BRAD FELD ON PRODUCT MARKET FIT – THIS ONE IS A BITCH

January 20, 2015

The Illusion of Product/Market Fit for SaaS Companies

“We have product/market fit.”

“We are searching for product/market fit.”

“We are raising this financing to find product/market fit.”

“Our customer traction demonstrates product/market fit.”

Product/market fit. It’s a wonderful phrase, thanks to Marc Andreessen, Sean Ellis, Steve Blank, and Eric Ries. But it also one of the most overused, and inappropriately used, phrases that I hear with SaaS companies on a daily basis.

I was in a meeting a month ago with a company I’m on the board of where product/market fit was asserted. I sat quietly for a moment and then stated as clearly as I could that the company didn’t have product/market fit, they had the illusion of product/market fit. A long conversation ensued which resulted in me pondering this illusion and trying to put some parameters around it.

But first, some history.

There’s a fun post from Ben Horowitz in 2010 titled The Revenge of the Fat Guy that weaves in comments from Fred Wilson about product/market fit where Fred argues in his post Being Fat Is Not Healthy. While ostensibly it’s a post about lean vs. fat startups, it really is about discovering product/market fit and it gives a good history lesson on the thinking circa 2010 on this issue. Ben eventually states, and then explains, four product/market fit myths.

  • Myth #1: Product market fit is always a discrete, big bang event
  • Myth #2: It’s patently obvious when you have product market fit
  • Myth #3: Once you achieve product market fit, you can’t lose it.
  • Myth #4: Once you have product-market fit, you don’t have to sweat the competition.

As I rolled this around in my head, I started to realize that part of the illusion of product/market fit is that there’s a belief that once you have it, you never lose it (myth #3). There’s also the belief that there’s a magic moment where you have it and declare it (myth #1). Worse, there’s the belief that it’s obvious when you have it (myth #2). And tragically, a lot of companies believe when they have it, they don’t have to worry about anyone else because they’ve won (myth #4).

I’ve experienced the downside of each of these myths many times. I’ve seen companies have to rediscover product/market fit after getting to a $500k MRR (monthly recurring revenue). I’ve been involved in companies that thought they owned the market at a $2m MRR only to have a new competitor come out of no where and beat the crap out of them. I watched companies at a $4m MRR enter new markets and struggle mightily to discover product/market fit for these new markets. Or worse, I’ve seen a new product release that was late completely toast product/market fit and force a company to hang on to customers any way possible while rushing to fix what was broken.

The illusion of product/market fit pops up at multiple points in time. So I started thinking about heuristics for these points in time and came up with MRR as a parameter to explore. Suddenly, the illusion problem came into focus for me based on MRR, with clear transitions happening up to a $1m MRR. While I’m going to keep exploring this, I have a hypothesis now about the dynamics around product/market fit in SaaS companies that I’m playing around with. Feel free to tear it apart.

When you have $0 of MRR, you have no product/market fit. Ok – that was easy. You are working on a product and searching for your first customer.

From $1 to $10k MRR, you have the illusion of product/market fit. You finally found someone to pay you for your shitty MVP, but you’ve got a long way to go before you truly have product/market fit. Do not pour on the gas at this point. Stay calm and keep doing what you are doing.

$10k to $100k MRR is a super exciting time. You’ve got a semblance of product/market fit. You are starting to learn what your customers will pay you for. You feel like things are actually cranking. You probably have one or two salespeople and one of your founders – maybe your CEO – is still the head of sales. If you try to raise a Series A, the process is straightforward. It’s easy to believe you’ve got it figured it out here. This is the point at which myth’s #1 and #2 usually kick you in the ass. If you aren’t growing a compounded 10% each month, you don’t have product market/fit yet. If you are growing faster than that, you have found something.

Going from $100k to $500k MRR is a product/market fit sweet spot. You are starting to build a sales organization, have visibility in the market in your segment, and might even have customers coming to you on a regular basis. This is where myth #3 bops you on the head. You think you’ve got it and it’ll keep scaling, but you hire the wrong VP Sales, you focus on the wrong metrics, or you end up struggling to renew your customers when the first annual renewal cycle hits. You get confused about negative churn and conflate upsells with growth with churn. Lots of companies stall here – some due to self-inflicted pain; others due to the illusion of product/market fit.

If you can blast through the $500k MRR mark and march to $1m MRR, you’ve found product/market fit. You are now at the magical point some people call “Initial Scale.” Cool – you’ve got a business.

Now, your value is going to be determined by your growth rate. At any point in time, if you are growing > 100% year-over-year you will be highly valued – think at least 10x revenue, but I won’t tell you whether it’s trailing or forward, as that’ll shift around based on the public markets. And, the faster you are growing, the more discontinuous (e.g. higher multiple, but not linear) your valuation will be.

If your growth rate is between 50% and 100% and holding steady, that’s good and you’ll see a nice, big, healthy valuation. But if it’s declining, watch out for that magic 50% year-over-year mark. It’s like a trip wire that will send off all kinds of weird alarm bells. Once you decline below 20%, you better make sure your existing investors are going to be ready to step up to finance you, or else start the rapid march to profitability, which likely generates even slower growth.

Myth #3 and myth #4 show up all the time at MRR’s > $1m. You disrupted someone a few years ago which is what caused you to discover product/market fit. Don’t be confused about the world – someone else is gunning for you now that you are the big player in whatever segment you are in.

Every time you work on something new, whether it’s a new feature, a new product, or a new product line, recognize that you are searching for incremental product/market fit. The search is a continuous and never ending quest. Don’t confuse illusion with reality.

hi, badrish – see this – its kinda interesting

Accel invests $50m in code testing firm BrowserStack

ET Bureau|
Jan 31, 2018, 08.50 AM IST

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Read more at:
//economictimes.indiatimes.com/articleshow/62718792.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

From: Badrish \<badrish.aom>
Date: Wed, Jan 31, 2018 at 11:20 AM
Subject: Re: hi, badrish – see this – its kinda interesting
To: Ajay Mishra <ajayinsead03>

Example of Patience in Venture

https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/accel-invests-50m-in-code-testing-firm-browserstack/articleshow/62718792.cms

On Wed, Jan 31, 2018 at 5:06 AM, Ajay Mishra <ajayinsead03> wrote:

https://en.wikipedia.org/wiki/Typeform.com

WE MAKE THINGS THAT GO INSIDE THE THING THAT GOES INSIDE ANOTHER THING – Thats Mittelstand – and its a very GERMAN thing. Its not an AMERICAN OR ISRAELI OR INDIAN THING

A VC asked me where i see the company in years ahead

he is an american VC

so his question is do u want to be a Billion dollar worth company or do you plan to stick around and grow Myraah to be a Billion dollar sales

here is that post -> http://yoninetanyahu.com/2018/01/31/the-question-are-u-gonna-be-a-billion-dollar-valuation-company-or-do-u-want-ot-be-a-billion-dollar-in-sales-company/

70 % of german employment is through MITTELSTAND companies : these companies are :

[a] SMALL AND MEDIUM BUSINESSES WITH AROUND $50 MILLION IN ANNUAL SALES

[B] TYPICALLY FAMILY OWNED

[C] TYPICALLY IN GERMAN SUBURBS OR AT LEAST FAR FROM THE MAJOR BIG CITIES LIKE BERLIN MUNICH, FRANKFURT ETC

these Mittelstand companies are mostly high tech manufacturing and/or high – end manufacturing – most of them manufacture assembly items that go into the larger assembly items of some end product – a finished good ..

[youtube http://youtube.com/w/?v=1CRDcqkHLE4]

[youtube http://youtube.com/w/?v=eUjqQZLbKgA]

as you can see -this MITTLESTAND is a godo thing

[youtube http://youtube.com/w/?v=ov8i50KEekI]

that said – VC backed companies or our company MYRAAH isn’t like MITTLESTAND model

u can see a good blog post on the differences here -> https://nothingventured.rocks/what-startups-can-learn-from-the-mittelstand-399842086221

here u will hear a word UNICRON – motre on that later

ps: one way to think about growth and unicorns is to ask- CAN this company grow non-linearly ? – SPECIALLY when u want to compare and contrast a company in say technology – which has the potential to grow exponentially – or non linearly – versus – a manufacturing company – which is hard to grow non linearly

THE QUESTION : HEY U MYRAAH FOLKS :ARE U GONNA BE A BILLION DOLLAR VALUATION COMPANY OR DO U WANT TO BE A BILLION DOLLAR IN SALES COMPANY

WITH YOU HE MEANS

THE FOUNDERS OF MYRAAH

 

IE

SAURAV KUMAR

 

AJAY MISHRA

 

GAURAV KUMAR

Gaurav called me today. He said ” sir, whats happening at your end “

 i am mulling over last night’s question from a VC friend from Palo Alto California. I told Gaurav.. and one more question – the backup for the addressable market..size.

 

 

 

For entrepreneurs its an important question.


It has something to do with:

[a]

the VISION

[b]

the AMBITION – U can call it as some others may – the MISSION

[c]

the patience, the perseverance and there is one more word – with p – Yeah the PSYCHOLOGY


because? well because – many entrepreneurs get burned.


They are happy with an early exit .

Dreams of Seychelles, Sicily and Serenity of Goa, Eilat, Hawaii and Bali come to many an entrepreneur’s mind.

 

We just exceeded this month’s sales target. Its always good to have good news.


 

Later in the day: Dad asked me -” SO, how is your company doing?”

I told him : we want to be a BILLION DOLLAR REVENUE COMPANY

:)


we are moving to a new office. starting February 5. Well February 5, is the Havan

what is a Havan? Well, its a Hindu event thing they do when they want to inaugurate a new beginning. Its the Hindu equivalent of a Blue Ribbon cutting ceremony

[youtube http://youtube.com/w/?v=o5tbcKS1pAM]

my mom will do her own Puja { Puja means worship and praying } in Lucknow house.

Gaurav – wrote this cool post.

Gaurav is a nice fella. Very Smart guy.

Gaurav was in London.

He did his Master’s of Finance in London.

And worked in London at Lloyd ‘s .

Gurav then did his MBA from IIM Ahmedabad.

Saurav is the younger brother of Guarav:

Saurav is my junior from IIT Kanpur.

Saurav is our Ramanujam – a MATHS MAJOR FROM IIT.

Go to the profile of Myraah IO
Myraah IOFollow
Oct 1, 2017

Om’s (Shiva) law of Sales

1*qSwBRuJgscWnj5hbLkaGjw.jpeg

To my entrepreneur friends,

So you have figured out a product or service. You and your co-founders worked day and night to create a product or service.

Now, the most important battle begins — To find the product market FIT.

This challenge is enormous and this is why many of start-ups fail. They fail to sell.

I am no start-up guru. But based on my experience of over 10+ years doing start-ups I discovered a common pattern.

This may help other entrepreneurs make their first sales.

OR

even better discover a PROFITABLE AND SCALABLE SALES MODEL.


I call it OM’s law of sales. It sounds like OHM’s law in physics and actually works like that. But I renamed it coz I am a SHIVA follower.

Here it goes:

The idea of sales is to flow the money from customer to your bank account. Think of it like current flowing from point C (Customer) TO your Bank Account (B). WOW- Like C-2-B

0*SGM0HLW9YlA5dL6C.png

OK, this transaction is our goal. To make the current (Money) Flow from customer to your account.

But, you will need to overcome FOUR resistances.

R1 : WHAT ARE THE CHANCES THAT THE PROSPECT IN QUESTION IS LOOKING FOR THE SOLUTION YOU ARE SELLING

Real Estate Example: If you are selling a 1 BHK home. And you come across a prospect. But, She is actually looking to buy a 2 BHK. What are the chance of sale — 0%. No matter how hard you try you won’t be able to do the transaction.

Now the next example entrepreneurs will love. Suppose you are approaching a VC for funding. Suppose you have a services business.

