It’s been a little over three weeks since we announced our plans to sell DropSend. A phenomenal amount has happened in that time and we’ve already learned so many lessons about the ins and outs of selling a web application.
The world of mergers and acquisitions is a mysterious and often necessarily secretive one, but in blogging about the process - which was as new to us as to many of our readers - at Bare Naked App, we’ve tried to keep the whole thing as transparent as possible.
The main question that everyone wants answered, of course, is how do you arrive at the valuation? Since the days of the dotcom boom and bust, these sometimes sky-high figures always send a ripple of debate across the industry. Lessons have been learned since then, but does that make it any more coherent this time round?!
Crunching the numbers
So how do you put a value on a web app? A quick search will reveal a multitude of different ways to reach that figure (eg. the Asset Approach, the Market Approach, the Income Approach, and so on). Put simply however, it’s all about how much someone is willing to pay for your app vs. how much you’re willing to sell for.
Potentially interested parties will be looking at all sorts of things, such as profit potential, scope for development (and integration), running costs, marketing potential, competition, product lifetime, leverage, and much more.
Let’s take a look at some high profile price tags from recent years (important - some of these are rumored values):
- MySpace.com (sold to NewsCorp) $580 million
- Weblogs.com (sold to Verisign) $2.3 million
- Skype (sold to eBay) $2.6 billion
- Upcoming.org (sold to Yahoo!) $1 million (rumored)
- del.icio.us (sold to Yahoo!) around $30 million (rumored)
- MeasureMap (sold to Google) under $5 million
- Writely (sold to Google) around $10 million (rumored)
- Rojo (sold to SixApart) $10 million
- YouTube (sold to Google) $1.65 billion
Guess the Valuation
Who will be next? Well, that’s a question we can’t answer, but in the run up to The Future of Web Apps London 07 we thought it’d be a fun experiment to invite you, dear Vitamin readers, to play a little game with us, called Guess the Value.
The companies we select are not (to our knowledge) up for sale, or even discussing it; we have simply selected them as prominent examples of today’s successful web apps. It’s not a serious project, but hopefully we’ll get to discuss some of the issues around determining the value of our web apps.
How much is Basecamp worth?
First up, we want you to post your valuations of one of the most popular web apps among the web community, Basecamp, from 37signals.
Here are some figures which we’ve found about the company which you can use to base your valuation:
- What is it: A simple way to manage all of your projects online
- Launched: Feb 2004
- Number of users: Over 1 million (Note: not all of these users are active)
- Account types: Free, Personal ($12p/m), Basic ($24p/m), Plus ($49p/m), Premium ($99p/m), Max ($149p/m)
- Interesting fact: Basecamp was bringing in enough revenue one year after launch to allow them to quit doing client work. They had four employees at that point.
- Conversion of total accounts to paid accounts: Here’s a quote from an IM conversation with Jason Fried, owner of 37signals: “Our Basecamp conversion rate is higher than DropSend which was 0.87%, right? I won’t tell you how much higher. Could be just 0.01 higher, but it is higher.”
Share your opinion
So the real fun of this article is going to be in the comments below. Some things to include in your guess:
- How much is it worth? Why?
- Who would buy it? Why?
- Is the app viable by itself, or does the team need to go with it?
We look forward to hearing your opinion. After this article, we’ll pick another popular web app and play another round of Guess the Value!
Like this article? Digg it!
Quick thanks to Jason Fried from 37signals for the “Guess the Value” series idea. Choosing Basecamp was our idea though, not his :)
Interesting idea, but I think most of the visitors here would give you better answers to CSS questions than business valuation ones! :o)
Your opinion counts as much as the next! :)
1.) $500 million U.S. dollars sounds good off the cuff. It’s a proven product with a strong user base. It’s a great brand and has a solid reputation in the marketplace. It also induces addiction-like behavior. The more you use it, the more you need it.
2.) I could see Adobe having interest in Basecamp and using it to bridge the gap to their desktop software (Save to Basecamp). Or perhaps a hosting company like Media Temple rolls it into a business hosting package.
3.) It’s probably viable by itself. They’ve been consistently fine tuning it all along. It appears to be well-sorted, meticulously maintained and now ready for its next owner.
