Is CodeSandbox Overvalued at $10 Million?

Last week, Dutch startup CodeSandbox raised $2.4 million with US investor Kleiner Perkins, Dutch investor Arches Capital and others.

CodeSandbox makes an online code editor for software developers. There is a free and paid version. With the paid version the customer decides what he wants to pay. The minimum price is $5 per month.

Valuation

Assume that CodeSandbox sold a market standard 25 percent equity stake to its investors. Then they are valued at $2.4 million / 25 percent = $9.6 million post-money.

How many paying software developers does CodeSandbox need each month to live up to this $9.6 million valuation?

Exit

This is a seed round. Assume that the investors want to make 10x on their winners. And that they must make 2x to compensate for dilution.

Then they require a market standard 10 * 2 = 20x on each startup.

And then CodeSandbox needs a $9.6 million * 20 = $192 million exit value for its $9.6 million valuation.

Revenue

Assume that CodeSandbox trades at a market standard 5x trailing twelve month revenue at the time of the investor’s exit. And that there is no cash and debt.

Then they need an average annual revenue of $192 million / 12 = $38 million at exit for their $9.6 million valuation. Or an average monthly revenue of $38 million / 12 = $3.2 million.

Paying software developers

Assume that every software developer pays the minimum $5 per month.

Then CodeSandbox needs $3.2 million / $5 = 640,000 paying software developers each month for its $9.6 million valuation. Obviously, a significant percentage is recurring.

Overvalued?

If 640,000 is hard to achieve then CodeSandbox is overvalued. Easily achieved? Undervalued. Achievable? Fairly valued.

Unfortunately, I have no clear reasoning yet which number of paying software developers is achievable. And therefore, if CodeSandbox is over-, under- or fairly valued.

Who can help me out? Mail your reaction to joachim@venturevalue.com. I would very much like to use the best reaction in my next post. You will be my co-author.

DIY

This contribution contains assumptions. Don’t agree? Make a copy of the spreadsheet used for this post (File > Make a Copy…), put in your assumptions and draw your own conclusions.

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