 

BUT the VC invests only in TECH product.

The chances of funding is ZERO coz their money cannot cross the first R.

Simple. When you realize this. move on to the next lead.

 

Lesson: Focus and invest in finding the RIGHT prospect.

R2: WHAT ARE THE CHANCES THAT THE PROSPECT IN QUESTION HAS AN IMMEDIATE NEED TO BUY

Real Estate Example: If your prospect is actually looking for 1BHK home and you are selling 1 BHK home. Great R1 crossed with fair probability. Now suppose prospect says he is looking to buy in 3–4 months of time as he has started looking for a home. Oh, this means the probability of transaction happening is low. These kind of prospects will waste your time. Move on Buddy!

Now the VC example: So the VC invests in the business type you are in. Great. But they don’t are not in a hurry may be they will like to shop around for 6 months or so as they are meeting many start-ups. What are your chances buddy!

This happens a lot in the Angel world.

Lesson: Find prospects , who are hungry and you have the right food for them.

R3: WHAT ARE THE CHANCES THAT THE PROSPECT IN QUESTION HAS AN ABILITY TO PAY

Real Estate Example : Your prospect is looking for 1BHK. He wants to close the deal in next 10 days. How about his ability to pay, that’s R3. You realize his credit rating is bad and no bank will give him loan. FINISHED. He cannot buy. So move on.

Now the VC example: You spoke to an associate at the firm and everything is looking good. They like what you are doing and they like your team. Waiting for the cheque. Actually VC himself is waiting for the Cheque from their General partners. They don’t have the money RIGHT NOW in the bank. As they themselves are raising for the FUND -2. What are your chances of getting funded buddy !

This has happened with me and friends I know. So don’t discard this.

Lesson: Always confirm if the prospect has the money to buy what you are selling.

R4: WHAT ARE THE CHANCES THAT PRICE PROSPECT IS ASKING IS A PRICE YOU WANT

Now Suppose our prospect got the loan and all R1,R2 an R3 are satisfied. Now it’s a deal buddy. NO.

Real Estate Example: The last thing is that prospect may say: I can offer 30 Lakhs for the flat you want to sell at 50 Lakhs. Will the deal happen? NO.

Now the VC Example : All done. Now the VC gives you valuation of $1 M whereas your expectation is $5 M, Will the deal happen. Remember Snapdeal.

Lesson: Always clarify the price early in the sales process.

OK

Here is the summary:

Figure out all these chances (Probability) earlier in the sales process. So that you don’t waste time on wrong leads.

MULTIPLY them and calculate what the chances of sales are. If any one of them is ZERO. Trust me my HERO it’s gonna happen. MOVE ONE.

Here is OM’s law of sales:

CHANCE OF SALES =

(PROBABILITY THAT I AM SELLING THE SAME THING AS PROSPECT IS LOOKING FOR)

X

(PROBABILITY THAT PROSPECT HAS AN IMMEDIATE NEED TO BUY)

X

(PROBABILITY THAT PROSPECT HAS MONEY OR CAPACITY TO DO THIS TRANSACTION)

X

(PROBABILITY THAT PROSPECT HAS SIMILAR EXPECATION OF PRICE THAT I HAVE IN MIND)

Comments pls.

saurav’s paper is below

[slideshare id=74566381&doc=sauravsspainpaperregardsajaymishra324368521-170406171229&type=d]

Mom asked me why i work?

here is why

PS: A BILLION DOLLAR VALUATION COMPANY MEANS $100 MILLION IN SALES – MULTIPLIES BY 10 TIMES THE SALES = A NET WORTH OF ONE BILLION US DOLLAR COMPANY

AND A BILLION DOLLAR IN SALES COMPANY – MEANS  MANY A BILLION DOLLAR NET WORTH COMPANY.

PS: AFTER A FEW MILLION DOLLARS – OK – LETS SAY $100 MILLION – IT DOESN’T REALLY MATTER MUCH – HOW MUCH MATTER ONE. ONE WAY TO EXPLAIN THIS WOULD BE – HOW MY PROFESSOR AT INSEAD SAID – HE SAID – THERE IS A LAW OF DIMINISHING UTILITY –

I WANT TO DO SOMETHING MORE THAN JUST HAVE MORE MONEY. .. SO, WHAT IS IT HONEY? DO U KNOW?

 

 

Regarding PAR Finance :

Hi Saurav and Rohit

[1] Change the NAME of the header – from GALLERY to TEAM

[2] Add a TEAM BLOCK content on Home Page – – position – just right above this section

[3] 4 people team Block in here

OUR TEAM

team.jpg

PAR Financial offers a common integrated platform for all your financial needs, be it budgeting, investment planning, investing and achieving goals.
We provide tools that allow users to create monthly investment plans track their spending pattern and optimize savings.
Whether you opt for long term or short term investment plans, PAR Financial acts as a financial investment advisor and helps you select, compare and keep track of your investment goals.

PAR Financial makes users financially independent by helping them grow and track of their investments

PAR Financial offers savings optimizer to help user optimize savings, which ultimately helps them to achieve their goals.

http://myraah.co/clients/financial/

thnx

ajay

 

Someone just viewed: Fwd: BEACH

HELLO MOSCOW

:)

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eyJlbWFpbF9pZCI6IlpNX3lBUUFCWVVkSVBDSkYyZUZmU2p1VVJEZEsifQ==

the dreaded FUNNEL

Sales Funnel Optimization For SaaS Startups

sales_funnel.png

There’s a magical property to the classic sales funnel SaaS startups use to evaluate the effectiveness of their go-to-market organizations: an increase in effectiveness at any stage of a sales funnel cascades through to the end funnel. But improvements to the early parts of the funnel are more important than those later in the funnel, because they meaningfully improve key SaaS metrics like cost-of-customer acquisition and pay-back period.

Most startups employ a four stage funnel: prospect, lead, opportunity, customer. Typically, a prospect is an email of a potential customer. A Sales Development Rep (SDR) qualifies the prospect to a lead. The lead is then passed to an Account Executive (AE) who qualifies it further into an opportunity and works to close the deal, yielding a customer. The yield from one part of the funnel varies quite a bit depending on the startup’s sector, how the business acquires leads, the competitive dynamics in the sector and the qualification regimen of the company.

Let’s compare three different funnels each starting with 1000 leads and yielding 125 customers. Funnel 1 pushes 50% of leads through each step. In Funnel 2, SDRs filter 70% of prospects up-front. In Funnel 3, Account Executives whittle down the high volume of SDR-qualified leads late in the process.

Funnel

Prospect

Lead

Opportunity

Customer

1

1000

500

250

125

2

1000

300

150

125

3

1000

750

500

125

For each funnel, we’ll improve yield at a different step. In Funnel 1, the prospect-to-lead ratio increases by 10%. Same for Funnel 2’s Lead-to-Opportunity ratio and Funnel 3s Opportunity to Customer Ratio.

Funnel

Prospect

Lead

Opportunity

Customer

1

1000

550

275

137.5

2

1000

300

165

137.5

3

1000

750

500

137.5

No matter where the incremental 10% improvement occurred in the funnel, the business benefits from a 10% growth in customers. This conclusion can be counterintuitive at first, but it works because of the commutative property of multiplication.

For startups, this hypothetical implies that any efficiency or yield improvement in the sales funnel is equally as valuable as another of the same magnitude.

But consider the question of time efficiency for a startup. Let’s assume an SDR requires 5 minutes to evaluate a prospect, an AE needs 30 minutes to qualify a lead to an opportunity and the AE invests 4 hours to convert an opportunity to a customer. The table below shows the total hours required by each step.

Funnel

Lead

Opportunity

Customer

Total

SC CAC ($)

1

83

275

825

1183

403

2

83

150

450

683

229

3

83

375

1125

1583

543

The third funnel is 2x more expensive in time as the second requiring 1583 hours to produce 137.5 customers compared to 683 hours.

The sales-contribution to the cost-of-customer-acquisition which is abbreviated SC CAC in the table above, increases from $228 to $543 for Funnels 3 compared to 2. In other words, this time efficiency doubles how much money the sales team invests to acquire a customer. Keeping the SC CAC low will increase payback periods, sales efficiency and many other go-to-market metrics, enabling your startup to grow faster with less capital required.

This is why investing in improvements at the top of the sales funnel, particularly in early prospect and lead qualification are so valuable: they save the time and energy of a startup’s go to market teams and can meaningfully improve unit economics.

ON PRICE

Ten Year’s Worth Of Learnings About Pricing

bw_cash_register.jpg

Last week, I shared a presentation with an executive team at a large public SaaS company on everything I’ve learned about pricing. Here’s a summary of the frameworks and theory that I’ve aggregated over a decade of investing in startups.

Why do we set prices? Setting aside the important reasons of generating revenue and maintaining solvency for a business, there are many other reasons to set price. Price reinforces brand because price telegraphs whether a product is a premium product or a value product. Price differentiates products in the market and can be used as a go-to-market strategy. Underprice the competition to gain share. There are many others too.

There are four components to pricing: 1. Strategy: what is the goal of the price? 2. Philosophy: how does the company price relative to costs? 3. Structure: what is the pricing rubric? 4. Positioning: how best to communicate the price?

Strategy
There are only 3 pricing strategies: Skimming, Maximization, and Penetration. Skimming means charging the first to buy a product more than the later buyers. Maximization is charging the most you can extract in each sale. Penetration is under-pricing to gain share.

Philosophy
There are two pricing philosophies: cost-based pricing and value-based pricing. Cost-based pricing is common in commodity markets. To price based on cost, you take the cost of the product and then add a margin. If you’re targeting 50% margins, just double your cost and there you are.

Value based pricing means charging the customer what they are willing to pay. This requires understanding their budget and the value of the product to them.

Structure
In software, we typically see three pricing structures. Linear Pricing (LP) – Each analytics event costs $0.10.

2 Part Tariff (2PT) – The analytics software has a base platform fee of $10,000 and each analytics event processed by the system costs $0.10 more.

3 Part Tariff (3PT) – Again, the software has a base platform fee but the fee is $25,000 because it includes the first 150k events are free. Each marginal event costs $0.15.

In academic research and theory, the 3 part tariff is proven to be best. It provides many different ways for the sales team to negotiate on price and captures the most value.

Position
There are three ways to position pricing: per unit of consumption (message, analytics event, telephony minute), per person and ELA (enterprise license agreement), which is a prenegotiated deal for everyone in a business.

To figure out the right pricing strategy, it’s critical to determine what the buyer cares about. Do they care about cost or value? What is their core unit of their world: people, dollars, gigabytes? How predictable is the pricing plan? And can the buyer clearly articulate the pricing, advocate on your behalf and champion the purchase?

It’s also important to understand the seller’s needs. How does the pricing change the market size? The unit economics and cash flows associated with the sale? The competitive positioning?

All of these disciplines fall under product marketing. Well run product marketing teams develop these perspectives before product launch. By combining market research, interviews with prospective customers, conversations with the sales team, the product marketing team can develop a unified pricing strategy that is consistent with the company strategy and the sales tactics.

The challenge with pricing is that it’s never a constant. As an industry evolves, competitive pressures change, a vendor’s positioning changes and the buyer’s needs change, so must pricing.

Thinking through these 4 core parts of pricing is critical to ensuring internal alignment and maximizing success of developing the right pricing plan for your business.