The most accurate way to value a web service is using a multiple of its earnings. Obviously this doesn’t apply to companies in the “social networking” field who have little earnings. They have millions of eyeballs, which are in themselves valuable. This isn’t the case with Basecamp.
From my experience running a subscription based web app, when you have a free version,
What a great idea, use the market of like-minded readers to guess the value. If there is interesting analysis done, (I’ll be crunching some numbers and sharing on our blog), then a reasonable valuation will start to emerge. The key to this will be determining metrics to capture the goodwill value of a brand like Basecamp. This should be a fun exercise with interesting results.
@Craig: Sorry, $500 million sounds way high. Here is why:
If they had 100,000 users signed up to the Basic Plan ($24/month = $288 a year, 100,000 users = %10 of their user base - an absurd conversion rate) they would be brining in $28,800,000 a year before expenses. It would take 17.36 years to make the sale price back, and you would have to maintain that user base the entire time. Granted, you could theoretically grow, but I mean, it’s a very high evaluation.
I seem to remember making a calculation around the time friendsreunited.co.uk was sold. I looked at the sale price divided by the number of users (at the time of sale). I did it for a few other sites that had been sold at the time and I think it came out (on average) at £25 per user.
That would value Basecamp at £25,000,000. I haven’t calculate the average per user for the sites you’ve listed so that amount would probably change.
Oh also, they have 1 million users, not accounts. A user doesn’t necessarily pay for his account. So they might only have 750,000 accounts, each account averaging 1.33 (or something) users (another high assumption). If they only have 750,000 accounts, then to have 100,000 of those signed up for the $24 plan would be nuts (in terms of conversion ratios). And even then, it still would not be worth half a billion dollars.
I would put my valuation at 25k, because that’s what it would probably cost to hire a talented developer to build another basecamp (see Active Collab).
Avi, the value of a product has very little to do with how much it would cost to hire someone to build something similar.
With hardware costs so low, and the cost of infrastucture software close to zero, any small team can build almost anything. That does not reduce the value of what already exists. What already exists has tremendous value because, well, it already exists. It has customers, it has brand, it has loyalty, it has revenue, it has exposure, it has press, it has history, it has momentum, it has a track record, it has… The list goes on.
I do not know what the value would be, but it would be significant. Many tens of millions, if not hundreds based on the market right now. Look at what else is selling with hardly any revenues and a much shorter track record than Basecamp.
Here’s my guess and how I got there:
1M - this could be users not accounts, Jason didn’t
specify when he said they were approaching 1M users.
25% active users - this is probably way high but peple that use it love it.
That gives you 250k active users.
Then take a 2% conversion rate. I think they are proobably a little higher than that since they are a specialized application.
That’s 5k paying customers.
Take the median of all the plans, not the average, $49
5k x 49 = $245k a month
$245k x 12 = $2,940,000 a year
$2.9M x 3 years = $9M
The only numbers you can’t account for a churn and their conversion rate. Which are the two that are the most important in figuring this out.
Also, you can’t figure out their expenses, salary, etc.
Cool.
Here’s my overview and analysis based on 1million registered accounts regardless of whether active and also ignoring the site reporting only over 500,000 users.
1m accounts of which 20% actually use it ie 200,000. I guess you would hit a 1% ongoing conversion rate.
Again take the medion value of all plans, given we don’t have actual figures. ie $50 (rounded for simplicity)
Therefore 2,000 * $50 *12 = $1.2m per year
3 years base revenue of $3.6m which actually ignores new growth potential.
I would then look at adding a base value for each user regardless of whether using, this is around user data and the potential for media companies.
1m users * $4 = $4m
Also want is the potential for the brand, other areas of revenue, page hits, advertising, 37signals brand, other apps etc etc
For all of this I would look at adding a ball park figure of an additional 25%
$7.6m + 25% = $9.5m
How bizarre, nice and close to Jim’s valuation albeit a different way.
Obviously this ignores running costs, debts etc etc Oh well it’s a bit of fun. Maybe we should try valuing readers sites/apps next ?
