E-Commerce · Valuation

Multiples to evaluate an ecommerce website?

Alberto Adorini Founder and CEO - Italy at Payleven

February 15th, 2016

Der all, 
with my group of business angels we are currently considering the investment in a ecommerce. Besides analyzing team and forecasts we were looking for multiples to come to a bulk figure for pre-money. The ecommerce just tipped in the black (with monthly EBIT of few k Euro) and has a high repeat purchase rate. 

Any "magic" formula? 

Thanks a lot
A
 

Mitchell Bolnick Business Mentor, Adviser, Consultant for Start-ups, Small Businesses, Growing Businesses

February 15th, 2016

If you are talking about the value of the business there is only one real way to do the valuation......divide the average NPV of projected EBIDTA (adjusted net income) over the next 3-5 years by the percentage capitalization rate that you are comfortable with based on the risk of success and the risk of the financial projections presented to you.  For most start-ups the minimum capitalization rate is going to be 30-35%.  Most angels will put 45-65% cap rates on most start-ups.  The more you believe in the product, the implementation plan and the individuals who will be implementing the plan, the lower the capitalization rate.  So if they are projecting $100,000k in EBIDTA on average over the next 3 years (in net present value terms) and you put a 35% cap rate on the riskiness, then the value is $100,000/.35 = $285,714!  That is the most accurate formula to use for valuation purposes.  The issue boils down to risk and the capitalization rate.

Patrick Chaves Owner Founder | CEO | Technology Analyst | Programmer Developer | DBA Administrator | Aceito Projetos Empresa ou Freela

February 15th, 2016

Dear Alberto Adorini
First of all it is important to know what your eCommerce hive of activity. Secondly you need to be prepared for the disclosures and of course do some investment in it, good hope to hear more from you, but there is no magic in business, but a lot of technique, consistency, and study within its business plan;

I hope to contribute to your project

big hug
Patrick Lima

Ryan Iverson VP of Ecommerce & Technology

February 15th, 2016

With a high repeat business the magic formula to me would be figuring out the future value of the customer. This will help determine the cost per acquisition to target. If you balance that cost with expected future value you will maximize growth of the business.

Mitchell Bolnick Business Mentor, Adviser, Consultant for Start-ups, Small Businesses, Growing Businesses

February 15th, 2016

Alberto, since I have not seen your plan and have no real knowledge of who you are or what you are planning I can not really comment on what is high or low.  The reality is the actual figure will be determined based on the PERCEIVED risk from the perception of the investor.  You need to be realistic in your own assessment for presentation purposes.  For example, have you done a SWOT analysis and realistically outlined weaknesses of your plans and threats to your plan?  If not, the risk factor will be much higher from an investor perspective than if you have done a realistic SWOT.  Are you projections based on constraints and a realistic view of how those constraints will impact your growth, costs, etc.?  If no, then the risk factor will be much greater.  Do you have a strong well rounded team to execute the plan?  Do you have any capital of your own to start with?  I can go on, but I think you get the point.  This is what I do with my clients, who are mainly start-ups.  I help them define these things, get them in writing, and show them the best way to present them to an audience of investors.  If you think I can help, give me a call at 602-686-0641 to discuss further.

Alberto Adorini Founder and CEO - Italy at Payleven

February 15th, 2016

Thank you Mitchell. I was indeed looking for some multiples to come to a fair value. In your example, the inverse of your minimum cap rate does the trick: it is the factor (2,9=1/.35) that multiplied by the actual value of the average EBITDA for the next 3 years, gives you a bulk figure of the EV. Still, looks to me a bit conservative... 3x the EBITDA (actualized, averaged, whatever) is very little, don't you think?