IF PRICE CHANGES BY X % AND QUANTITY CHNAGES BY Y $ – WHAT WOULD BE THE % CHANGE IN THE REVENUE GIVEN THAT R = P * Q – HOW TO GET THIS BY CALCULUS

R = P * Q

% CHANGE IN R = R ( n) – R ( n-1) / R = d (R) /r

dR = P dQ + Q dP

dR/ R = P ( dQ )/ P*Q) + Q DP/(P*Q)

=> d(R) / R = Change in Revenue / Original revenue = percentage change in R –

= d(Q)/ Q + d (P) /P

= % CHANGE IN Q + % CHANGE IN P

Here P stands for Price,

Q for quantity

and

R for Revenue – ie sales

so,

IF PRICE CHANGE BY 3 % AND QUANTITY CHANGES BY 5 % – THEN THE PERCENTAGE CHANGE IN R – THE REVENUE

= % CHANGE IN ( P + THAT IN Q)

= 3 % + 5 %

= 8 %

NOTE – HERE D or d is the standard operator symbol for the DIFFERENTIAL – as in DIFFERENTIAL CALCULUS

YES U CAN DO THE SAME CALCULUS IS THERE IS A RATIO

AS IN IF SOME NUMBER N = A DIVIDED BY B THEN IF A CHANGES BY X % AND B BY Y % THEN N WILL CHANGE BY X MINUS Y PERCENT

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3 MODELS – TO ACHIEVE THE SAME $1 M OR $10 M TARGET : [A] LINEAR – IE AP -GROWTH MODEL [B] EXPONENTIAL IE GP GROWTH MODEL AND [C] A HYBRID – GROWTH MODEL FOR MRR SPECIALLY

AND YES, WE CAN HIT THE SAME – TARGET – SAY $ 1 MILLION REVENUE OR $100 MILLION REVENUE – BY THESE 3 MODELS : BECAUSE CUMULATIVE YEARLY REVENUE = SUM OF ALL THE 12 MONTH REVENUE –

HOW?

FIRST SEE THE DIFFERENT GROWTH MODELS

[a]

Linear Growth model -means ARITHMETIC progression : as in

{\displaystyle \ a_{n}=a_{1}+(n-1)d},

where

– a 1 = the first term – i.e. – the revenue /sales at the beginning of a month

– a n = the revenue in the nth month

– d = the common difference

S (n) = Sum of all the monthly revenue numbers

S_n=\frac{n}{2}( a_1 + a_n).

In this model a CONSTANT number gets added to the number prior to it – ie. this month revenue = previous month revenue PLUS – a Number called – D

 

 

{\displaystyle \ a_{n}=a_{1}+(n-1)d},

 

 

 

so in this case if we want to arrive at the growth rate formula

then G = growth Rate = a(n) / (a(n-1) – 1

where a ( n-1 ) = a 1 + (n-2) d

substitute and get G = { a (1) + (n-1) /d } / { a 1 + ( n-2) d)

which means and implies that G (n) will not be a constant – and would vary each month

ie – there would be a mean value but since each term { each number} would be different – there would be a variation – and here is the

standard deviation –

 

The standard deviation of any arithmetic progression can be calculated as

\sigma = |d|\sqrt{\frac{(n-1)(n+1)}{12}}

where n is the number of terms in the progression and d is the common difference between terms.

so, there would be a MEAN around the Revenue number and the distribution would have a standard deviation – shown above

[b]

EXPONENTIAL GROWTH MODEL – AKA – THE GEOMETRIC PROGRESSION –

This EXPONENTIAL Model is hard to sustain –

– this model assumes – a constant growth rate –

OBVIOUSLY THIS IS ONE WHICH EVERYONE LIKES

a,\ ar,\ ar^{2},\ ar^{3},\ ar^{4},\ \ldots

where r ≠ 0 is the common ratio and a is a scale factor, equal to the sequence’s start value.

BECAUSE IT BLOWS UP TO INFINITY – QUICKLY – BUT THIS IS ALSO A HARD ONE TO SUSTAIN WHEN N – APPROACHED LARGE NUMBERS

The n-th term of a geometric sequence with initial value a and common ratio r is given by

a_{n}=a\,r^{n-1}.

Such a geometric sequence also follows the recursive relation

a_{n}=r\,a_{n-1}

for every integer n\geq 1.

OBVIOUSLY BY DEFINITION

– THE GROWTH RATE IMPLIED IN THIS MODEL IS – CONSTANT –

THIS MONTH SALES NUMBER DIVIDED BY LAST MONTH’S SALES NUMBER

=

A(n) DIVIDED BY A(n-1)

WHICH IS EQUAL TO THE SAME

– IE – THE COMMON RATIO R

SO, MONTHLY GROWTH RATE IN THIS MODEL – REMAINS THE SAME.

[C]

THERE IS A 3RD MODEL

 A HYBRID -MODEL

BETWEEN THE AP AND THE GP – MODELS-

I.E BETWEEN THE LINEAR AND THE EXPONENTIAL MODEL :

WHICH IS MORE REALISTIC

AND WHAT WE SHOULD

OR WOULD BE FORCED TO PLAN FOR

– AS N – THE NUMBER OF MONTHS – IN OPERATION – INCREASES LINEARLY WITH T –

THE TIME – FARTHER AWAY

FROM SEPTEMBER 2017 INCREASES

 

in this model – you take the average of the NET – NEW – MRR – numbers –

{ MRR STANDS FOR MONTHLY RECURRING REVENUE }

BY ADDING THE TWO NEW NEW MRR NUMBERS

FROM THE LINEAR AND THE EXPONENTIAL MODELS ABOVE – MENTIONED IN [A] AND [B] – SECTIONS –

AND THEN DIVIDE THAT BY 2 –

AND THEN ADD TO THE PREVIOUS TERM

TO GET THE NTH TERM

BASICALLY

– IN THE LINEAR MODEL U HAD – A COMMON DIFFERENCE – IE D – ADDED TO EACH TERM

– AND IN THE EXPONENTIAL MODEL U HAD THE COMMON RATIO – R MULTIPLIED TO EACH SUBSEQUENT TERM

– IN THE HYBRID MODEL – YOU TAKE THE AVERAGE OF THE TWO END POINTS –

AND ADD TO EACH SUBSEQUENT TERM

 

 

 

YOU CAN DO THE MATHS – IN EQUATION FORMAT

OR – YOU CAN DO ACTUAL NUMBERS AND MACROS AND FORMULAS IN EXCEL

OR GOOGLE SHEETS

 

HERE IS THE LINK FOR GOOGLE SHEETS ->

https://docs.google.com/spreadsheets/d/1k9BW460b8cTRSTFpl61k47Cg28xo4pOBCAx0V5n3FrM/edit?usp=sharing

yes, you can download in CSV format as well..

If you like to see numbers visually

see this graph

– GRAPH OF GROWTH MODELS –

 

IN SAAS growth MATTERS – AND IT MATTERS – A LOT

OR I GUESS SOME WOULD SAY – IT MATTERS THE MOST

The Increasing Growth Rates Of SaaS Companies

SaaS startups are growing faster than ever before. Publicly-traded SaaS companies founded from 2008 through 2014 needed 50% less time to reach $50M than their counterparts founded between 1998 and 2005. I stumbled across this trend when looking at a different chart used in my S-1 analyses that compares the time to $50M for each of the 51 or so publicly traded SaaS companies.

 

WIX IS SHOWN BELOW -in red

MY EYES AREN’T PERFECT -BUT I EYE BALLED IT – AND IT LOOKS LIKE- IT TOOK WIX – 7 YEARS – APPROX – SEVEN YEARS – TO HIT THE $50 M REVENUE COMPANY – WE R US –

 

colored the companies founded in the last ten years in red.

Newer SaaS companies grow faster.

82% of the companies to achieve $50M in revenue in under 8 years have been founded in the last decade.

Meanwhile, all of the companies requiring longer than 8 years were founded before 2004.

FORWARD MULTIPLES IN THE PUBLIC SAAS MARKET

forward_multiple_2017-08-21.png

We’ve seen quite a bit of volatility in the valuations of publicly traded software companies over the last 5 years. In 2014, the average software company traded at 7.7x forward revenues – the sum of projected revenues over the next 12 months. Two years later, that multiple dropped 57% to 3.3x. Today, we’re exactly where we were in 2013, at 5.4x, which is coincidentally, is the average over this time period.

distribution_forward_multiples_mid_2017.png

The average figure masks the substantial variance in forward muliples. By breaking out the multiples on a stock by stock basis, we expose the true distribution. Veeva (VEEV) tops the list at 11.6x forward while MobileIron plays cleanup at 1.5x.

multiple_change_mid_2017.png

In addition to the broad range of multiples, some of these businesses has seen tremendous volatility. HortonWorks and LivePerson have seen greater than 90% increases in forward multiples, while Zendesk and Twilio observed contractions of 32% and 64%.

forward_multiple_boxplot2017-08-21.png

Last, the box plot demonstrates that the majority of companies fit within a narrow band. But we are starting to see a handful more outliers, whose multiples are two standard deviations above the median. The red box indicates the range of companies between the 25th and 75th percentiles.

Overall, the data suggests that the median forward multiple of 5.5X is a good summary metric for long-term analysis of next generation software companies. But the distribution and the variances year-over-year indicate that there’s quite a bit of movement in forward multiples, depending on the particulars of each business.

This public market data mirrors to some extent of the behavior of the private market. Namely, while the forward multiple for most private SaaS companies has fallen in the last year or so, the most sought after businesses are commanding some of the highest multiples we’ve seen in 24 months.

VOCABULARY

409a valuationA formal report that tells you the fair market value of your company’s common stock prepared in compliance to recommended guidelines issued by regulatory bodies.FURTHER READING

409a valuationA formal report that tells you the fair market value of your company’s common stock prepared in compliance to recommended guidelines issued by regulatory bodies.


83(b) electionA form that tells the IRS that you will be taxed on the value of granted shares today rather than recognizing income on their value as of the date that they vest.


acceleratorA type of business incubator that typically accepts startup teams into a three-month program and may provide capital, basic living expenses, office space and mentorship, often in exchange for equity in the startup.


accountingThe process of contextualizing each transaction in order to present an accurate picture of the company’s financial performance. Accountants go beyond recording a transaction; they interpret how each transaction impacts the financial status of the business.


acqui-hireOne company’s acquisition of another for the primary purpose of hiring its employees, rather than for the intrinsic value of the business itself.


acquisitionA process where a company acquires the controlling interest (more than 50%) of another company.


advisorAn individual providing guidance, connections, advice and support to the entrepreneur, often in return for a small equity stake.


Amazon Web Services (AWS)A service that allows startups to cheaply rent server space and development tools in the cloud and scale up as needed rather than purchasing their own expensive servers.


angel groupA formal or information organization of individual accredited investors who pool their deal flow, resources, expertise and capital in order to make angel investments.


angel investorAn accredited investor who invests his or her personal capital in early stage, potentially high-growth companies.


angel roundA round of investment into a startup company from angel investors not previously affiliated with the founder. Typically the first money invested in a company after the founder’s own money and the founder’s friends and family.


annual recurring revenue (ARR)The subscription-based revenue which software-as-a-service or platform-as-a-service (SaaS/PaaS)-based companies receive each year; also known as the run rate.


Articles of Incorporation (or Certificate of Incorporation)Documents filed with the state’s Secretary of State or Registrar which acts as a charter to document the establishment and existence of a corporation—typically including the business’s name, address, a statement of business purpose, and details related to the types of stock the corporation is entitled to issue.


authorized sharesThe maximum number of shares that a company can issue, as decided by its Board of Directors. For a Delaware C-Corporation, any increases or decreases to this number require amending and restating the Certificate of Incorporation in Delaware. Gust Launch starts each company with 10 million authorized shares—a very common number to begin with.


balance sheetA condensed financial statement showing the nature and total value of a company’s assets, liabilities, and capital on a given date.


BHAGBig Hairy Audacious Goal, the giant sweeping vision of a startup founder to change the world.


