Show me the money

Web 2.0 Expo

April 18th, 2007

Jeremy Liew
Partner, Lightspeed Venture Partners
www.Lightspeedvp.com
Lsvp.wordpress.com
Its cheaper than ever to start an internet company…
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

COST TO BUILD WEBSITE

$ ‘000s

200

70 60
48
20

Wesabe Maya's Mom Mobissimo DropSend Freshbooks

Source: Carsonified.com/SXSW Presentation 2
… and cheaper than ever to run an internet company
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

SAMPLE EXPENSE BUDGET

Annual Fixed Costs Assumptions

Staff Costs $1.0m 8 employees
$120k fully loaded
Infrastructure Costs $0.2m $15k/month
Other Costs $0.2m Rent, Legal, etc
TOTAL $1.4m

3
As a result, getting to breakeven isn’t too hard…
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Media E-Commerce
$ '000s % $ '000s %

Revenue 2,800 100% 7,000 100%

Cost of Goods 1,400 50%* 4,900 70%

Marketing - 0% 700 10%

Staff Costs
Infrastructure 1,000 36% 1,000 14%

Costs 200 7% 200 3%

Other Costs 200 7% 200 3%

EBITDA - 0% - 0%

* Assumes ad sales by an ad network or ad rep firm 4

 …but you still need to be big to be public
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

PUBLIC COMPANY ’07 REV MULTIPLES REVENUE NEEDED FOR $500M EV*
MEDIA 12.2x $333M

3.8x $131M
1.5x $41M

Low Median High High Median Low

E-COMMERCE 5.7x $833M

1.8x $277M
0.6x $87M

Low Median High High Median Low

* Assumed minimum public company scale to sustain meaningful trading volume and analyst coverage
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Source: Goldman Sachs Research, March 25, 2007, Lightspeed Analysis
Significant variation in revenue targeted for internet
companies to breakeven versus to be public
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BREAKEVEN PUBLIC, $500M EV*

MEDIA $2.8M $131M

E-COMMERCE $7.0M $277M

* Based on median multiples 6

Media Companies
 Advertising RPMs* depend on your ability to deliver a
targeted audience
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Advertisng RPMs 2007 March Annual

Example Revenue US PVs US PVs RPM

Broad Reach $0.50 - 2 Myspace $271M 44B 524B $0.52

Demographic $1-5 Facebook $150M** 12B 126B $1.03

Endemic
Advertising $10-40 Fandango $25M** 50M 600M $41.67

Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis
* RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen
** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from
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advertising and half from ticketing”
To reach breakeven, US traffic requirements can
become quite meaningful, depending on RPMs
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

PV/Mth to reach Sites with comparable

RPM $2.8M in revenue US Traffic
•eHarmony 239M
•Real 237M
Broad $1 233M
•Whitepages 230M
•Tagged 229M

•NFL.com 49M

demographically
Not necessarily
•Nextag 48M
Demo $5 47M

targeted
•Wash’ton Post 47M
•Heavy 45M

•Technorati 12M

Not necessarily
•WinAmp

endemically
12M
Endemic $20 12M

targeted
•UFC.com 12M
•Digg 11M
Source: Comscore, Lightspeed Analysis 9
US traffic requirements are even higher to reach public
company levels
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

PV/Mth to reach Sites with comparable

RPM $131M in revenue US Traffic
•MSN 13,672M
10,917 •Google 12,476M
Broad $1 M •Facebook 12,179M
•AOL 10,609M

•Live.com 2,819M

demographically
Not necessarily
•Youtube 2,539M
Demo $5 2183M

targeted
•Go.com 1,559M
•Pogo 1,544M

•MSNBC 592M

Not necessarily
•Expedia

endemically
522M
Endemic $20

targeted
546M
•Paypal 495M
•Weather.com 488M
Source: Comscore, Lightspeed Analysis 10
E-Commerce Companies
Many e-commerce niches are large enough to support
$7M in revenue, our illustrative breakeven level
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Allheart.com – nursing apparel Hats.com – hats

Figleaves.com – lingerie Ridegear.com – motorcycle gear

Source: Internet Retailer Top 500 Guide, 2006 Edition 12

There are three ways to get to over $271M in e-
commerce revenues, public company type levels
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 One online store with >$271M in revenue

 5-10 online stores, each with $25-50M in revenue
 100+ online stores, each with up to $3M in average revenue

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Relatively few pure play e-commerce companies have
achieved over $271M in annual sales so far
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Amazon.com
Company 2005 Revenue
Amazon $8,490M
Newegg $1,300M
Overstock $804M
Netflix $688M
Drugstore $399M Newegg.com
Buy.com $345M

Bluenile Below $271M in

Peapod 2005 but
projected over
VistaPrint $271M in 2007 14
Source: Internet Retailer Top 500 Guide, 2006 Edition, Goldman Sachs
In 2005, there were at least 227 companies with e-commerce
revenues over $25M, but none with multiple websites in this
range
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Company Products 2005 Revenue

Bodybuilding.com Supplements $46M
Computer Geeks PC hardware $45M
Parts Train Auto parts $45M
Shoemall Shoes $44M
Cooking.com Kitchen goods $40M
Decorative Product Plumbing and $39M
Source Lighting $38M
Blinds.com Blinds $34M
Shopbop Women’s clothing $32M
Gloss.com
Source: Internet Retailer Top 500 Guide, 2006 Edition Beauty Products 15
 A number of companies have taken a portfolio
approach, building large numbers of stores
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Company Sample Websites (not exhaustive)

CSN Stores adirondack-furniture-direct.com, allairbeds.com,
bedrooms.com, csnbunkbeds.com, everysafe.com
Home Décor homeclick.com, absolutehome.com,
Products barbeques.com, knobsandthings.com,
poolclick.com
Mercantila Pilates-exercise-direct.com,
Rowingmachines.com, sofabed-store.com, tennis-
ball-machine-guide.com
Netshops Aquariumsdirect.com, croquet.com,
daybeds.com, hammocks.com, justglobes.com,
potracksgalore.com
Niche Retail bicycletrailers.com, highchairs.com,
sparebed.com, suuntowatches.com,
tricyclekids.com
Source: Internet Retailer Top 500 Guide, 2006 Edition, Company websites 16
Conclusion
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

 Easier than ever to start a consumer internet company

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

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