Don Dodge questions Michael Arrington’s assertion that Photobucket is a steal at $250M.
Don presents some numbers behind his reasoning, which are sensible enough considering the potential revenue and profits that the service can provide.
I have a slightly different, non-standard heuristic that I use when looking at startups: I look at the number of engineers onboard and place value upon the revenue they can generate in the future, not simply the revenue from product they’ve already created. This covers the situation where the integration of the acquired technology doesn’t go as smoothly as at first expected. I’ve found that at least for over the last 10+ years you can often take the number of engineers and multiply it times $1M each to get a ballpark figure for the value of the startup.
There is one adjustment that I make to the estimation: if the company is purchased with (inflated) stock, you can optionally increase the value by the perceived multiple that’s elevating the stock price. If the stock is twice as high as it was recently, for instance, then the company price might be twice as much.
This approach doesn’t work well with companies such as YouTube, where the asking price was astronomical, however, I’m often surprised how close it can get to the actual numbers often based on reasoning as Don Dodge lays out.
In this case, it looks like Photobucket has 60 employees. Assuming a large percentage of them are engineers as is often the case in tech startups, that would place a value around $50M-60M or $100M-120M for a stock purchase.
Who knows if the $250M is too high. There’s no way to know the future. At least I can’t.