Board of DirectorsA group of people elected by a company’s shareholders (often according to the terms of a negotiated shareholders’ agreement) that makes decisions on major company issues, including hiring/firing the CEO.


bookkeepingThe process of recording all of the company’s transactions in a set of books, also known as a ledger. Entries are recorded in accounting software, which will compile reports based on how bookkeepers tag such entries.


bootstrappingFunding a company without external help or capital and reinvesting initial profits.


bridge loanA temporary investment instrument used to cover a company’s operating expenses until a future financing.


business-to-business (B2B)When one business engages in commercial interactions with other businesses (one business is the supplier and the other businesses are the customers).


business-to-consumer (B2C)When a business engages in commercial interactions directly with consumers (the consumer is the end-use customer of the product or services provided).


burn rateThe monthly negative cash flow from a startup.


business model canvasA strategic management template for developing or documenting business models through a visual chart with elements describing a firm’s value proposition, infrastructure, customers and finances.


business plan competitionA program to encourage entrepreneurs to develop plans for new businesses, and sometimes a showcase competition for existing startups seeking financing.


buyoutThe purchase of a company or a controlling interest of a corporation’s shares, product line or business. A leveraged buyout is an acquisition accomplished with borrowed money or by issuing more stock.


cap (on a convertible note)The maximum company valuation at which a convertible note will convert into a company’s stock.


cap table (capitalization table)A record of all securities and their shareholders commonly displayed in a fully diluted view.


cash flow statementReconciles the beginning cash balance to the ending cash balance by illustrating the sources and uses of cash from operations, investing, and financing activities.


common stockA US term for a form of equity ownership of a company, equivalent to the terms “voting share” or “ordinary share” used in other parts of the world. In a liquidity event or a bankruptcy, common stockholders receive all of the net value of a company after paying the fixed amounts due to bondholders, creditors and preferred stockholders. Common stock usually carries with it the right to vote on certain matters, such as electing the board of directors.


convertible noteA type of loan (also known as convertible debt) which provides that the amount of money loaned may (or must, under certain conditions) be converted by the investor into shares of stock in the company at a particular price.


convertible preferred stockPreferred stock in a company that is convertible at the option of the holder into common stock at a predetermined valuation. This provides the priority and security of holding preferred stock, as well as the potential value appreciation of common stock.


corporate ventureAn investment from one corporation in another, typically at an early stage for strategic reasons.


crowdfundingA joint effort by many individuals to support a cause, project or company. Donation-based crowdfunding bears no expectation of returns. In reward-based crowdfunding, contributors are promised rewards (such as the ability to purchase a product) in exchange for their contributions. Equity-based crowdfunding gives funders the ability to purchase equity interests in a company.


customer lifetime value (CLTV or LTV)A forecast of the total net profit related to the entire lifetime of a specific customer relationship.


DBA RegistrationAllows you to conduct business in a name other than your own (or your company’s) legal name, and allows others to identify the person or entity behind the business name you’ve registered.


deal leadThe investor or investment organization taking primary responsibility for organizing an investment round in a company. The deal lead typically finds the company, negotiates the terms of the investment, invests the largest amount and serves as the primary liaison between the company and the other investors.


debtBorrowed money that needs to be paid back. The entrepreneur rents the money for a specific period of time and promises to pay interest on the money for as long as the loan is outstanding.


demo dayA public pitch event or “graduation” day for a group of startups in an accelerator or other program at which each company has 5–15 minutes to present its investment opportunity to potential investors in attendance.


dilutionWhen a company sells additional shares of stock, thereby decreasing the percentage ownership of existing shareholders. Note that if the valuation of the new sale is at a high enough level, the value of stock held by existing investors may increase, even though the percentage ownership may decrease.


discounted convertible noteA loan that converts into the same equity security being purchased in a future investment round, but at a discounted price representing a risk premium for the early investment.


due diligenceThe process of investigation whereby both an investor and an entrepreneur have the opportunity to analyze and assess each other for the potential of an investment opportunity and partnership.


duty of careA fiduciary duty of a board of directors that obligates board members to reasonably avail themselves of all material information before making a business decision.


duty of loyaltyA fiduciary duty of a board of directors that requires a director to put the interests of the stockholders ahead of their own individual interests.


EBITDA“Earnings Before Interest, Taxes, Depreciation, and Amortization.” By not including interest, taxes, depreciation, and amortization, you can clearly see the company’s cash flow.


Employer Identification Number (EIN)A unique, 9-digit identification number utilized by the Internal Revenue Service, (IRS) and assigned to business entities to identify employers as part of the tax reporting process. In order to obtain an EIN, business entities must file or apply to the IRS.

FURTHER READING


entrepreneurA person who organizes and operates a business or businesses, taking on greater than normal financial risks to do so. Entrepreneurs are the founders of startups, and are the people angel investors support.


equityA corporation is divided into shares, which represent a slice of both the company itself and the value the company creates. These shares, once distributed, represent the company ownership (a word commonly interchanged with equity).

FURTHER READING


equity seed roundWhen an entrepreneur first sells a part of his or her business— and therefore a proportional part of the good things (like profits) and the not-so-good things (like losses)—to an investor. Equity investments, unlike loans, do not need to be paid back.


exitWhen a company is either acquired for cash, sold during a public offering, or abandoned as a failed venture.


founders stock (or founder’s equity)The common stock owned by one or more of a company’s founders, typically received when the company was incorporated.

FURTHER READING


franchise taxA yearly tax for conducting business as a separate legal “person” from its owners.


friends & family roundAn investment in a company that often follows the founder’s own investment, from people who are investing primarily because of their relationship with the founder rather than their knowledge of the business.


fully diluted sharesAll stock (common and preferred) and issued options (or warrants) as if converted to common stock. This is less relevant in the early days, but it’s a representation that investors care about as it most accurately reflects preferences, rights, and decisions made during a liquidity event (e.g. an acquisition or IPO).


funding platformAny online website used to facilitate investments in private companies. As a defined term, a specific type of platform defined by the JOBS Act of 2012 that will allow non-accredited investors to invest in private offerings.


grantMoney provided by a government agency or other organization that does not need to be repaid and does not purchase equity.


GustThe global SaaS platform for founding, operating, and investing in scalable, high growth companies. Gust’s online tools support corporate legal and financial formation and operation for entrepreneurs, as well as deal flow and relationship management for investors, from startup through exit.

FURTHER READING


incubatorA program or shared office center designed to support the successful development of companies by offering cost effective resources and support.


independent contractorA specific classification of worker that is not an employee of the company. Usually distinguished by 1) whether the business has a right to direct and control how the worker does the task for which the worker is hired, 2) whether the company has a right to control the business aspects of the worker’s job, and 3) what kind of relationship the worker has to the business.


intellectual property (IP)An intangible asset of value. The protections of IP—trademarks, copyrights and patents—determine if you can prevent other people from copying these creations, and whether or not you yourself can use them freely.


initial public offering (IPO)The first public sale of the stock of a formerly privately held company. After a lockup period, investors are typically able to sell their shares on the public stock market, as they are no longer illiquid.


investment roundA set of one or more investments made in a particular company, by one or more investors on essentially similar terms at essentially the same time.


issued sharesThe total number of shares that have been granted by the company and purchased by a shareholder. These are also commonly referred to as issued and outstanding shares.

FURTHER READING


Form K-1A tax document that explains to the IRS the attributed income received by partners in a partnership. As hybrid of a partnership and a C-Corp, LLCs demand that all “partners” file K-1s annually.


lead investorSee deal lead.


liquidation waterfallThe sequence in which all parties, including investors, employees, creditors and others, receive payouts in the event of a company’s liquidation through acquisition or bankruptcy.


liquidity eventWhen investors have the ability to convert some or all of their equity interest in a company into cash. Typically as the consequence of an acquisition, this can also happen if a company is very successful and new investors are willing to buy out the interest of early investors.


lock upA period of time (typically after an IPO or an acquisition of a startup by a public company) during which certain shareholders are not allowed to sell their stock. Often 90 or 180 days, but could be a year.


Main Street businessA colloquial term used to describe traditional small, local retail and service companies. They typically serve local markets, provide jobs and benefit the local economy, but are usually not high-growth industries or eventual targets for investment or acquisition by larger companies.


major investorAs used in investment term sheets, any investor who puts in more than a defined amount into a given round, and is therefore entitled to specific information and/or voting rights.


micro-VCThe correct term for organizations often referred to as “super angels.” Structured similarly to a traditional venture fund, a Micro-VC is typically much smaller in size, with fewer partners, and invests less money but at an earlier stage.


non-disclosure agreement (NDA)A legally binding arrangement between two parties where one or both parties will classify confidential information and prohibit the other party from disclosing shared information.


optionsA different way of distributing ownership-options are the right to buy shares based on a set of conditions. When an option is “exercised,” the option to buy stock is used and the result is issued shares. They’re typically used as part of a compensation package in the form of an incentive to employees, directors, advisors, and other people key to the company’s success.


option poolAn allocation of shares reserved to be granted as options via a company’s equity incentive plan (or stock option plan). You can also issue other derivatives from this reserved pool (e.g. warrants, RSAs, RSUs, etc).


patentAn exclusive right, granted by the federal government, conferring the rights to exclude others from making, using, or selling an invention, design, or process for a fixed amount of time.


pay-to-playA term in VC financings that requires investors to participate in future down-valuation financings of the company, or else suffer punitive consequences (such as getting their preferred stock converted into common stock). One reason why investors keep some dry powder on hand.


peer-to-peer lending (P2P lending)A type of online financing solution through which individuals lend money to other individuals or small businesses.


pitchA presentation, typically supported by slides, in which a startup company’s founder describes his or her company and seeks an investment from angels or venture capitalists.


portfolioA collection of companies invested in by an angel or VC.


post-money valuationThe value of a company immediately after it has received an equity investment, including both the company’s pre-money valuation and the amount it received from the investment.


pre-money valuationThe value of a company immediately prior to receiving an investment, used to determine what percentage of a company’s ownership will be purchased in exchange for a specified investment amount.


preferred stockA type of equity ownership of a company that has both a fixed value and priority in liquidation sequence.


private companiesCompanies that are not publicly traded on the stock market.


public companiesCompanies that are freely traded on the public stock exchanges such as NASDAQ and the New York Stock Exchange.


QSBS exemptionThe Qualified Small Business Stock exemption allows a C-Corp’s stockholders to—under specific circumstances—write off 100% of personal taxes up to $10,000,000 after five years of ownership.


QuoraA leading question-and-answer website where questions are answered by industry experts in entrepreneurship, investing, and other fields.


representations and warrantiesA list of material statements or facts included in the investment documentation to which the entrepreneur unequivocally commits.


return on investment (ROI)The amount of money or net benefit generated by an investment or spend.


runwayHow long a startup can survive before it goes broke; that is, the amount of cash in the bank divided by the burn rate.


SAFESimple Agreement for Future Equity, a new form of funding for early-stage companies developed by Y Combinator to solve a number of issues with traditional convertible note funding.


SBIRSmall Business Innovation Research grant program from the US government.


SECThe United States Securities and Exchange Commission, charged with regulating all sales of corporate securities.


seed fundA venture capital fund specializing in very early-stage startups.


seed roundWhen a number of investors provide capital to a new company with anywhere from $500,000 to $3 million. Investors are typically rewarded with convertible notes, equity, or a preferred stock option in exchange for their investment.


SendGridA customer communication platform for sending transactional and marketing email.

FURTHER READING


serial entrepreneurAn entrepreneur who has previously founded and run one or more ventures.


Series AWhen a number of angel investors or VCs contribute typically $2-10 million in exchange for equity. The fund is named after the type of equity investors hope to receive: Series A preferred shares. This implies they will be the first group of investors to receive preferred shares.


Series A crunchA putative problem that occurs if more companies get early-stage funding from angels and seed funds than are eventually able to obtain later-stage funding from venture capital funds.


Series B, C, D…Investment rounds from venture capital funds subsequent to the first Series A round.


series seedUsed generically to refer to a company’s first equity round from serious seed or angel investors following its friends & family round but prior to a Series A.


shareholders’ agreementAn agreement signed during a financing transaction by all of a company’s shareholders in which they agree in advance to various provisions. These will typically include indicating which parties are entitled to designate members of the board of directors and thus control the company.


