How much does it cost to buy a start-up company?

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"Editor's note" in the past pay attention to the eye economy, now pay attention to the practical, according to the estimation model of Hamad, the venture company valuation will be determined by the value of each engineer.

Beijing Time April 8 news, according to foreign media reports, "The New York Times" a long-term focus on the start-up of the acquisition of dynamic editors today published a blog article on the website, detailing their views on the current investment market.

The following are the main elements of the article:

How do investors figure out what prices to quote when acquiring a start-up? I have my own set of opinions. My point of view is that it's like a few executives in an investment organization talking in a boardroom, each writing down their own numbers on paper, in a hat, randomly selected by the CEO, and then the price of the purchase is decided.

This may sound a little trifling, but the investment market is awash with things that can't be understood in common sense, such as startups with no income, no users, or even their own products, but there are suckers who are willing to buy at a high price. So, the analogy I'm playing above is no exaggeration to say.

However, we should also be objective, because some investors are still more sensible. In the dotcom 1.0 era (around 2000), rational investors still existed in the market. At the time, investors valued the ability of technology-industry start-ups to attract users ' attention, for example, in April 1999, when the Broadcast.com site was bought by Yahoo at $5.9 billion trillion, and the revenue that each user could bring to the company was estimated at 10000 dollars.

Today, the eye economy is declining, and if startups have no income, how can they trust that they will survive in the future? Talking about valuations is like daydreaming! Of course, investors have their own calculations when they buy start-ups.

The latest acquisition, for example, is a half-hire (acqui-hire) acquisition of a company to get its employees.

PrivCo, the chief executive of a long-term private-sector investment organization, said that the trend began a year ago, accounting for about 91% of total acquisitions. "If a technology company has no revenue and no users, its valuation will be determined by the value of each engineer," he said. In general, the value of each engineer is between 750,000 dollars and 1.5 million dollars. Facebook knows the rationale, and a series of acquisitions last year fell into this pattern. This has led to the industry's direction, because you can buy competitors as long as you have the money, thereby seizing the market. ”

PrivCo, an investor report released at the end of March, said 12 of Facebook's acquisitions last year belonged to this type. Facebook often integrates its employees into its own engineering team after acquisitions, and then shuts down the company. The report also found that Twitter's past 8 acquisitions also fall into this pattern. In addition, Yahoo, Google, Apple, LinkedIn and Airbnb for the acquisition of the reason is also to obtain each other's gifted engineers.

According to Hamad's estimate model, we can roughly estimate the value of a start-up. If a start-up has 10 employees, it is valued at close to 15 million dollars without revenue or users. If the cost of office facilities, the cost of closing the company, and the cost of paying early investors are counted, the company's valuation is 30 million dollars.

In an interview with the media, Chris Andreessen, general partner of the Anderson-Horowitz Fund (Horowitz), said that although some of the companies that had been created soon were bought at a very high price, the money was not paid in one lump sum, The transfer of funds will often be completed within four years, making some deals seem more reasonable. "If you pay 1 million dollars for each engineer, you just pay 250,000 dollars a year in four years, and that's not much worse than a year's salary for a Silicon Valley engineer," says Dixon. ”

But there are some deals that are unsettling. Summly, for example, is a news-reading app for smartphones, with only three employees, the founder of which is a 17-year-old boy. Last month, the company was bought by Yahoo at a price of 30 million. Aiming-Gun-Samroiyod (Emin Gün sirer), an associate professor at Cornell University, points out that it is not understandable that summly has no unique technical content and a very small number of employees.

If a company has its own users and the investor buys it to get its product, the company's valuations will be harder to calculate. Recently, Amazon bought Goodreads, a social-networking company focused on book-sharing, with acquisitions priced at an astonishing 150 million dollars. Another company, mailbox and obscure, was Dropbox at $100 million a month. Of course, these companies include hit's Instagram, which was sold to Facebook at $1 billion trillion last year.

Thomas-r.-Eisenman, a Harvard Business School professor, once said that three models can be used to estimate the value of a company when it is acquired because of its employees (such as Goodreads and Instagram). The first model: How much time the company needs to build a product from scratch and get the user; the second model: the potential cash flow situation.

The third model is basically the case, says Prof Eisenman, "How much do you want to sell on the table to convince the founders to give up the company they built?" Often, this requires superb negotiation skills. ”

Of course, if a company has been a social network or media darling for a period of time, several of the above models will fail. By then, investors will become very irrational, and the scene at the beginning of this article will reappear.