
 Cluep, a Canadian startup that raised just $500K, acquired for $40M - antonmamonov
https://techcrunch.com/2018/09/20/cluep-a-canadian-startup-that-raised-just-500k-acquired-for-40m/
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willwinger
Good for them, with just a 500K investment I would guess the following

1\. The founders should own at least 75% of not more which gives them a neat
30M in this deal.

2\. As others pointed out, why such a poor multiple on revenue? The
possibility is that they had a service heavy business (ie bulk of revenue came
from service to customers).

3\. From point 2, they mostly had negligible or no IP. If they had significant
IP and sold for this multiple then it is a poorly made deal.

4\. They raised only 500K, ie equity capital. There is no mention about their
debt & other liabilities. This could be another reason for the low multiple.

5\. Deal type is key, if it was cash it is good but if it was equity/options,
then not so good.

We closed our acquisition beginning of this year as follows:

Value: 9.5M USD Type: Cash Revenue: ~1M USD Valuation: 10X Investment: 300k
USD Debt/Liability: nil Status: Profitable Investor returns: 5X Location:
India

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shbm
What is the name of the aforementioned acquired Startup?

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willwinger
It's a private deal and unfortunately I cannot reveal due to the non
disclosure terms.

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lugg
Why would you agree to those disclosure terms?

Would they have walked if you told them you wanted it taken out of the
agreement?

Why I ask: curious why people agree to gag orders and similar for no
justifiable reason.

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xevb3k
My instinct tells me that this is a much better outcome for founders and many
employees than “unicorns”.

It’s possibly not as good an outcome for investors, and they might actually
view this as a bad exit.

Am I wrong? Would most investors be pretty happy with this? Would most
founders/employees be better of going for creating a unicorn?

~~~
keithwhor
Given that Cluep is Canadian, I would expect the $500k they raised to be on a
$2M Cap convertible note or some similarly valued instrument. That's totally a
guess, btw. They could've sold way more or way less of their company. But,
ballparking here.

So, ~20x return over 6 years for investors that are likely non-institutional.
In short -- it's probably a very good deal for Angels. That's about a 65% YoY
compounded return. It's likely that outside of the founders nobody is going to
retire, but that's OK. It's only when deep institutional pockets get involved
that <$100M exits are considered "weak."

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xevb3k
For Angels but what about seed funding? YCombinator/Other incubators?

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keithwhor
There's likely not much if any institutional money involved in a $500k raise.

If there was, then it's not as great of an outcome, but to an institutional
investor this would likely just have been a "let's see what happens" check --
which makes it pretty good regardless.

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lquist
“Everyone loves a tale of a bootstrapped startup founder’s journey to an
eight-figure exit.”

How is raising $500,000 bootstrapping?

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frankdenbow
The point is that they grew their business mostly out of revenue. Yes you can
get into a technical discussion of what a self-funded company is, but it
generally misses the point. Setting yourself up so that you can be sustainable
out of revenue at times requires a different approach and mindset which is at
the core of self-funded companies.

~~~
lquist
But bootstrapping has a binary definition. You have either raised money or you
haven't. And there is a huge difference between $500k and $0. And I don't say
that in the theoretical sense. I currently run a bootstrapped company that
does $10m+ in revenue and $500k is still a huge amount of cash for us that
would change the way that we conduct business. I can't imagine how big a
difference it would have been in the early years of the business.

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iancarroll
Can anyone shed some light on that revenue multiplier? Seems pretty low for a
growing company.

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sonnyblarney
It's possible they book or publicize revenue like 'ad sales' in which they
only take a commission. So their gross margins wouldn't be huge.

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acangiano
For context, $500K is a big investment in Canada. Startups here get very
little funding. Smart Silicon Valley investors could make bank by investing in
Canadian startups for pennies on the dollar.

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keithwhor
That could be a start, but this is the wrong mentality.

Investors shouldn't back Canadian startups because they're cheap. That's
almost a distinctly Canadian view of investment -- get things cheap,
undervalued, or with a low risk profile. (Sorry, Canada, somebody in Canadian
VC is going to roll their eyes at me here but it's pretty accurate.)

They should back Canadian or Canadian-led startups because _talent_ is
undervalued, and with the right mentorship and a good talent aggregator (an
ambitious company that can compete on the world stage), the ROI on product
development is going to be through the roof. Don't think about it as getting
talent on the cheap, think about it as: if you pay the talent what they're
worth, they're going to do 10x the job for you.

Note: there's been a huge uptick in Canadian tech $ recently. Both Microsoft
and Uber investing $750M combined in Toronto, announced just this month.
People _are_ noticing.

... but that's just my $0.02 :).

Edit: First thing you learn when you talk to sophisticated investors /
founders in SV is nobody gives a shit about cheap. Bad investors chase
"cheap." What's most important is total magnitude of the opportunity space:
who cares what we pay today, how big could this be? Because if the answer is
"there's a $3T opportunity here over the next decade" then it doesn't matter
if you invest $1M or $10M from a $1B fund -- in fact you'd probably rather
invest more to ensure the company you're funding stays capitalized.

You're not going to get top SV VCs dumping $ into Canada because they can make
a few bucks on cheap deals. You'll get top SV VCs dumping $ into Canada when
the collective Canadian psychology changes from, "we're cheap, invest in
Canada" to "we're going to be the most technically sophisticated nation on the
planet, and a primary home of the next five major $100B technology companies
over the next 30 years."

Canada will get there. Already leading in AI. But not by being "cheap."

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acangiano
I meant cheaper while still offering the same degree of talent. Not just
cheaper. But I think you raise very good points about framing the discussion
in terms of talent rather than cost.

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siruncledrew
After reading the revenue figures, the sale is a lot less outrageous than the
title makes it sound.

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Kpourdeilami
Unless their product is extremely manual and depends on hiring on a bunch of
engineers to train models for each customer

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disgruntledphd2
Firstly, you'd probably want 50% data people, 50% engineers to make that work
acceptably. Secondly, that kind of stuff is totally viable to throw automated
grid-search at, especially if you've just been acquired by a profitable
company.

Finally, I reckon that the comment upstream about GDPR is probably correct.
Suddenly facing way harsher terms for 30% of revenue (assuming standard
breakdowns) is double-plus ungood, which may have sparked this.

To be fair, if I were them, I'd totally have taken the money and ran.

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puranjay
The article states that they're on track to get $30M in revenue in 2018.

At $53M (CAD), that's just a little over a 1.7x multiple

Isn't that a little low? I've seen crappy AdSense websites go for 2x multiples

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TomK32
Lots of people think about the low rev multiplier but maybe a) the founder,
all being quite young, just wanted out and do something new, b) the money is
all in cash without strings attached or c) they have a sense that with the
GDPR in europe and similar laws possibly coming up elsewhere their company and
revenue might plateau rather soon.

If someone offered me >10 million, I'd take the money and run.

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radnam
Not clear what the product really is. How are they getting Instagram data for
the users?

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baybal2
A little bit about the company

That's a cookie cutter Internet ads DSP shop with few buzzwords painted over
on top, namely the alleged "smart AI algorithm." Something now standard.

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AstralStorm
Oh boy, another advertising platform, just what the world needs.