SimplexityA bookkeeping service with a long history of working alongside startups. The Gust Launch Financials package includes a subscription to Simplexity.


social proofAn investment approach leaning heavily on the identity of other well-known people who are supporting the company.


social ventureA company established to create societal benefit through entrepreneurial methods.


soft landingA face-saving acquisition of an unsuccessful startup, usually for little or no compensation.


strategic investorA corporate investor funding an early-stage company primarily for reasons related to the investing company’s interest.


success feeA percentage commission paid to an intermediary or other individual as an incentive on the closing of a large financing transaction.


sweat equityThe equity or ownership interest created in a startup by its founders as a result of their contributions in the form of hard work and toil.


term sheetA summary of the major terms of an investment round that is agreed upon by all parties prior to beginning extensive legal documentation for the round.


trademarkGrants a business the exclusive right to use the mark, words, symbols, or title in commerce.


unissued sharesThe total number of shares that are authorized to issue, but have not yet been issued to shareholders. Mathematically, this is the difference between authorized shares and issued shares.


Valley of DeathThe period between a startup’s initial funding and the end of its runway. If you get through here, you should be OK.


value propositionA statement a company uses to express why customers should purchase their product or service, including the ways it adds more value than that of alternative offerings.


venture capital fundAn investment fund that puts money behind high-growth companies.


venture debtA type of debt financing provided to venture-backed companies from specialized banks or non-bank lenders.


vestingA concept applicable to both stock and options, which prevents the recipient from owning all stock or options outright and instead earn them over time. For stock, vesting typically refers to stock that’s earned over time and, therefore, not re-purchasable by the company. For options, vesting indicates the number of options that become exercisable.


vulture capitalistA VC whose operating method is to deliberately take advantage of an entrepreneur’s troubles.


waterfallThe order in which investors (and everyone else) get their money out on an exit. Almost always this is “last in, first out.”

Valuations 101: The Venture Capital Method

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors.

The Venture Capital Method (VC Method) was first described by Professor Bill Sahlman at Harvard Business School in 1987 in a case study and has been revised since. It is one of the useful methods for establishing the pre-money valuation of pre-revenue startup ventures. The concept is simply…since:

Return on Investment (ROI) = Terminal (or Harvest) Value ÷ Post-money Valuation

(in the case of one investment round, no subsequent investment and therefore no dilution)

Then: Post-money Valuation = Terminal Value ÷ Anticipated ROI

So, let’s address each of these:

Terminal Value is the anticipated selling price (or investor harvest value) for the company at some point down the road; let’s assume 5–8 years after investment. The selling price can be estimated by establishing a reasonable expectation for revenues in the year of the sale and, based on those revenues, estimating earnings in the year of the sale from industry-specific statistics. For example, a software company with revenues of $20 million in the harvest year might be expected to have after-tax earnings of 15%, or $3 million. Using available industry-specific Price/Earnings ratios, we can then determine the Terminal Value (a 15X P/E ratio for our software company would give us an estimated Terminal Value of $45 million). It is also known that software companies often sell for two times revenues, in this case, then, a Terminal Value of $40 million. OK…let’s split the difference. In this example, our Terminal Value is $42.5 million.

Anticipated ROI:

Assuming our software entrepreneurs needs $500,000 to achieve positive cash flow and will grow organically thereafter, here’s how we calculate the Pre-money Valuation of this transaction:

From above: Post-money Valuation = Terminal Value ÷ Anticipated ROI = $42.5 million ÷ 20X

Post-money Valuation = $ 2.125 million

Pre-money Valuation = Post-money Valuation – Investment = $2.125 – $0.5 million

Pre-money Valuation = $1.625 million

OK, but what if the investors anticipate the need for subsequent investment? I have seen some complex methods for accommodating anticipated dilution, but here is an easy way to adjust the pre-money valuation of the current round. Reduce the pre-money valuation (above) by the estimated level of dilution from later investors. If investors in this round anticipate eventually being diluted by half, the pre-money valuation for the current round would be about $800,000. If only 30% dilution is anticipated, reduce the pre-money valuation of this round by 30% to about $1.1 million.

Best practice for angels investing in pre-revenue ventures is to use multiple methods for establishing the pre-money valuation for these seed/startup companies. The Venture Capital Method is often used as one such method

 

Are You Rich?

Are You Rich? How Much of a Nest Egg Do You Need to Join the True Elite

ByTom Sullivan

Updated March 10, 2008 12:01 a.m. ET

THE TOOL-AND-DIE MAN FIGURED HE WAS RETIRING RICH. After selling an Arizona business that he’d built up over 30 years, he retreated to a 30-acre spread on the coast of Oregon and handed a $10 million investment portfolio to a big, New York-based private-banking outfit. The bank, however, seemed less than impressed. Over three years, he says, he received nary a phone call from the reps in the local office. "There was no ‘How are you doing?’ or ‘Maybe you should buy this’ or ‘How about some concert tickets in Portland?’ There was nothing at all." The retiree eventually reached an inescapable conclusion: "I was considered insignificant."

Yes, it takes more than $10 million to be seen as rich these days. It takes more like $25 million. Not only is that the minimum for the red-carpet treatment at a growing number of banks, it is also, in the view of many experts, the sum needed for a truly cushy retirement, one free of financial worry.

"With $25 million, you can fund college and grad school for the kids, take care of your own parents, travel, start a backyard vineyard and, well, "do whatever you want," says Maria Elena Lagomasino, of GenSpring, which helps some 600 wealthy families manage their money. After all, if you simply stashed the $25 million in municipal bonds, you’d have tax-free income of well over $1 million a year.

Exactly how much money you need to retire in a time of constantly increasing life expectancies has been a hot topic of late. The Internet is teeming with calculators to help answer the question, and some of them are quite useful. But if you want to know what you’ll need to really feel rich in your golden years — rather that what you’ll need to make ends meet mathematically — just take a good look around.

Thanks to a global explosion of wealth over the past 10 years or so, the number of U.S. households with $1 million to $25 million in net worth has more than doubled. Households with $500 million and up have roughly tripled. "Heck, $1 billion isn’t a lot of money," says Bill Sanderson, a broker of mega yachts in Palm Beach, Fla. Even if he’s a little jaded from all his dealings with zillionaires, Sanderson could be on to something: Billionaires now occupy every slot on the Forbes 400, and that list, some bankers and consultants say, may be overlooking at least 100 billionaires-next-door whose financial dealings are too private to track.

More and more rich people certainly believe they need at least $25 million. In a recent survey by Chicago-based Spectrem Group, 25% of affluent folks said it takes $25 million to be rich, and another 8% said $100 million. Those two groups combined weren’t all that much smaller than the 45% who cited $5 million.

While $1 million was once a sign that you had arrived, plenty of people with up to $10 million nowadays don’t think of themselves as rich. Many actually consider themselves "middle class," according to survey work by the authors of a new book, The Middle-Class Millionaire. That’s increasingly true as the $10 million crowd finds a new intruder in its gated communities: the weakening economy. The delinquency rate for "jumbo" home mortgages — a category that includes loans for basic McMansions — more than doubled last year, to 0.74%, according to Fitch Ratings.

True, only a tiny portion of all Americans meet our definition of rich: Just 0.20% of households have net worths of $25 million or more. But in absolute numbers, the group is considerable. If one representative from each of the 175,400 households filed into an NFL stadium at the same time, they wouldn’t all find seats. In fact, they would have to go in two shifts — and even then, some 15,000 would be left in the parking lots, tailgating in their Bentleys.

And so it is that Barron’s has devised a score card for folks heading toward retirement or already there. Are you rich yet? And if so, how rich? We divided true wealth into three categories. Perhaps you fall into one of them, or aspire to. It is our fondest hope that the advice in this magazine each week — and in the story "How to Avoid the Three Big Mistakes" — helps you get there swiftly, enjoyably and enduringly.

Beer & Pretzels

THIS IS ENTRY-LEVEL RICH, CONSISTING of people with net worths of $25 million to $50 million (counting primary residences). The number of households in this group increased by a factor of four from 1998 through 2006, to 125,000, according to research by Northern Trust, a leading private bank. It bases its estimates on an analysis of net-worth surveys by the Federal Reserve.

Many people move into this group on the strengths of private family businesses (a strong initial public offering doesn’t hurt). Executive-level compensation can also do the trick, along with smart investing.

Over the past 10 years, therefore, aspirants to the category have been helped by low interest rates, strong markets and rising corporate profits.

The sense of relief that comes with reaching this altitude can be extraordinary, as you leave behind a host of worries — like health-care expenses. Spiraling medical costs are a big fear even for those who can afford doctors who make penthouse calls. "It’s at the top of the list" of concerns among people with $10 million, says David Thompson of Phoenix Affluent Marketing Service, a consulting outfit.

At $25 million, you can not only breathe easier but can start buying some serious toys. With petty cash, you could buy a Bentley in the $200,000 range. "People at this level don’t finance," says Hugh Bate, president of Chariots of Palm Beach.

While buying a mega yacht (a vessel of at least 100 feet) could bust your budget, chartering one is entirely possible. Want to splurge? Why not head to sea for a week on the Maltese Falcon, the 289-foot, high-tech sailing machine of venture capitalist Tom Perkins. It’s available for $513,000 a week.

That swanky bank account is yours for the picking, too — JPMorgan, UBS, whatever. You’re at the level of wealth where most of the leading private banks will start showering you and your family with attention, including access to hot hedge funds and other exclusive investments.

If for any reason you don’t get the treatment you think you deserve, a host of smaller banks stand ready to help. The tool-and-die entrepreneur, who is now 66 and asked that his name not be used because he doesn’t like discussing his money publicly, wound up at Chicago’s Harris Private Bank, where he’s thoroughly content. He says he was won over when a Harris "wealth manager" arrived for their first meeting on a motorcycle, after traveling nearly five hours from the freeway to reach the retiree’s retreat.

Wine & Cheese

THE AIR GETS NOTICEABLY THINNER AT $50 million to $500 million in net worth — partly because you’re now flying in your own jet. "The first thing people do after arriving in this group is to resolve to never to fly commercial anymore," says Lagomasino of GenSpring. The fabled Gulfstream V, which can carry more than a dozen people and fly internationally, is yours for $20 million to $50 million, depending on your preferred level of luxe.

Are You Rich? How Much of a Nest Egg Do You Need to Join the True Elite

A penny-pinching hectomillionaire might opt instead to up his or her stake in a jet through a fractional-ownership outfit. A 50% stake in a jet through NetJets, for instance, offers 400 hours of flying a year and costs $3.3 million, plus $50,000 a month for management fees. By contrast, a minimum stake of one-sixteenth offers 50 hours of flying for $417,000, plus $7,000 for management fees.

While the range of wealth in the Wine & Cheese category — $50 million to 10 times that amount — may seem wide, the members tend to have similar goals. Philanthropy, for instance, often becomes a preoccupation, since all members of the group are likely to outlive their money by wide margins. Many launch their own family foundations to carry out customized giving. The number of family foundations stood at 34,000 at last count, up from about 28,000 in 2001.

The opportunities for home ownership become particularly intriguing for the Wine & Cheese crowd. While lesser millionaires may have a nice second home in, say, the Bahamas or Europe, people with $50 million and up might well have three or four homes. And thanks to the private jet, the homes can be in places that are difficult to reach on commercial airlines, like Sun Valley, Idaho.

Your primary residence won’t be too shabby, either. In New York City, if you have $50 million in the bank, you can probably afford a $15 million cooperative apartment, says prominent socialite Alice Mason of the Alice F. Mason Ltd. real-estate brokerage.

The rule of thumb, she says, is that you can buy a home that costs about a third of your net worth, assuming you don’t want too much of your fortune concentrated in your home. She believes the "true rich" of Manhattan have net worths of $100 million, allowing them to comfortably buy $30 million Park Avenue apartments with several bedrooms.

