Category Archives: Private Equity

What Is Uber’s P/E Ratio if it’s valued at $41 billion?

Uber raised $1.2 billion that valued the company at $41 billion. Some people are skeptical that Uber could have the same market cap as Time Warner Cable or ADP. Projecting future P/E may give some idea of the scale and scope of Uber.

The entire Taxi & Limo industry in the United States is well shy of $15 billion. If Uber has 50% market share and 20% commissions, its revenues would be $1.5 billion. Net profit margins for a mature internet company (such as Ebay) are 18% – or $270 million. That’s a 152x P/E ratio.

Factoring in the rest of the world (based on GDP) brings the P/E ratio to 33x.

In sum:  33x forward P/E ratio for the startup assuming 50% control of the industry throughout the entire world. The S&P 500 is cheaper.

So, perhaps Uber has grander visions – ride share / carpooling, car share, ambulance service logistics, military applications…. there must be a larger market it plans to tap into, or its latest investors got caught up in the hype.

Uber Ballooning P/E Ratios

Uber Ballooning P/E Ratios

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Three Things Every Business Should Do in a Recession

Change begets opportunity. Given the current economic situation, here are three things that every company should do:

Renegotiate vendor contracts. This is not to say that you should squeeze all profit out of your vendors. Business relations should always be mutually beneficial. However, contracts that were negotiated a few years ago when things looked rosy should be carefully reevaluated. For example, one small business was able to renegotiate their contract with Verizon Business and cut their bill in half.

Foster employee loyalty. Employees are more likely to stay at their jobs now, if they feel the jobs are secure. The good news is it’s easier to retain employees. But don’t be lulled by this. Unhappy employees being forced to work harder and longer hours will not stick around once the economy turns. Now that employee’s expectations are lower, do small things to increase job satisfaction and make people feel appreciated.

Do more for your customers. Much advice centers on how to maintain price discipline and avoid doing work at (or below) cost. There’s a different opportunity, however. Given that your customers are likely facing a new environment, they may be open to help in new, adjacent areas. For example, a company that downsized may now be shortstaffed in certain areas and happy to have a vendor provide managed services. Look for these areas, and propose solutions for your customers’ problems.

Why Startup CEOs Are Fired

Noubar Afeyan, founder and CEO of Flagship Ventures, started his first company at age 24. As he was raising money, many investors told him that they wanted to bring on a more experienced CEO to run the company. But Afeyan wanted investors who would trust him, so he kept looking until he raised $1 million from three VC firms that would let him stay as CEO. Then on his second day after receiving funding, he did something unexpected: he hired an outside CEO to replace himself.

Now a prominent venture capitalist, Afeyan says a startup CEO stands for “Current Executive Officer.” It’s simply a matter of fact, he says, that 80% of startup CEOs are replaced at some point. And the cause is in large part due to the structure of venture capital firms.

Proposition #1: startups miss their numbers. It’s inevitable with any startup, good or bad, successful or failing.

Now, VC firms are run by individuals but have collective responsibility. Each partner has a portfolio of startups that they work with, but the other partners at the VC firm have an interest in the performance of all portfolio companies, if only a passing knowledge of what’s going on inside the companies.

The first time a startup misses its numbers, the lead partner usually goes to bat for the company. He or she tells the other VC partners, “yes they missed their numbers but they have a plan…”

The second time a startup misses its numbers and the VC partners are unhappy with the performance. They ask the lead investor what he’s doing about the situation, the most obvious answer is “there’s a leadership problem and we’re replacing the CEO.”

CEOs are critical to the success of a startup, but also the most interchangeable. Pull one out, drop a new one in, and the startup continues without missing a beat. So long as the CEO is not the founder. That’s why venture capitalists don’t like the founder to be CEO – because then if the founder/CEO is fired there is no more company.

Moral of the story? If you’re a founder of a startup looking for Venture Capital money, you probably don’t want to stay on as CEO. And if you’re a CEO of a VC-backed startup, keep your resume up to date (and try not to miss your numbers!)

AnythingResearch.com – Industry Analytics and Research

AnythingResearch.com has released 2009 research reports on over a thousand industries providing instantaneous access to market size, typical financials (e.g., income statement, balance sheet), salary benchmarks, etc etc.

The goal is to shed light on  small businesses in “main street” industries by providing accurate and detailed statistics.

http://www.AnythingResearch.com

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Private Equity Enters the Trailer Park Industry

Note: for information on the Watchtower industry screening tool, please contact Daniel Berch.

Trailer Park Boys (television show and movie) is an amusing and sometimes heartbreaking look at struggles towards life and happiness in an RV park in Nova Scotia. But while the Boys were busy with various get-rich-quick schemes, private equity investment firm Context Capital Partners entered the space.

Industry data shows EBITDA margins of 27%, slow but steady growth around 2% per year, and extreme fragmentation for the RV Parks and Campgrounds industry (NAICS 721711). And at, $1.7 billion market size, it’s worth a second look.

Click for full-size image

Industries for Private Equity

Note: for information on the Watchtower industry screening tool, please contact me here.

For small private equity firms, choosing attractive industries to focus time and effort is essential to success. Private equity firms don’t just invest in high tech. Industries can range from food services to Recreational Vehicle parks (see Context Capital Partners) and everything in between.

Looking at all the industries in the U.S., we can see how they have been growing over the last few years, and see how many industries are controlled by big business versus those that are fragmented and have small and midsized businesses in the industry:

ALL INDUSTRIES

As you can see, there are quite a few industries out there. Now let’s take a look at just those industries with high profit margins (>20% EBITDA):

INDUSTRIES WITH HIGH PROFIT MARGINS (>20% EBITDA)

As you can see, there are many fewer industries with high profit margins, but there is still a wide spectrum among those that are growing and those that are shrinking, and among those controlled by big business, and those with many small and midsized companies.

For those curious about the shrinking industry with high EBITDA margins – it is the Miscellaneous Publishing Industry (NAICS Code 511199), with $7.5 billion in sales, 1,100 firms, and negative growth of 32% per year.