DropSend is the one app we rely on daily here at my company so from a user’s perspective DropSend is our most valuable app next to InDesign and OS X. As for BaseCamp, the analysis by Jim above is a great starting point, but you sell yourself short by marketing this app’s potential in only its current form. To really see a true value for the app you have to show potential buyers its viability in areas other than the one its currently marketed to. For instance, YouTube was started as a way for people to share their videos online, but since Google bought the app they’re now beginning to see it as a digital medium for content providers and not just for those of us posting copyrighted material under YouTube’s don’t ask don’t tell policy until content providers request it taken down.
People will pay more for an item if they see value in its use outside of its current focus, not because you have a great business plan and built in subscribers.
Good luck with selling DropSend, as I would hate to go back to courier services if it went offline.
A couple of things about my figures are:
1. I think there conversion rate is probably double what I said maybe even triple. I used 2% as a high for most web applications.
2. I think Backpack is probably worth more than Basecamp.
Basecamp is famous, but it’s not as widely-known as some of the higher valued purchases you cite. What’s more, whilst it has a clear and stable revenue, it hasn’t been trading for more than a few years which adds some risk. As other posters pointed out, it would not be hard to replicate the technology, so the value in the product is really in the ‘goodwill’ and marketing behind the brand. I would guess something in the region of about $1 million might be fair for the software with user base. If you can get the staff locked into 3-year contracts off the back of it so you can use the talent to develop something of your own, you might be able to push that up to $5 million.
In terms of buyers, I really can’t see who would want to buy unless they were interested in the 37signals team and felt they couldn’t get the skills and talent anywhere else. The technology can be replicated for less money, and for a few hundred thousand dollars you might even be able to grab some of their customer base.
Interesting theoretical conversation, but I think any company built to sell, is just going to fail. If I were the owners of Basecamp/37signals, I’d just carry on making my customers happy and turn it into a product that runs out for 5-10 years, paying my way in the World without needing a real job. I’d then maybe consider a bit of early retirement and look to sell the company as a going concern based on Income and Goodwill valuations and spend the rest of my days on a beach somewhere. Any other approach is just open to too much BS and stress.
Eh, first of all Avi: ever heard of brand value or anything of that sort?
As Ryan points out that their minimum price for Dropsend is going to be $900k and I can’t see how Basecamp only could go for $5-9 million. Fried has stated that they been approached by around 25 VC’s or so, they have eight employees and if Dropsend (which is a far, far, far less known product than Basecamp) can go for $900k with $9000 in monthly profit its just weired to think that Basecamp would go for anything less than $25 million. Esepcially in these bubbly times.
Again I think the calculations above is to some extent correct however back to the brand value and the unique position that Basecamp holds on the market, I think it would easily double the “economic” value of the product
Hey Sean - don’t worry. When we sell DropSend, it won’t be going offline. It’ll only improve!
The number crunching makes for a good base price but the multiples will come from the future product plans which the buyers get to see and we don’t. They must have a good product growth plan on the table by know; if not lots of people could give them one. There is also a celebrity factor which can be leveraged by the buyer if done right. I say give them a 3x bump off the earlier ~$9M, ergo my number is $27M.
There’s no network effect. So the buyers can choose to build one themselves or not. So the value of business is replacement cost + brandname. If Yahoo bought it, if it’s character changes, then they’ve wasted the brand. If they keep it like FLICKR then 37signals will have to be bound to work for Yahoo only. In effect, employees once again.
Nice thread idea! I think it is worth nothing until there is a buyer, and then it really depends on what the buyer would do with it and how it fits into their own growth strategy.
To me it would be worth millions, but to my Mum it would be worth $0. It is interesting to have some real figures finally from DropSend as a guide on what cash is flowing from web apps.
BaseCamp has a reported 500,000+ users. Based on very simple math, that makes it have approximately 5,000-10,000+ paying customers per month at minimum.
Average cost of membership is 61.80/mo. Resulting in 300k-600k/month.
That being said, approximate yearly income, directly reflectant off the userbase on Basecamp is 3.8 to 7.6 million.
Times that by three years, you get somewhere around 12 - 22 million. DIRECTLY off revenues.