Champagne & Caviar

WITH A NET WORTH OF $500 million or more, "You can buy whatever you want" in Manhattan real estate, says Mason. Or you can buy anywhere else. Some members of this group buy $20 million homes "all over the world," says Gary Gold, realty broker to the rich at Hilton & Highland in Los Angeles. He’s been as surprised as anyone by the growing number of people who qualify for the Champagne & Caviar class. Five or 10 years ago, he says, "you’d know who they are. Now, they can have vast wealth and you don’t know who they are."

Leslie Mandel, chief executive of the Rich List, a marketing company, contends there are now more than 2,000 Americans with net worths of a $1 billion or more, far more than the 400 who appear on Forbes’ annual list (the cutoff for that is now $1.3 billion). Some bankers figure the number of billionaires is closer to 500, but either way, it’s up remarkably from the 170 of 10 years ago.

When you hit $500 million, you can at last buy a decent mega yacht. For about $50 million — and another $5 million a year in maintenance payments — you can have a 200-foot yacht with 21-foot launches, 15 crew members and five or six staterooms, says broker Sanderson.

Like realty broker Gold, he says potential customers are getting harder to pick out of the crowd. "At one boat show, a guy in cutoff shorts and a T-shirt was one of the wealthiest guys I ever met," he says. "You never know."

It goes without saying that you will travel to the mega yacht in your private jet. Surprisingly, however, your kids may be getting bored with the jet. In his 2007 book about the wealth explosion, Richistan, Wall Street Journal writer Robert Frank tells the story of an 11-year-old girl who asked her father for a ride on a commercial airline even though the family owned its own jet. "I want to ride on a big plane with other people," the girl said.

The fact is, people in the Champagne & Caviar set are so rich that their money can become a burden. Everyone from your gardener to your local opera house may know about your money and want a piece of it, suggests Lagomasino. "It’s kind of sad," she says. People at this level, she says, have to ask, "Do you like me or my money?"

Many Champagne & Caviar members ratchet up their philanthropy to world-saving proportions. They can scarcely get rid of their money fast enough. Bill Gates, with a net worth of $58 billion at last count, would have to spend about $10 million a day on non-appreciating items like McDonald’s Happy Meals just to hold the level of his wealth constant.

Are You Rich? How Much of a Nest Egg Do You Need to Join the True Elite

Even people at some lower levels of wealth turn philanthropy into a full-time pursuit. Take John Hunting of Grand Rapids, Mich. Now 76, he inherited $140 million when a company started by his father went public 10 years ago. He set up a new foundation for environmental causes and gave it $100 million of his fortune. A bachelor with no children, he plans to give most of the rest away, too.

"I live off my income and devote myself to philanthropy," he says.

THIS IS NOT TO SAY THAT AMERICA’S rich have stopped spoiling themselves. They absolutely haven’t. This May, for instance, all 750 seats at Christie’s are expected to be full as a Mark Rothko oil painting is auctioned for an expected $30 million-plus says Marc Porter, president of Christie’s Americas.

And for many members of all three groups of wealth, the term "credit crunch" means nothing. American Express offers the truly rich a Centurion card with such perks as zero-gravity flights with astronaut Buzz Aldrin. A person with $500 million in net worth could charge $10 million to the card for some gambling in Monaco. But even that card holder would first undergo a credit check. Yes, Virginia, there are deadbeat billionaires.

Vladimir Putin ‏ @PutinRF_Eng 3h3 hours ago More Greetings to participants and guests of Golden Eagle awards c eremony 24 replies 45 retweets 225 likes Reply 24 Retweet 45 Liked 225 Direct message

Vladimir Putin‏ @PutinRF_Eng 3h3 hours agoMore

Greetings to participants and guests of Golden Eagle awards ceremony

24 replies45 retweets225 likes
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24
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MYRAAH MATHS – WE ARE GROWING AT 40 % MONTH OVER MONTH IN REVENUE -given 40 % MONTHLY GROWTH RATE – OUR ANNUAL PROJECTED AND ESTIMATED /TARGETED GROWTH RATE = 5670 %

HERE IS THE MATHS:

LETS SAY REVENUE IN FIRST MONTH = $ X

NEXT MONTH REVENUE = $ 1.4 X

NEXT TO NEXT MONTH = 1.4 * 1.4 X

ADD ONE MORE MONTH AND THE REVENUE = 1.4 *1.4 * 1.4 X

AND THE 12TH MONTH REVENUE GIVEN A 40 % MONTHLY GROWTH RATE

= 1.4 RAISED TO THE POWER 12 TIMES ($ X)

= $ 1.4 ^12 X = $56.7 X

 

IN PERCENT TERMS – THE ANNUAL GROWTH RATE HENCE EQUAL TO ?

= 56.X / X = 56.7* 100 = 5670 %

 

 

WHAT WOULD BE THE VALUATION – GIVEN THAT ITS A SAAS COMPANY ? –

WELL, ITS A RANGE { FROM SAY 5 TIMES THE REVENUE TO THE HIGHEST – SO FAR – SEEN  – A MULTIPLE  – OF 23 TIMES THE REVENUE”

– LETS SAY WE COMPARE WITH WIX.COM

THEN – SAY IF THE REVENUE = $100 MILLION

THE TOTAL VALUE WOULD BE GREATER THAN OR EQUAL TO

$1,000 miLLION

= ONE BILLION DOLLARS

WIX.COM IS – STILL – NOT PROFITABLE – WE ARE – FROM DAY ONE .

BECAUSE ? WELL BECAUSE PROFITABILITY AND UNIT POSITIVE ECONOMICS IS EMBEDDED IN OUR BUSINESS MODEL

 

 

WHAT DOES IT MEAN?

WELL,

[A]

WIX.COM CHARGES AROUND $ 4 MONTH – OR MAYBE $8 PER MONTH DEPENDING ON THE SUBSCRIPTION PLAN : OUR PRICES ARE HIGHER – BECAUSE? WELL BECAUSE OUR QUALITY IS HIGHER – IE – BETTER – AND BECAUSE WE ARE A HYBRID – WHERE IN WE HAVE – BOTH THE PRODUCT AND THE SERVICE COMPONENT BUILT IN TO OUR OFERINGS

[B]

98 % OF THE WIX USERS ARE UNABLE – OR – UNWILLING – TO USE WIX. UNABLE BECAUSE THEIR CMS AND EDITOR ISN’T INTUITIVE OR SIMPLE – TO USE AND UNWILLING BECAUSE THE QUALITY OF THE WEBSITES CREATED BY WIX IS SHODDY..

[C]

SO, 98 % OF WIX USERS ARE – FREE AND/OR DORMANT SITES – WHICH DO NOT GENERATE ANY REVENUE – BUT WIX – STILL – HAS TO HOST AND SUPPORT THEM. This coupled with High acquisition costs { read advertising and other cost incurred by wix and the other DIY sites to attract users and convert users into paying customers is HIGH }

we are happy and proud to have achieved our first preliminary mile stones – on the folllowing fronts

[1]

WE HAVE A KICK ASS – AI ENGINE: OUR ARTIFICIAL INTELLIGENCE ENGINE IS A DESIGNER AND A DEVELOPER – A 2 – IN 1 – HYBRID ENGINE

 

[2]

WE HAVE ACHIEVED UNIT POSITIVE ECONOMICS FROM DAY 1 – A RARE FEAT FOR THE STARTUPS – ESPECIALLY IN SAAS SPACE – { unit positive economics in lay man tersm simply means – and implies : price minus cost should be greater than zero : as in the price we charge per web site per customer – minus the cost we have to incur in order to

[a] acquire customers – read advertising and other costs

and

[b] the cost to serve the customer – read hosting and support costs etc

}

[3]

WE HAVE ACHIEVED A GROWTH OF 40 % – MONTH BY MONTH AND WE ARE GROWING

YES… OF COURSE – WE JUST STARTED AND – ? WELL AND – ONCE WE HIT THE $70 MILLION REVENUE PER YEAR MARK – THIS HIGH LEVEL GROWTH – WILL TEST OUR NERVES – BUT THE INITIAL MOMENTUM IS VERY POSITIVE AND GOOD FOR US .

 

MY VINCI CODE

BTW – OUR MASCOT FOR OUR VINCI CODE – THE AI ENGINE AT MYRAAH IS A MYSTERIOUS CREATURE – RSEMBLED BY THE SYMBOL 0 AND ?

OLGA-AJAY: MISHRA ‏ @mishrainsead03 1m1 minute ago More @MichelleObama @ChelseaClinton @HillaryClinton and her e are ALL MALE presidents @BarackObama @BillClinton

OLGA-AJAY: MISHRA‏ @mishrainsead03 1m1 minute agoMore

@MichelleObama @ChelseaClinton @HillaryClinton and here are ALL MALE presidents @BarackObama @BillClinton

http//[youtube http://youtube.com/w/?v=NEOs27gqyM8]

1990s sanjay :) AND MY MEMSAHEB :)

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SAER ITME SAMA GAYE ISMIEN :)

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ambani and dream workd artcile in 2008 by Wharton Business school – http://knowledge.wharton.upenn.edu/article/the-reliance-spielberg-deal-anil-ambanis-next-blockbuster/

Numerology is in vogue in Bollywood these days. Actors are adding letters to their names. Movie titles, too, have fallen prey. The result: Heyy Babyy, A Love Issshtory and the latest superhit, Singh is Kinng. When you combine the values attached to individual letters, they add up to “lucky” numbers.

A different sort of number is being discussed in the corner office of Reliance Entertainment — the entertainment and media arm of the Anil Dhirubhai Ambani Group (ADAG) — though Anil Ambani and his lieutenants must be hoping it proves equally lucky. That is the $500 million the group is proposing to invest in a joint venture with Steven Spielberg, the man who made Jaws and Jurassic Park. The money will enable Spielberg to exit his current contract with Viacom’s Paramount Pictures. The new Dreamworks studio will invest $1.5 billion in film production and is expected to roll out 30 movies over four years.

Wharton faculty members and movie industry experts view the Spielberg-Reliance deal as compelling math on many fronts. Spielberg would have found few other investors with a penchant for the movie business willing to invest such a large amount, and Reliance offers a gateway to Indian audiences, they say. For Reliance, Spielberg represents the lowest-risk opportunity to secure its lofty $10 billion revenue target while tapping markets globally.

In the U.S., Spielberg is not commenting on the deal. In India, Reliance Entertainment is being equally circumspect. “No comments,” says Amit Khanna, chairman of Reliance Entertainment. “We may be in a position to say something in a couple of weeks.”

“Steven Spielberg is regarded as the world’s greatest storyteller and a brand in [himself],” says Nelson Gayton, an adjunct professor at Wharton and executive director of the Entertainment Media Management Institute at the UCLA Anderson School of Management. Adds Jehoshua (Josh) Eliashberg, professor of marketing at Wharton, “There are very few names in the movie business on which it seems worthwhile to take risks. Spielberg is one of them.” Spielberg delivers effectively in two key areas of the movie business, he notes: “selecting the right stories and telling them in a very appealing manner.”

Gayton says the deal makes eminent business sense for Spielberg and Reliance. “We are not talking about dumb money coming into the industry. Reliance has had a long history in the movie business, and they want to turn this into a $10 billion entertainment company. When you are trying to achieve that much growth, you have to think of how you are going to get there from a content perspective and what Steven Spielberg can give you to reach that kind of success.”

According to Eliashberg, “a good return on investment” in the movie business would be about 15%, and “Spielberg would be able to deliver that.” With the big bets Reliance is making in the movie business, it is taking “minimal risks” by partnering with Spielberg, he says. For a sample of 281 movies produced between 2001 and 2004, the return on investments at a studio ranged from -96.7% to more than 677%, Eliashberg noted in a June 2007 paper published in the journal Management Science which he co-authored with Wharton professors Sam K. Hui and Z. John Zhang.

