Red Flag Must Sell 71,000 Licences per Month For Its €20M Valuation

Swedish startup Red Flag sells accounting software to SMEs for €48 (SEK 498) per licence per month.

Red Flag just raised €1.6 million (SEK 17 million) from Andreas Ehn and others.

Valuation

Di Digital reports that Red Flag raised its €1.6 million at a €20 million (SEK 211 million) valuation.

Exit

Assume, based on comparable deals, that Andreas Ehn wants to make 10x on his investment.

Exit value = valuation * money multiple.

Then Red Flag’s €20 million valuation requires a €20 million * 10 = €202 million exit value.

To simplify, this ignores dilution. To make 10x with 50% dilution, the €20 million valuation actually requires a €20 million * 10 / (1 – 50%) = €403 million exit value.

Revenue

Assume, based on comparable companies, that Red Flag trades at 5x revenue per year at exit.

Revenue per year at exit = exit value / revenue multiple at exit.

Then Red Flag’s €202 million exit value requires €202 million / 5 = €40 million revenue per year at exit.

Licences

Red Flag charges €48 per licence per month.

Licences sold per month at exit = revenue per year at exit / 12 / price per licence per month at exit.

Then Red Flag’s €40 million revenue per year at exit requires them to sell €40 million / 12 / 48 = 71,000 licences per month at exit.

Obviously, Red Flag doesn’t need to sell to 71,000 new customers per month at exit.

They do need to sell 71,000 licences per month at exit.

Both to the very large percentage of customers per month that stays – the ones that make up the recurring part of the revenue. And to the much smaller percentage of customers per month that are new.

For context: Sweden has approximately 700,000 SMEs.

Last paragraph edited for clarity on February 19, 2019.

DeepCrawl’s €14M Valuation Requires 19K Seats Sold per Month at Exit

UK startup DeepCrawl sells a web crawler to SEO marketers for an average of €123 ($139) per month.

DeepCrawl just raised €2.7 million (£2.4 million) from Beringea.

Valuation

Assume, based on comparable deals, that DeepCrawl sold a 20% equity stake in their company to Beringea.

Valuation = investment / equity stake sold.

Then DeepCrawl is priced at €2.7 million / 20% = €14 million post-money.

Exit

Assume, based on comparable deals, that Beringea wants to make 10x on their investment.

Exit value = valuation * money multiple.

Then DeepCrawl’s €14 million valuation requires a €14 million * 10 = €137 million exit value.

To simplify, this ignores dilution. To make 10x with 50% dilution, the €14 million valuation actually requires a €14 million * 10 / (1 – 50%) = €274 million exit value.

Revenue

Assume, based on comparable companies, that DeepCrawl trades at 5x revenue per year at exit.

Revenue per year at exit = exit value / revenue multiple at exit.

Then DeepCrawl’s €137 million exit value requires €137 million / 5 = €27 million revenue per year at exit.

Seats

DeepCrawl charges an average of €123 per month.

Seats sold per month at exit = revenue per year at exit / 12 / price per month at exit.

Then DeepCrawl’s €27 million revenue per year at exit requires them to sell €27 million / 12 / 123 = 19,000 seats per month at exit.

For context: The Netherlands currently has 1.8M businesses.

Oaky’s €10M Valuation Requires Them to Contract 1.7M Hotel Rooms

Dutch startup Oaky sells upselling software to hotel operators for an average €1.50 per room per month.

Oaky just raised €2 million from angel investors.

Valuation

Assume, based on comparable deals, that Oaky sold a 20% equity stake in their company to the angel investors.

Price startup = price deal / equity stake sold.

Then Oaky is priced at €2 million / 20% = €10 million post-money.

Exit

Assume, based on comparable deals, that the angel investors want to have a shot at making 15x on their investment.

Exit value = price startup * money multiple.

Then Oaky’s €10 million price requires a €10 million * 15 = €150 million exit value.

Revenue

Assume, based on comparable European enterprise software companies, that Oaky trades at 5x revenue at exit.

Annual revenue at exit = exit value / revenue multiple at exit.

Then Oaky’s €150 million exit value requires €150 million / 5 = €30 million in annual revenue at exit.

Rooms

Oaky charges an average of €1.50 per room per month.

Rooms per month at exit = annual revenue at exit / 12 / price per room per month.

Then Oaky’s €30 million annual revenue at exit requires them to contract €30 million / 12 / 1.50 = 1.7 million rooms per month at exit.

For context: Amsterdam currently has 35.000 hotel rooms.