When buying any company, as mentioned above is their customer base itself, not neccesarily what they are paying. If I were running Basecamp, and had the 500,000 members signed up, loyal to the product and the way the business was being ran, that cost is nearly impossible to put a price tag on.
When that loyal customer base proves its value, is when you launch a new product like Campfire, or create a PDF, or have a job board requiring $30/day posting fees, or have them begging for insight on the blog with nearly 30,000 RSS subscribers hooked in. You launch a new service like this, and you have instant customer base.
If you have started a business before, you know it takes 3 years to get really started, organically anyways. Once you have started, you can leverage your connections, your insights, and any other busines senses you may have acquired during your journey to catapult your new ventures.
This launch pad is worth more than anything, if leveraged properly, and insightfully.
So when it comes to putting a price tag on Basecamp itself, it looks at face value like anywhere inbetween 12-24 million based strictly on revenues. Factor in the brand itself, the customer base, and reputation as being the app it is, you find your number grows in orders of magnitude.
$500 million seems a bit high for my taste, I would say with the way the product is placed, the actual number of users of Basecamp, I would say something like 10x it’s gross revenue of 3 years. Using my estimates, that would put it at 120 to 250 million.
Note, this is definately not based on Basecamp itself. You are buying an established, profitable company that has significant levage for any new venture you come up with. It has even been proven just how valuable this customer base can be (note, Getting Real, Job Board, and just now noticing the new Gig Board) :)
I agree with Jonas, I think the real value in basecamp is it’s brand value.
However, what makes that brand valuable is 37signals and signal to noise.
Valuation is tricky because it’s not just revenue it’s also supply and demand. How much demand is there for “Web2.0″ companies that are proven and cash flow positive with brand recognition? Probably a great deal. How many companies like this are for sale? I’m not sure but it can’t be that many.
My guess would be $25-$50 Million.
It is worth what someone will pay for it. Remember, we are talking just BaseCamp here, not 37Signals.
I am figuring for the software IP and existing userbase, around $5M to $10M would be a good mark. The new users would have to spend up big time anyway to set up the server infrastructure, keep the marketing wagon going to prevent churn, and then getting really familiar with the code so that they can keep improving it.
If they can lock in a contract with DHH or one of the other BaseCamp architects to provide say 12 to 24 months handover and maintenance then I think we could a another few million to that.
But hey, someone could just walk in tomorrow and offer them $100M !!!
You say:
“Our Basecamp conversion rate is higher than DropSend which was 0.87%, right? I won’t tell you how much higher. Could be just 0.01 higher, but it is higher.”
So what does this mean exactly? Basecamp claims to have 1MM “users”. Obviously the majority of these people have been invited into a basecamp project and are not the “hosts”.
So in order to have a meaninful number on “conversions” one should count the number of company trials or free accounts started and calculate the conversion to paid accounts from there. I assume the numbers look more like 50,000 companies (that would mean 20 invited users per company) and of those 25k companies are still active and a certain percentage of those or less are actually paying customers.
So my question is how do you calculate your 0.87% conversion rate?
Start backwards.
Estimate between $5-7mm annual revenues.
(lets pick 6mm)
$6,000,000 / 12 months = $500,000/revs per month
$500,000/month / $50 average price = 10,000
10,000 paying companies
10,000 paying companies with an average of 15 users = 150,000 active users. Could be average of 25 users = 250,000….but my gut says 15.
That feels right to me.
For comparison…Salesforce.com has…
27,100 Customers
556,000 Subscribers
Sure, the ticket is higher as is their market and pricing model….but the comparison factors in at some point.
Acquisition price?
ha…….roll the dice.
depends on whos buying I think.
if was a business with more money than sense then I’d say 50 Million
if was based on current users and projected users then I would say 10 Million.
now for the whole 37 signals I would say 15 Million with JF tied to the company for at least 5 years.
$10m - $15m tops. And I’d expect some change.
Perhaps controversially, I wouldn’t pay more than a year’s revenue, and here’s why…
I understand the value of brand, loyalty, and an existing user-base (as someone whose company has launched 4 or 5 products), but that brand is very much that of 37signals, not base camp. It would be hard to maintain the brand once it’s taken outside the 37 signals den. In fact, it’s possible to imagine that 37 signals may even insist on basecamp not retaining any links to them, once outside of their control (this is all theorertical, of course).