Reliance is not the first Indian company to foray into Hollywood. Yash Raj Films, one of India’s leading studios, has collaborated with Walt Disney to produce a computer-animated feature film called Roadside Romeo, the story of an abandoned dog in Mumbai. It should be in the theaters in the next few weeks.

UTV Motion Pictures has already co-produced films like The Namesake with Hollywood studio Fox Searchlight and Japanese producer Entertainment Farm. UTV and Fox Searchlight also teamed up to produce I Think I Love My Wife. Another co-production — The Happening — happened earlier this year in a deal with 20th Century Fox. Now UTV is producing its first independent Hollywood film, The Ex-terminators (with technical help from Michaelson Films). UTV has also signed deals worth $37 million with Overbrook Entertainment and Sony Pictures Entertainment.

In the animation space, of course, there have been several tie-ups. Pritish Nandy Communications has signed a $25 million, five-movie contract with Motion Pixel Corporation. There have been many more such ventures where Indian companies are doing the back-end work.

What differentiates the Reliance deal from the others is, of course, size. Secondly, Spielberg is an international icon. India is moving from the fringes of Hollywood to center-stage. “India is getting more and more recognized and the acceptability of Indian houses globally is on the increase,” says Niteen Tulpule, associate director at KPMG, an international accounting and consultancy firm.

A Trophy Acquisition?

Two decades ago, Sony of Japan made history and generated a lot of adverse nationalistic sentiment when it purchased Columbia Pictures for $3.4 billion. That turned out to be a trophy acquisition, more for show than financial success. Does the Reliance deal run a similar risk?

It could. Spielberg is known to be extremely pricey. Recently, both Paramount and Universal Pictures refused to green-light a $130 million trilogy on cartoon hero Tintin. Paramount and Universal were working on a joint Tintin project, each with a 50% stake. According to the International Herald Tribune: “The pending deal with Reliance underscores some realities about Spielberg — mainly that he has become so expensive that few public companies can afford him. Spielberg’s standard deal, on par with other blue-chip talent, is 20% of a movie’s gross from the first ticket sold.”

“From Spielberg’s point of view, money obviously plays a big role,” says Tulpule of KPMG. “[But] Spielberg is the best brand around, so there is no question about the brand value. He also brings in industry best practices.”

KNOWLEDGE@WHARTON HIGH SCHOOL

Eliashberg says Spielberg “could very easily approach private equity and financial institutions.” But such funding is typically available on a project-by-project basis, while Spielberg’s need is financing for a whole slate of movies. “There are very few entities that can put up the kind of money [he] requires.” Also, private equity investors typically back studios that can then hire different directors for their movies, according to Eliashberg. “With Spielberg, Reliance is investing directly in a single director with a terrific track record, and very powerful brand equity.”

In the entertainment arena, Ambani seems well prepared to take risks. “We haven’t branded our E&M (entertainment and media) business ‘BIG’ for nothing,” Reliance Entertainment president Rajesh Sawhney recently told business daily Mint. “Once we connect all the dots, you will see [us] as a leading global player with interests across every single E&M domain.” The company is already worth a great deal. Early this year, international financier George Soros was negotiating for a 3% stake in the company; the valuation of the enterprise at that time was around $3.3 billion.

Eliashberg says Hollywood film studios have in recent years preferred bigger budget movies primarily because “they yield a better return on investment.” Movie makers have to try much harder to win audiences away from television and the Internet, he adds. “People stay home and entertain themselves; it’s easier to bring them to the theater with big budget movies.”

By partnering with a big name like Spielberg, Reliance is ensuring that it also gets access to the so-called “aftermarket” of TV and the Internet, says Gayton. “When you look at the U.S. market, the aftermarket is where all the value is; the theatrical market is not growing. If you are going to come here, why not come with that one brand like Steven Spielberg.”

Gayton notes that movie ticket prices are much too low in India, and that “the only way” to grow revenues is to go overseas. Also, while the Indian film industry produces more than a thousand movies a year and is growing 17%-20% annually, “it is still a fraction of Hollywood’s size.” According to Gayton, the Indian film industry’s revenue is about $2 billion including box office, overseas and ancillary markets, while Hollywood is an $11 billion industry, although its growth rate is just about 3%-5% a year.

“Getting into entertainment is a brilliant move from Reliance,” says Tulpule of KPMG. “This is a highly under-invested and under-corporatized segment in India and has huge potential. Distribution to global Indians is also becoming a big play. Reliance could also be looking at addressing not only the Indian diaspora but also the English-speaking audience.”

Gayton, too, argues that Reliance could use the Spielberg partnership to penetrate the Indian market both at home and overseas. “There are 25 million Indians outside India, and part of that is taken up by the aftermarket like the Internet and TV,” he says. “Also, when you put aside India and the U.S. market, you have the rest of the world. Spielberg has made movies that have delivered box office returns across the world in billions of dollars.”

Spielberg is not Ambani’s only Hollywood connection. At Cannes earlier this year, Reliance had announced that it had signed deals to make films with the production firms of Hollywood stars Nicolas Cage (Saturn Productions), Jim Carrey (JC 23 Entertainment), George Clooney (Smokehouse Productions), Tom Hanks (Playtone Productions) and Brad Pitt (Plan B Entertainment), and filmmaker Jay Roach (Everyman Pictures). The total investment: $1 billion.

Gayton says those deals make sense especially because “Bollywood talent is pretty much booked up” for many years into the future. “In many ways, if you are going to feed this growing industry, you have to look outside of India to Hollywood,” he says. He adds that he won’t be surprised if Reliance uses Spielberg to make “a new genre of crossover films.”

A Bigger Reach

All this is mostly on paper. In a more concrete development — at the retail end — Reliance has been buying up movie theatres in several countries. Group company Adlabs has acquired over 250 screens in the U.S. and 50 in Malaysia and Singapore combined. Adlabs, which was acquired by ADAG in 2005 and has interests in film processing, production, exhibition and digital cinema, is likely to be merged with BIG Pictures — another group company — soon.

The action on the ground today is in direct-to-home (DTH). Reliance entered the market in August under the banner of BIG TV. Competitors Dish TV (from the Zee group), Tata Sky and the south India-based Sun TV are already taking defensive action. Dish has cut rates to the bone; it has introduced a “Happy Home” package of 125 channels at Rs. 100 (about $2) a month. Tata Sky has bettered that price with Rs. 99. Sun has started services in North India.

According to Arun Kapoor, president of BIG TV, “India has close to 125 million television households. DTH penetration is around 9 million, which means that there is close to 116 million unique homes to capture. We have established a retail presence across 100,000 outlets across 6,500 towns. We have established a customer service mechanism to serve 5 million new customers every year.” Incidentally, Bharti Airtel is due to launch its services later this year and the other existing player is public sector warhorse Doordarshan.

There is similar action in many of the entertainment verticals of the group. Among them:

  • Big 92.7 FM launched a new brand identity and logo a few months back. It currently operates in 45 cities, reaching a population of 200 million. New programs and expansion are on the cards. In another venture, Big FM has announced a deal with Singapore-based radio operator MediaCorp Radio to launch a FM station — BIG Bollywood — in Singapore.
  • Zapak is India’s leading gaming portal. It has acquired more than 3 million registered users and has recently tied up with Intel and Lenovo for a college-level gaming championship. It has also moved into merchandising, with deals already inked with 20 movies. The latest is the controversial Hari Puttar — A Comedy of Terrors, which has cleared court challenges from the distributors of the Harry Potter movies.
  • BIGadda, a social networking site for youth, is already No 1 in India. (“Adda” means chat in several Indian languages.) It is moving into a “mobileadda” version for cellphones and is targeting 300 million users.
  • BIG Broadcasting, the television arm, plans to launch 20 channels soon. In June, it signed up with Asiasat 3S for a C-band transponder.

Apart from these inititatives, there are BIG Motion Pictures (the movie-making arm), BIG Flicks (India’s largest video-on-demand and DVD rental service), BIG Animation (the new avatar of AniRights Infomedia acquired by the group in 2007), Jump Games (mobile gaming) and BIG Music.

The menu is vast and there is more that defies classification. A sampler:

  • A 50:50 joint venture with London-based Great Wheel Corporation, the IPR holders of the London Eye. Reliance will develop and operate observation platforms in five cities in India. The total investment, excluding land, is estimated at $500 million.
  • Talks are rumored to be on to buy a stake in the Subhash Chandra-promoted Essel Group’s amusement park in Mumbai — Esselworld.
  • A deal has been signed with the Bachchan family for a joint venture to make movies starring the icons — Amitabh himself, wife Jaya, son Abhishek and daughter-in-law Aishwarya Rai. All are superstars in their own right, though Jaya has taken a backseat. The project will start with funding of $200-300 million.

“On the surface, it appears that Reliance’s strategy is based on leveraging the inevitable convergence that is occurring in the entertainment industry,” says Ravi Bapna, associate professor of information systems at the Carlson School of Management and executive director of CITNE at the Hyderabad-based Indian School of Business (ISB). “They have the opportunity to synergize across the different businesses and also leverage their group’s infrastructure strength.” Adds KPMG’s Tulpule: “The world over, people are looking at convergence in a big way. Reliance already has a telecom play and 3G is happening. So it seems to be going the global route [of convergence].”

Such an extensive web of operations has plusses and minuses. There are enormous synergies. Every new vertical can be subsidized by the others until it manages to stand on its own feet. When Sawhney finishes connecting the dots, he expects Reliance Entertainment to have become a $10 billion enterprise. The timeframe: five years.

On the other side is the inevitable fact that large organizations stifle creativity. And entertainment is an area where, if you are not creative, you perish. PricewaterhouseCoopers (PwC) highlights this idea in its ninth Global Entertainment & Media Outlook, released in July. E&M companies face a collaboration imperative, says the report.

Elaborating on this, Marcel Fenez, PwC managing partner, global E&M practice, says: “We are seeing a new business model for E&M companies. No single company will be able to successfully go it alone over the next five years. The challenges are too significant and the demand for innovation too complete.”

“The key barrier to growth is going to be access to superlative content on a continuing basis,” says Bapna of ISB. “They (Reliance) have to innovate and foster community and user-generated content.”

Perhaps Anil Ambani is even now planning alliances. One area in which he has a limited presence is print. The Ambanis did own a newspaper — the Observer of Business & Politics — in the days when the group was undivided. That is defunct. But adding print to the current lineup might conflict with crossholding regulations, which are being worked out now.

In the meantime, there is no dearth of growth opportunities. PwC expects a great deal of action in India. By 2012, the overall Asia-Pacific E&M market will reach $508 billion, at an 8.8% compounded annual growth rate (CAGR). India will be the fastest growing territory in Asia-Pacific with a projected CAGR of 18.5%.

Regulatory and Other Issues

Given the global financial crisis, it may not be so easy to get funds for this rapid growth, however. Listed Indian media companies have not done too well on the bourses. (Reliance Entertainment is unlisted, though group company Adlabs is.)

According to an analysis by Mint, while the Bombay Stock Exchange Sensitive Index (Sensex) dropped 33% between January 8 and September 22, a basket of 19 major listed E&M companies fell 55%. The top losers include Wire & Wireless India Ltd. (the Zee Group’s cable TV distribution company, which dropped 78%), Pyramid Saimira Theatre Ltd (which runs a national chain of theatres and has recently forayed into China, 77%) and Adlabs Films Ltd. (76%).

The other hurdle could be regulatory. Some recent moves have been positive. In mid-September, the government allowed international news magazines to publish local editions including local content. Until now, they were allowed only to print such editions (with no local content), though they were permitted to carry Indian advertising. There is currently a ceiling of 26% for foreign holding in publishing joint ventures. This is likely to be raised to 49% soon. Some tie-ups are already in place; Fortune has a deal with the Kolkata (formerly Calcutta)-based ABP Ltd., while Forbes is going with the Delhi-headquartered Network 18.

