2007 a bumper year for tech exits – reality bites in 2008

First Capital has exclusively released to TechCrunch UK the information presented at its breakfast seminar this yesterday. The data contained makes for interesting reading if you are a startup trying to value your business.

They studied about 600 international internet M&A deals since the start of 2005 and found that 2007 produced very high valuations for deals, but that this was – in their opinion – unsustainable.

Put it this way, in early 05 most internet company exits were priced at three times revenues. In 2007 they were priced at 13 or 14 times revenues. Although VCs tend to aim for a 10 times multiple, even at this rate it’s unsustainable.

In addition, in 2007 there were 11 multi-billion pound deals. In 2006 there were… zero. And in 2005 only two – Ask jeeves and Skype. You can see the relaity check in that pricing started to fall at the beginning of this year.

In other words, this year will see less of those kinds of mega-deals. However, the situation today is that the sub-£100mn size exit market is still robust. Furthermore, valuations are still up on ’05 and ’06

Some of the First Capital findings could be described as ‘Myth busting’. Internet entrepreneurs often think of only a handful of big US consumer internet players, when considering an exit. And yes, they do make the headlines in terms of number of deals and value of these deals. But, the universe of potential acquirers is far larger and more complex than most realise. For instance, out of the deals they analysed there were almost 400 different acquirers, as opposed to the Googles/Yahoos/Microsofts that most people normally think of.

And since most acquirers of UK internet companies are OTHER UK companies, UK internet entrepreneurs would do well to build on these kinds of relationships rather than focus too heavily on the big US names.

That’s not to say that the Web giants are not active. The top eight Internet giants (Google, Microsoft, News Corp, eBay, Cisco, Yahoo, ValueClick, AOL) have done about £16bn worth of deals since 2005. To put that in context, the whole market did nearly £60bn worth over that period.

Also, Internet deals are not just about the consumer web. In truth, online data deals dominated 2007 by far. These are big boring ugly businesses – but they have a hell of a lot of data (note to all startups not concentrating on creating some kind of data!).

First Capital also identified some key trends for Internet companies:

– Social networks are going niche (Moli, Kindo, Visible Path)
– Advertising gets smarter (AdInfuse, Smaato, Consorte Media)
– Everything is going mobile (MyStrands, BetNow, Streamezzo)
– Professional content is returning (TVTrip, ONnetworks, VideoJug)
– Media is becoming more immersive (Superscape, AlamoFire, PlayFirst)
– Shopping is becoming more social (Tenga, ThisNext, ideeli)
– Software in the sky/cloud/ether! (Zoomio, Netsuite, TuVox)

Multi Billion £ Deals show that 2007 was an unusual year

2007 (& early 08)

Webex – Cisco £1.5bn 03/07
Doubleclick – Google 1.5bn 04/07
Reuters – Thomson 9bn 05/07
Aquantive – Microsoft 3bn 05/07
Gemstar (interactive TV) – Macrovision 1.5bn 07/07
Navteq – Nokia 4bn 10/7
Teleatlas – Tom Tom 2bn 11/07
Tradus (QXL) – Naspers 1bn 12/07
ChoicePOint (insurance data & analytics) – Reed Elsevier 2bn 2/08
Getty Images – Hellman & Friedman 1.2bn 2/08
Dow Jones – News Corp 2.8bn 1/07


no billion pound deals


Ask jeeves – IACI 1bn 3/05
Skype – eBay 2.2bn 9/05