My main problem, though, as a potential buyer, is that Basecamp just isn’t that good. Admittedly, we use the Max package to manage our projects, but it’s not because we love it; rather, it’s the best there is. It would be relatively straightforward for someone to not only replicate the functionality (and usability) of Basecamp, but also to build it from the ground-up, with the lessons learnt of Basecamp problems and mistakes. If a better alternative existed, we’d change in an instant.
And user bases (and brand) aren’t that difficult to build up in the Web 2.0/blogosphere world; you could go from 0 to 10,000 users in a week, by being featured on the right sites at the right time.
I agree with Dan. Basecamp is better than everything else, but it’s not making me sing & dance with joy. I’ve tried every single variation on this idea, from WebEx to Basecamp to software you have to install on each machine. They’re all just MEH.
What it’s really important in IT-market in my opinion, it’s the capacity to generate revenues and the overall the potential. What we have to consider is the “Project management” market percentages. If I buy Basecamp I buy its customers. Exactly what google have done with Youtube. Simply Google bought users to reach 80% market.
So we haven’t to consider Basecamp assets only, but we have to ask us how much money could generate a Basecamp users to us. A free-plan basecamp customer could become a 30$/year customer cause we have adv in our pages for example. So 9milion$ could be a good estimate for Basecamp asset but it could become 80milion$ or 1milion$ depending by acquisition-potential. In Google’s hands Basecamp could become millions-users product simply integrating with Gmail. In my hands it will lose customers. In business analysis is very important thinking about “integrating advantages”.
I hope to be clear, sorry for my english but I’m not mother-tongue. :)
A quick note on converting DropSend free accounts into paying customers.
I used DropSend quite a few times, and though I often hit the max of free sends, I never felt like I had to pay to get what I needed from the application. We have 5 people in the office, each of whom has an account, so we spread the sends around.
However - and of course this is speculation - I think I’d have converted if only paying accounts got email confirmation of downloads. The knowledge that X person at company Y got what I sent them is worth the price.
I would look at Flickr’s sale price.
I think we shouldn’t get too carried away with Basecamp’s “brand name”. 37signals are indeed extermely good in blog-marketing (they are excellent in their design and programming as well of course) but it seems Basecamp is a brand name for the same group of people who know what is “RSS”, for example, so I doubt Yahoo or Google would buy Basecamp for its brand.
So let’s say you build your own Basecamp.
ActivCollab: free
Hiring AC’s developer full time for 3 years: say, $0.6m?
Hardware to run AC for 3 years: say $50k. (generous estimate, esp. since AC runs on PHP which scales better than RoR, currently)
A $1m investment would thus leave you $350k to spend on buying yourself a brand name. I reckon you could do worse.
If I was Yahoo or Google, I *would* buy Basecamp - if 37signals’ team is part of the deal. With that in mind, Flickr’s price tag should be a good estimate - and maybe a bit less than Flickr, since you do also buy the product itself, and more people take photos than manage projects.
I’d say the lads at 37Sigs are falling around the office laughing at this.
$500 Million?
$25,000?
Are you guys stoned?
Firstly, its not the tech you buy, its the userbase and community. So don’t base anything on the lines of code, even if it is the beloved Ruby on Rails.
Secondly it’s wrong to base any price on Skype or YouTube, primarily cause in practical terms no one has heard of BaseCamp, yet my 9 yr old niece and 55 year old uncle have both used youTube and Skype. I think even FlickR is a bit better known that BaseCamp.
The real issue here is the community. Would they still with the product after Yahoo! or Google! bought it. I’m not soo sure, I think people like it cause it embodies the personality of 37Signals.
I think the only rational way to buy BaseCamp would be to buy the whole kit and kaboodle (i.e. the whole company), and they’ve said many times they’re not for sale. Maybe try catching them in 10 years time when they’re ready to settle down.
I’d be more interested in seeing evaluations of products from companies that only have one product and no immediate relation with their userbase. Something like tinyurl.com , or even one of those weird Paul Graham ones, likebetter.com or something.
