
Evernote Raising $50 Million To $100 Million At A $1 Billion+ Valuation - ssclafani
http://techcrunch.com/2012/04/19/evernote-1-billion/
======
ig1
Rather than just shouting "bubble" why not take an analytical approach to this
by comparing them to other consumer SaaS companies.

Last year DropBox made $240m from from 2m paying customers (out of 50m users).
So about $120/customer. DropBox's valuation is around $5-$10bn, around 20-40x
revenue. Which given their growth rate seems a reasonable revenue multiplier.

Over the same period Evernote made $18m from 750k paying customers (out of 20m
users). So about $24/customer. A $1bn valuation would give a multiplier of
50x.

LinkedIn is currently trading at 45x revenue - a figure that's been relatively
stable for a while.

So arguably 50x is high but not ridiculously so, if Evernote manages to double
their customer base over the next couple of years (or their revenue per
customer) which isn't unfeasible, it'll look cheap at that price.

(Given Evernote costs $45/year that presumably means most of their customers
signed up relatively late in the year resulting in the average revenue per
customer being $24/year, so even if they only managed to keep their current
customers they'd make 34m this year bringing their multiplier down to 30x)

~~~
3am
50x is ridiculous, just not on a relative basis in among the peer group. Many
retail companies trade at less than 1 (Walmart trades at .5, the S&P trades at
around 1.5)

Even larger tech companies like GOOG, MSFT, and ORCL trade at 3-4. So, looking
at it analytically, the P/S of the average recent IPO is very high, and
Evernote's valuation is extremely high, even compared to them.

~~~
alain94040
Growth is critically important to the valuation. I think of it like a
canonball: how high will you shoot? Here's the picture I drew:
[http://blog.foundrs.com/2011/10/27/how-to-compute-the-
valuat...](http://blog.foundrs.com/2011/10/27/how-to-compute-the-valuation-of-
your-startup/)

So, do you believe that Walmart will double in size in the next 2 years? I
don't, and that's why their ratio is so low.

~~~
jellicle
Yes, growth is a factor... but there are only 7 billion people on Earth. Most
of them aren't going to pay for Evernote - heck, most of them don't have a
yearly income large enough to pay for Evernote.

The valuations are getting to the point where they only make sense if Earth
had many, many more people on it. Or if you are no longer looking at the
fundamentals and are only betting that there's a "greater fool" who will come
along after you and take the shares off your hands for more than what you paid
for them.

I would guess "greater fool" is in operation, and not any belief in value or
growth.

~~~
yskchu
I agree with your statement on valuations, however I think there's also
another factor at play here

>The valuations are getting to the point where they only make sense if Earth
had many, many more people on it.

The fact is, it is still very hard to gauge how much a company will succeed
by.

Take the example of Friendster etc and Facebook; when Facebook started,
Friendster etc were the dominant players; however, now, we all know who's the
dominant player in social. At one point, they may even have had the same
valuation.

My point being, if two companies in the same market are getting $1 billion
valuations right now, it doesn't necessarily mean that people think the market
is worth $2 billion down the track; some people are hoping one will win over
the other.

Indeed, if Evernote develops some killer features and dominates it's space,
it'll be a steal for $1 billion

------
hackinthebochs
We're in a bubble folks, plain and simple. The fact is no one knows how to
price these things. These valuations are betting that being essentially a
first mover in a new market that has endless possibilities is worth many
billions. Eventually people will get tired of waiting for these expected
profits to roll in and the crash will soon follow.

~~~
ChuckMcM
I don't think we're in a bubble, I think we don't have enough investment
vehicles for rich people and so the lack of supply has driven up prices.
Imagine you have $10M, how do you get your > 10% annual return now that the
ponzi schemes have been rolled up? Not a lot of choices.

~~~
RobPfeifer
Most of the venture funds are actually investing the money of pension funds
and university endowments, not "rich people". "Rich people" - meaning recent
tech multi-millionaires are driving an increase in angel investing, but they
are not who's driving these 50x revenue multiples for later stage companies.
If were to give anyone credit for these multiples, it would be Facebook.
They've definitely inflated the value of companies that went out before them
(Zynga, Linkedin, Groupon, Pandora) and have helped push up valuations of
Dropbox and others. When $100bn is your ceiling for a "private" company value,
psychologically it allows for much more aggressive private valuations. And
it's likely that Facebook private valuation is an extreme outlier, not a "new
normal", which will lead to a boatload of companies that have their highest
valuation ever before they go public.

~~~
grey-area
When I heard about the instagram acquisition I did wonder if Facebook partly
made that purchase with that timing and an insane valuation in order to ramp
the value of their own IPO shortly afterward. This is not sustainable, and
it's going to make it very difficult for startups to get funding in a few
years when it all goes sour. But the best insurance, as ever, is to try to
build a great company, not try to build something that some VC will want to
buy with borrowed money.

------
pchristensen
One piece of data for Evernote skeptics - the founder has said that they have
a very slow monetization, in that people convert more and pay more the longer
they've been a user. So the longer people use it, the more ways they find to
use it, the more data they put into it, the more valuable it becomes to their
process and they outgrow the free plans. Older customers pay because Evernote
has become more valuable to them. So rapid growth in free users over the last
couple years has a demonstrated (not hypothetical) path to payoff over time.

EDIT: reference:
<http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2799>

------
saturdaysaint
I find this product to be really weak. I've been disappointed with all of the
clients (do I seriously have to hit an "edit" button to make any change?) and
can't think of any use case that couldn't be handled far more elegantly with
my go-to tools - Google Docs, Workflowy and Dropbox. I've lost audionotes and
changes to notes in the iPhone app. Worse, they seem focused on fluff
(wallpapers, ancillary apps) when the core product feels unpolished. I just
tried their web client and simple things like undo/redo are glaringly buggy.

The charm, at the moment, is that they're one of the few one stop shops for
files and note management that has a passable mobile client. It's something
glaringly simple that a lot of people want (especially the %90 of the
population intimidated at the idea of integrating a few services). If Google
Docs ever get serious about their mobile client and/or if Dropbox cater more
to this kind of crowd (I think a simple note editor on the web and their
mobile clients would be well used), I expect Evernote to be in trouble.

