com, suuntowatches.com, Source: Internet Retailer Top 500 Guide, 2006 Edition, Company websites tricyclekids.com

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Conclusion
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 Easier than ever to start a consumer internet company
 Not too hard to get to cash flow breakeven

 For long term value creation, plan A can’t be “get bought by Google”  Need to have a roadmap to be an independent public company
 Requires real scale  Revenue sometimes lags costs when you are growing  May need venture capital to bridge the gap

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