I agree with Dan Zambonini. Much of Basecamp’s value comes from the 37signals brand name and I’m pretty sure I wouldn’t use it anymore if they weren’t at the helm. Its a steady revenue stream but I’m not sure how strong it would stay without 37signals.
I also agree with Dan that Basecamp “just isn’t that good” but is “the best there is.” The features in Basecamp are relatively limited, most of the value comes in the simplicity of the interface and how elegantly 37signals’ tied it all together.
I LOOOOOOOOOOOOOVE basecamp. And I also LOOOOOOOOVE Jason, that I ahave met briefly in a conference.
Now serious talk: I evaluate Basecamp at 15 Million, I think the team has to go with it because of all the humour in their content. You feel they are people talking to you, it is a “warm ” and “cozy” software. Google can buy it cos it doesn’t have naything similiar, and it follows the same spirit. We’ll see!
While BaseCamp and 37Signals are not a widely known brand, I was surprised to find that even on Simpy there is a dude (or gal) using 37signals as his/her userame: here . Hmmm, maybe this is a 37Signals guy/girl after all…
Nice game, by the way. $500M, $25K… :)
Are you guys stoned?
Haha, no. I admittedly just threw an “off the cuff” number out there to get things started. I’m surprised that there are so few answers to #2 though (who’d buy it and why). I was more intrigued by that component of the topic, as the buyer would factor into the price to some extent.
You’re not just buying a company for its current profit model… If Basecamp only has a 2% conversion rate against 1,000,000 users, then it’s wasting 980,000 potential sales. The right company buying Basecamp is going after those 980,000 other people, not the current paying customers or even the potential paying cusotmers.
And yes, I know that the one million number was users and not accounts. But someone buying Basecamp would buy it for each and every user, not just the accounts they use.
Intuitively, I would assume total revenue for 37 is 800k,/yr, based on , basecamp yielding 500 to600k, and additional book/job post revenue yielding 200-300k.
Therefore the true value is 6m to 10m, however, a high venture vulture ( the kind that practice s-h-i-t-s : “Show High Interest Then Stall”) would most likely offer 1m to 1.2m, with the people in, and move to arbitrage the entity into a larger going concern.
The 1m to 1.2m is = 1 yr the likely salary of the top 2 voting SH’s (employees) times 3 years, enough to drive the wedge into the core team. The core team would most likely resist for 3 to 6 months, then if 37’s annual revenue growth rate continued 50%, the core team would not even remember Mr. s-h-i-t-s offer and would continue tt drive revenue above $5m, at which point they would be acquired for 6 to 10 times revenue, assuming they were above break even.
[…] Can you guess the value? […]
I don’t see basecamp bringing a price tag higher than 20million.
It’s specific project collaboration tool, modeled around the workflow of a webagency. I don’t think the 1million users accounts(1 user can have multiple accounts) is the ultra attractive thing. If it could break through into servicing other business’ than that would really increase the price. Also it’s only available in English (is this true?).
Alot of big players Goolge, MSN already are building/have already launched their own business collaboration tools, but for a broader market than design agencies.
And a couple people mentioned adobe, why in the world would adobe get into webservices? they do nothing like that. The company buying it would want to use it to expand their current small business webservices.
As for DropSend this is the first time I’ve heard of it. I have however used a couple of similar sites.
One thing that I think has been overlooked in comparing Basecamp to Flickr, Youtube, etc. is that Basecamp is a business tool. Consumer-oriented content (whether user-generated or not) services are a totally different ballgame.
Flickr’s userbase can potentially grow to everyone who takes photos and everyone who wants see photos. In these digital days, this is a huge amount of people.
Basecamp’s userbase, however, is limited to those professionals who use collaborative project management tools. The size of the market is a lot smaller. Add to this the fact that “monetizing” Basecamp’s userbase would be tricky to say the least. I’m not sure just how much advertising (or data mining, or other intrusive uses) businesses would take in (or from) their project management tool.
So, I’d swallow anything from a few million to 10 million dollars, but $25M, $500M? No way.
You know what - it’s all about how much someone else is willing to pay for it! You can quote ratios and figures till the cows come up but what really happens is that company X wants to buy Y for strategic reasons, cashflow, because they can, wants to eliminate a competitor, can nick the staff - or a 100 other things!