Other moves could turn out to be somewhat negative. In India, while there are barriers on foreign participation, media crossholdings have begun to attract the attention of the authorities only now. In September, the Telecom Regulatory Authority of India (TRAI) set the ball rolling with a discussion paper on the subject. “The objective of this paper is to provide for competition, diversity and plurality of players, news and views,” says TRAI chairman Nripendra Misra.

According to the paper the issues under consideration include the following:

  • Cross media ownership across different segments of media such as print, television, and radio (horizontal integration).
  • Crossholding restrictions to prevent consolidation including “vertical integration” within a media segment such as television or radio.
  • Market share in the city, state, or country within each media segment.
  • Cross control/ownership across telecom and media segments.

“The media has a very important role in any democratic country,” explains the paper. “All leading democratic countries in the world have media ownership restrictions. Most of these countries have recently, during the past two years, reviewed the media ownership rules. India has certain restrictions regarding ownership in FM radio, TV (DTH, IPTV, Mobile TV) and HITS (Headend in the sky). There is a need to take a holistic view and rationalize media ownership restrictions for the future growth of the broadcasting sector.”

Media empire builders like Ambani will likely need to stay tuned for future developments in the regulatory arena.

MEANING OF SHALOM

THE DEEPER MEANING OF SHALOM

Monday, January 5, 2004
by Rabbi David Zaslow

January, 2004
Contrary to popular opinion the Hebrew word shalom does not mean “peace,” at least not in the English sense of the word. It comes from a Hebrew root-word that means “wholeness.” And what is wholeness? In the Hebraic way of thinking, wholeness is the joining together of opposites. That’s why we say “shalom” when we greet friends and when we are wish them farewell. In the most opposite of situations (coming and going) we use the same word, “shalom.” There is a hidden connection to all our comings and goings; they are wondrously linked together. When I come from somewhere, I am going to someplace else. When I realize this, I feel “wholeness,” and that is the source of peace – the knowledge that all my opposing energies are somehow linked and part of a single whole. True peace must have wholeness as its foundation.

If I am a political left-winger I am only flying with one wing. If I am a political right-winger I am only flying with one wing; yet it takes two wings for an eagle to fly. It takes the integration of two opposing positions for there to be real “shalom.” The word dialogue comes from the Greek “dia + logos” meaning “across words,” or “across reason,” or “speech that goes back and forth.” It’s easy to have a left wing or a right wing “peace rally” with people who already agree with us. But this is not the wholeness that is implied in the word “shalom.”

In the Hebraic view, shalom brings the binary mind together, integrating the left brain modality of thinking (linear) and the right brain modality (intuitive). When I say hello to someone I say “shalom.” When I say goodbye to someone I say “shalom.” What is more opposite than coming and going? Hello and goodbye? Shalom is the most radical union of opposites imaginable. Shalom brings together people who disagree with each other so that each will listen deeply to the “other” side. It is the people you do not agree with who have the greatest gift for you – the gift of the potential for wholeness.

The peace movement I belong to is not liberal or conservative, it is both liberal and conservative. It is not left wing or right wing, it flies with two wings. It is not religious vs. secular, rather it integrates the genius of both science and spirituality. The peace movement I belong to refuses to create an “other” out of the people with whom I may disagree on a particular issue. To the contrary, the peace movement I belong to is one of dialogue: tough dialogue, heart-wrenching dialogue, gentle dialogue, but always dialogue – speech that goes back and forth – with each side constantly challenging, refining, and purifying the “other” until we recognize that the “other” is none “other” than a reflection of our own selves.

Reb Shlomo Carlebach z”l taught about Psalm 122 when he said, “A prayer for peace: Because of my brothers and sisters – not just me, but for the whole world, let there be peace! Do you know why there is no peace in the world? Because the world is into force. First they force war on each other, now they want to force peace upon each other. But it doesn’t work. Peace by force isn’t peace. Peace is the most non-force in the world.”

May God’s blessings flow upon everyone who is part of this unnamed and unnameable movement, wave, energy, and heavenly blessing that comes from God, the true Source of Shalom. In Jewish liturgy we celebrate God as the “Former of light and Creator of darkness, Maker of peace, and Creator of the whole.” Created in that image, may this wholeness manifest in our lives and within the world. Amayn!

HOTMAN , WHAR ALL THISE? CAN U ASK OLGA – TEL ME AHWARS AL THEISE REGARDS KAYLA FROM ISRAEL

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RING RING CALL FROM ISRAEL – YEAH HELLO ME HOTMAN HERE – WHOS THIS

YEAH HOTMAN THIS IS ME – KAYLA FROM ISAREL

HELLO MY BEATS FERAIENDS KAYLA, WHARS GOIN ON

HOTMAN – WHAT WOULD BE THECAPITAL OF THE NE TO BE FROMED COUNTY NESHER ?

AND WHAN WILL IT BNE INDEPENDEANT OF THE COUNTRY OF SIARELI

?

TELL ME ALL THIEESE

YEAH THATR IS A GREAT QUESTIONESE IN SMALL MOMNETS KIA FEIKIAO AND JOHNNY SPECIAL FORCES WILL MEET ME AND WE WILL HAVE DISCISSONES ON THEIASE SUBAJCTS AND I WILLCALL U

REGARDS

HOTMAN

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5 LEVELS OF RICH IN THE USA – J K

The Five Levels of “The Rich” in the United States

But what about “the rich”. Where do the dividing lines for the rich fall? I’ve been researching the economic classifications for some time and it seems that many economists, whether they realize it or not, seem to classify the rich according to an interesting hierarchy:

  1. The Millionaires Next Door
  2. The Capitalist Class
  3. The Glittering Rich
  4. The Ruling 15,000 Families of the United States
  5. The Forbes 400 List

1. The Millionaires Next Door

Most American millionaires are so-called "Millionaires Next Door". They are school teachers, accountants, lawyers, stock brokers, bankers, business owners, and real estate brokers who lived below their means and put the difference into savings and investments.

Most American millionaires are so-called “Millionaires Next Door”. They are school teachers, accountants, lawyers, stock brokers, bankers, business owners, and real estate brokers who lived below their means and put the difference into savings and investments. Image © “iStockphoto Collection/Thinkstock”

The millionaires next door are the vast majority of millionaires in the United States. They are teachers, lawyers, plumbers, real estate brokers, small town bankers, and car dealers who spend their life spending less than they earn and putting the difference aside into savings and investments.

For many of these frugal millionaire households, most of their wealth is in the form of home equity and retirement accounts. If you include home equity (I don’t but I understand why some people argue for it here), 7% of American households are millionaires, meaning 1 out of every 14.3 households. The figure is higher if you exclude home equity; roughly 1 out of 25 households. I think the latter is the more appropriate metric. Nevertheless, a vast majority of these millionaires are millionaires next door. You’d never know from their outward appearance that their assets minus liabilities resulted in a figure in the seven figures.

The millionaires next door are the Americans that have no mortgage debt, have no credit card debt, and generally have little or no financial stress.

2. The Capitalist Class

To rank in the “capitalist class“, which is the top 0.9% of household income, you need to earn at least $350,000 to $500,000 from dividends, interest, rents, profits, and other passive sources. These are the folks showing up to their office and seeing cash from their hotels or jewelry stores, municipal bonds or blue chip stocks rolling into their bank accounts like clockwork. Most have high educational achievement in the form of advanced degrees. Many may still behave like millionaires next door.

Capitalist class members have built economic machines that don’t require their labor to generate profits. A doctor earning six-figures is not a member of the capitalist class because the cash stops if he fails to go to work. For all intents and purposes, you can do almost anything you want once you reach the capitalist class if you are smart about your expenditures. You could spend half of the year in the south of France, give generously to charity, drive a Mercedes, and wear a $25,000 watch if you desired (most people don’t). No matter what you spend, as long as you don’t dip into principal and act as a wise steward of your fortune, money keeps pouring into your accounts year after year.

Holiday Inn Express at Night

The capitalist class member may own a single, nice hotel in a regular town and collect $50,000 per month in income from their property. They probably dress well and have a nice car, but you wouldn’t be able to pick them out from most of their neighbors. Most keep a low profile and no one ever knows they have money.

3. The “Glittering Rich” as Dr. Thomas J. Stanley Calls Them

The next classification for the rich comes from Dr. Thomas J. Stanley, the academic and bestselling author who has spent his life studying the behaviors of the rich. He calls them the “glittering rich”.

As he puts it in his great book, Stop Acting Rich:

[The glittering rich] generate extremely high incomes, have vast sums of wealth at their disposal, and spend accordingly on high-prestige cars, mansions, dinner every night at $300-plus per person restaurants, couture attire, and the like. No matter what they spend their money on, though, it’s just a fraction of their overall net worth. in other words, even the glittering rich spend below their means. They are a very small minority, about 2 percent of U.S. millionaire households; no more than 80,000 in total. As of the first quarter of 2007, in order to qualify as glittering rich, one needed to generate an annual realized household income of over $2 million, have a net worth in excess of $20 million, and live in a home valued at over $2 million (at least $3 million in California).

What is interesting is that even though the glittering rich are spending money in huge sums – $200,000 cars, $6,000 bespoke suits, $35,000 bookcases from high-end furniture companies – they are spending far less than they earn and often see their net worth grow each year. By the very definition of the word, the glittering rich are frugal relative to their income and assets.

Once you rank among the glittering rich, there are virtually no barriers to anything you want to do if you are intelligent enough. You would have the connections to raise money, fund new companies, attend dinners at the White House, and have your kids raised in a boarding school in Switzerland where they learn to speak three languages (not that you’d want to do that, but you could).

Glittering Rich

According to Dr. Thomas J. Stanley, the glittering rich consist of 80,000 households in the United States. They have annual realized household income of over $2 million, have a net worth in excess of $20 million, and live in a home valued at over $2 million (at least $3 million in California). The glittering rich still spend less than they earn and often see their net worth and income climb each year as more money works for them. Most are self-made.

4. The 15,000 Families that Rule the United States

Then we get to the really interesting part. There are approximately 15,000 families that, in effect, rule the United States. They have been described as “the richest of the rich”. They represent the top 0.01% of wealth in the population and have an annual income of $9.5 million or more. As a group, these families received 5% of the entire income of the nation. At a reasonable capitalization rate of ten percent, this would require assets of roughly $100 million.

The most encouraging part of the story is that 80% to 90% of these ruling families are self-made, meaning they created their fortune themselves and didn’t inherit it. That is why I constantly harp on the fact that the United States is the greatest meritocracy the world has ever known despite our flaws.

You probably don’t know the names of more than a handful of the ruling families of America. They are the people who control newspapers, banks, consumer product companies, theme parks, and real estate empires.

The members of the ruling class of families would have the ability to buy toys like this and travel the world with their personal staff as they monitored their investments on a Bloomberg terminal tied to their investment banks in Tokyo, Hong Kong, London, and New York.

Mega Luxury Yacht

The United States is ruled, in many ways, by a group of 15,000 families with minimum net worths of $100 million and household incomes of $9.5 million per year. Most of these fortunes are self-made. Image from Wikimedia Commons.

5. The Apex of Wealth Is the Forbes 400 List

[mainbodyad]Then, you reach the apex of wealth, which is the Forbes 400 list. There is the smaller list of American billionaires and the larger, more competitive list of global billionaires. For all intents and purposes, there is no standard of living increase for someone on the Forbes list that isn’t available to the 15,000 ruling families in the category below the Forbes list. They are all traveling on private jets, have multiple houses, the best accountants and attorneys, etc. The Forbes list is purely pride.

In other words, there is very, very little you couldn’t do as a member of the 15,000 families that you could do as a member of the Forbes 400. In some ways, it becomes a detriment to rank on the list because suddenly you lose your anonymity.

This is the land of the Warren Buffetts, the Bill Gates, and the Carlos Slims.