1.  Cullen Plissken has started a cloud software company called Second Chances.His software re-targets products; products that were left in carts but not purchased are shown again to the buyer.This software is on many platforms: e-mail, mobile, web.The software is centered on search ads.

Cullen is off to a good start.He has been running lean and frugal; he raised $1MM in his seed round. About 10% went into tangible assets (computers, etc), but the rest has gone into overhead and growing the business.

The company is growing rapidly. They opened for business in 2012 after their raise and the following is their revenue (US$, millions) by year.

20110.05

20120.5

20133.0

20148

In 2015, the company had a record growth of 75% in revenue and hey have reached break even for the first time; they expect to have a net profit margin of 10% in 2016.In 2016, they expect to have a 100% growth rate over the previous year and for business to continue to double for the foreseeable future.They currently have over 5,000 customers.

They have an exceptional team of 14 people and the company is quartered in San Francisco.Top software talent is in high demand in the Valley; it's estimated that the cost of finding and hiring a good engineer approaches $50,000 per person.

Cullen is a realist.He is trying to determine what direction to take the company in.He enjoys what he's doing and every day is an adventure.However, his company is understaffed and he finds that 80% of his time is spent selling rather than working on strategy and future direction.

MegaloMarketing Corporation has recently approached him about acquiring his business.He has no reason to sell; they are at cash self sufficiency and they are growing.However, the days of being too small to notice are coming to an end.Cullen knows that he's heading for the icebergs: Facebook and Google continue to improve and ramp up their re-targeting products.He's also undermanned; he will need to add 50 people in the next 2 years to keep up.

Due to holding on to his equity, he and his employees will be taken care of.In terms of acquisitions, 2ndFrog (a direct competitor) was recently acquired for $29MM.2ndFrog had more revenue ($9.6MM) and a strong european presence, but they also had to raise $4.5MM to get there.

Software as a Service (SaaS) businesses typically had a 1.5-3X multiplier.However, even Salesforce.com, the $55B elephant in the room, was losing money.He wasn't quite sure if there would be a market backlash against SaaS companies.However, challenges and change don't scare him; they started out as a rich media ad company before pivoting into re-targeting.

His assistant comes into his office and tells him MegaloMarketing is on the phone...

3. Questions

1. Use 3 different techniques to come up with 3 valuations of SecondChances.What would you bid? (69%)

1. If you were Cullen, would you sell?Why? (16%)

Answer rating: 100% (QA)

Sure here are some possible approaches to valuing Second Chances 1 Comparative Analysis Look at similar companies in the market and their valuation me... View the full answer