If you want a guideline - you need to find out the % split of users across the difference services, churn rate, operational costs, any capital assets they have, growth rates, 3yr forecasts…
If as Jim mentioned, they have $9m of revenue and we assumed it cost them $1m to run it - a profit of $8m in total for year one, assume 10% growth rate - so £8.8m in yr2, and then $9.6m in yr 3. = $26.4m after 3 years - blah blah.. I reckon $25m is a fair price.
Some good points were brought up:
- business vs. consumer oriented (results in different multiples)
- DCF statements
- the company name and goodwill accounts for quite a bit of the investment
- not just current revs & profits but future as well
Great idea for a blog post
A quick word on consumer vs business markets, and the valuations of businesses that serve those markets. 37signals is reaching a segment that historically has been very hard to reach - small and very small businesses. Since that segment is so hard to reach, AND since businesses WANT TO PAY for services [i.e. not banner advertising or adsense], I don’t think the consumer market necessarily rules when it comes to valuation in a case like this.
If you think they are making $8M it seems strange to suggest they are only worth $25M.
Put another way, I could invest $25M in a bank and get barely over $1M in interest with no hope of capital increase but minimal risk, or I could invest $25M in Basecamp and get a return of $8M (40%) with higher risk but bigger potential for growth in both income and underlying asset value.
No contest.. They have got to be worth at least ten times what their profit is.
Thanks for the interesting topic.
There are other project management applications out there that are more robust and that likely have a larger paid user base. But what seems to have set BaseCamp apart, where their value has been, is in leveraging online communities to sell a product. It may be most attractive as this type of play versus a technology or user base buy.
[Disclosure, I work for a company, Vertabase Pro, that makes a web-based project management application (http://www.vertabase.com) and http://www.vertabase.com/blog/comparing-basecamp-to-vertabase-pro-web-based-project-management-software/ for a comparison w. BaseCamp]
[…] Over at Vitamin they are playing the “guess the valuation” game with the seminal Web App, Basecamp. Presumably, the guys are 37signals don’t have Basecamp up for sale, but this is an interesting exercise to work through for anyone who’s ever thought about selling a business of any kind, including a web app. […]
I like how the comments have become conversation starters just as much as the original post has.
Here’s another factor to throw in for @#%&s and giggles: what about the market in general? The whole reason we’re having this conversation is because the likes of Yahoo and Google are buying up apps like they’re at Macy’s the day after Thanksgiving. Just because these other examples do other things, they’d still affect the asking price of a basecamp one way or the other.
I cuoldn’t hazard a logical guess myself, at least not one that puts in a fraction of the thought that some of the commenters have. I am up for another round of this game though, even if it is to kibitz. I’d like to see how the pricing boils down in a few months, when the climate is sure to change.
A few comments and a summary
- The growth potential of Basecamp is something that didn’t get enough attention. This market is still in the early adopters stage, hence the expected growth rate for the coming years is significant
- Satisfied users don’t tend to churn much, and Basecamp has many happy customers
- I see Salesforce.com as a candidate on the buyer front. Expansion into the project management domain can be viewed as a natural evolution move on their behalf
- A bold move by Google into the online project-collaboration space would certainly affect Basecamp and 37signals (see Kiko affair), assuming of course the move is not be based on the acquisition of the aforementioned
I cannot imagine 37signals departing from their key asset. Selling Basecamp (as oppose to being acquired as a company) might force the company out of its current turf, leaving the on-line collaboration space to the buyer.
I made an attempt at summarizing this Basecamp valuation comment thread, focusing on the reasoning behind the valuation estimates (dividing the valuation into ranges). For the summary click here.
Did anyone happen to read this month’s HOW Magazine? I know this thread is hypothetical, but I think it’s important to recognize that much of 37signal’s influence and “value” is due to their small size and autonomy. According to the article in HOW, that’s how they’d like to stay.
From Jason Fried himself: “We’ve talked to the big guys. Everyone has a price. But ours is too high for anyone. We want to do this for a long time. We’re not building this firm to sell it. That’s not interesting to us. We want to still be doing this in 20 years.” (pg. 89, Dec. ‘06)
Good lord a lot of people talk a lot of sh*t without basis in fact.
How many of the above comments come from people with DIRECT experience of M&A and exits?
The comments split into the “it’s worth less than $30M” and “it’s worth 10’s to 100’s of Millions”.
I would be willing to bet that the majority in the latter category HAVE NO DIRECT EXPERIENCE WHAT SO EVER.
Whenever any company buys another company, they consider revenue and the IP owned by the company. There is a general allowance for “good will” which covers things like possible future revenue, strategic advantage, customer base etc etc etc.
With the exception of one or two silly-money deals (Skype & YouTube), “Good Will” is never some huge magic multiple that mystically ups your value into the stratosphere.
And even if it were, how many companies are out there that would even have that kind of money to spend and the market focus to do it? 1? 3? Maybe 5?
You can place a value at any price if you’re dumb enough, but the higher the price (regardless of whether it’s right) the smaller the number of companies that can afford it.
In the real world, small companies get acquired for 1-2x revenues. When you add good will, strong IP and CLEAR future revenues (e.g. a strong royalty stream) you can get 5-6x revenues if you are VERY lucky.
Everyone talks sh*t about 100M and 1B deals. That’s not reality and no-one benefits from perpetuating this kind of thinking.
The vast majority of web acquisitions are done for less than $10M. I bet it may even be less than $5M. The really lucky guys get up to $50M. I’d be willing to bet that Jotspot sold to Google for $50M or less…
Anyone thinking you can build a niche product and sell it for huge money needs a hard and fast wake up call.
I’m a big fan of Basecamp, Backpack and the work 37Signals do in general. But are any of those worth $100M or more? Hell no.
Keep it real. Otherwise you’re encouraging the bubble and the hell we all go through as a result.
A Web app - like anything - is worth what someone is willing to pay.
An average revenue per account would be $360 PA
Åssume 10% growth in accounts PA
Assume brand value of 6 X annual turnover
Assume margin of additional 20% for first mover advantage
I think basecamp has 25,000 accounts giving an annual revenue of $9million
I think the value would be
$71.28 million
At this point in time - tomorrow it could be completely different.
Zero. To me. Since I write my own software. Better. To me.
I’m agree with Dan Zambonini. There are also a lot of project management with more capabilities than Basecamp (Kontup for example kontup.com).
The main thing is that you could cuild a project management in 1 month, users are the most important thing.
Excellent, love it!
I’m not a stock broker or anything, but hasn’t anyone heard of the Price/Earnings Ratio? PERatio=Price/Earnings:
http://beginnersinvest.about.com/cs/valueinvesting1/a/011101a.htm
I believe that it’s typically anywhere from from 10 times to 60 if the company is growing pretty fast and has a lot of potential/hype (in the case of google). So if basecamp was making about $2Mill per year, they would probably be worth about $40 million at a 20 times p/e ratio.
Personally I think the real question is "How Many Customers Have They Got" that actually pay money.
Firstly, understand that I’m not knocking Basecamp’s products as many are well developed, but I really wanted to question the companys ’seemingly misleading’ marketing approaches and that of web based software companies in general. It’s time the industry shaped up and got honest!
Have a read of this post I wrote where I question their actual userbase and numbers posted on the website:
The post is called:
Do you believe Software Companys’ Hype? I’m unconvinced.
http://julian101.com/archives/70
I’d love to hear from anyone with actual info about their numbers, chrun, conversion rate etc…
Just email me: julian@go-fx.com
[…] 3.: Guess the Value: Basecamp […]
[…] Another bootstrapped business that DOES incorporate FREE is 37 Signals. They definitely list a much higher 1M user base but while a FREE option does create a lot more users, typically 80-90% of them are passive, and so true traction is a lot harder to gauge. I am not saying this percentage applies to 37 Signals, but I do have four 37 Signals accounts - one for each service that I don’t use. I can validate SmugMug’s 10M a year claim easily from their numbers but how much 37 Signals makes a year is anyone’s guess. Freshbooks also has a FREE plan but with a policy of automatically canceling accounts that have no activity in 2 months which is a smart way to keep a low passive to active user ratio. […]