~~~
rkwz
You forgot another big player in this space - OneNote

------
erichocean
I'm convinced that valuations calculated by multiplying shares x 'the last
price someone payed for one share' is completely useless.

A better valuation would be the sum of the equity that has been sold (for
actual money) - liabilities + cash on hand + discounted future earnings at
some reasonable growth rate (this can be industry specific).

IOW, what would a single entity be willing to spend in cash to acquire the
company today.

I don't see how saying Evernote is a "one billion dollar" company has any
merit at all.

~~~
wpietri
The main advantage is that it's very easy to measure and it sums up the
demonstrated beliefs of a lot of participants. Anybody actually trying to buy
the company will do a much more complicated calculation than the one you
describe.

For what it's worth, when acquisitions happen it's almost always _above_ the
shares x price number, so I think it's reasonable to call Evernote a $1bn
company if the shares x price number works out that way.

~~~
erichocean
Unless a company is failing, acquisitions should also increase the worth of
the company if cash is put in and it's not a pure stock swap.

So it's not strange that valuations go up after an acquisition, and in my
formulation, they would also go up as well, and for the same reason.

On the one hand, you're right: if everyone is using misleading valuation
calculations, then they're all _relatively_ misleading by the same amount.

That still doesn't make these numbers remotely helpful. Here's a thought
experiment:

Company X sells $10K in equity at a $1 billion valuation, with no revenue.
Wow, good for them.

Company Y sells $15K in equity at a $1.5 billion valuation with no revenue,
and promptly acquires Company X for $1.1 billion in cash and stock.

Well color me impressed! That's an _amazing_ exit for Company X! Incredible.
Bravo. /sarc

It's both easy and cheap to be a paper billionaire when valuations are
calculated as shares x 'last price of an individual share'. Anyone can sell
their company for $1.1 billion dollars with minimal actual capital changing
hands, or value created.

FWIW, the real problem isn't the valuation numbers _per se_ , it's when people
start talking about "losses". Evernote's stock drops, and somehow they "lost"
$600 million in "value". Uh, no, they didn't. They never had that value to
begin with, and didn't even lose it.

If you think about it, that makes sense. How can a stock sale worth, say,
$1000 change the value of the company being sold by $100 million? That doesn't
make any sense.

With my formulation, selling a single share at a lower price wouldn't move a
company's market cap by hundreds of millions of dollars, ever, unless that
share somehow was sold at a loss of hundreds of millions of dollars (that's
one pricey share!). Instead, it would decrease _only_ be the amount that was
lost on _that particular share_ , which is generally minimal in stock sales.

My approach is much more stable, and would prevent all of these idiotic
headlines about "market drops" that we keep hearing about (and market
increases, for that matter). It's just more honest all the way around, and
furthermore, it's easy to calculate. You can always track each share's
individual purchase history, and trivially calculate the value of the company
based on that (and the other factors I mentioned), in real time.

It would also prevent the quarterly gaming that goes on, since recent stock
sales would _not_ be a major driver for increased (or decreased) valuation.
Instead, you'd have to actually improve the company's fundamentals, and as
investors and shareholders, isn't that what we really want anyway?

~~~
wpietri
Real investors understand these things. Financial journalists understand these
things as well, but it's not in their interests to make the financial news
less interesting. You may have a solution in search of a problem.

I'm not convinced you have a solution, though. Share price quotes are only of
publicly traded shares, so there's no per-share history available. Indeed, I
don't think there's a way to distinguish individual shares, in the same way
there's no way to distinguish individual dollars in your bank account. And I
don't think historic price is more meaningful than last share. Consider
Facebook: Zuckerberg bought his shares for $0. Does he really think that's
what they're worth? Does anybody?

What we do know is that he won't sell them at current market prices. When
investors hold shares like that, it's because they believe they are worth as
much or more than the current price. And that's the theory that a market cap
valuation is based on: if nobody is selling at the current price in a liquid
market, then all the holders apparently think their shares are worth more than
what they can sell them for. Ergo, the company price is shares * last price.

------
eaurouge
A lot of comments here from people that have never used Evernote and don't
really understand it's value proposition to its users. I pay $45 a year for
the service. It was a no brainer when I converted from free to paying about 18
months ago and it still is. If you're going to make incredibly insightful
comments like, "we're in a bubble folks, plain and simple" please try to back
it up with some analysis. At least try to give us some indication that you've
given this some thought.

It's tempting to compare Evernote to companies like Ducati (apparently
recently bought by Audi for $1.1b). But remember Evernote sells software with
higher margins. It is still in its growth phase, it's total addressable market
includes a large percentage of the global population, and its revenue comes
from recurring annual customer purchases.

Personally I think it holds more value than Dropbox, but I guess we'll have to
wait and see.

------
juliano_q
With some effort I think I understood why Zuck paid 1 billion on Instagram
(IMO Instagram had a huge potential to be the next big social network, so I
think Mark noticed it too and bought before it became too big), but I fail to
understand how it is possible to Evernote to value the same. This seems to be
a bad smell to me.

~~~
tesseractive
You could make a pretty good case that Evernote is the single most important
productivity app of the smartphone era. At the bare minimum, you'd have to
grant that it has the _potential_ to be.

For comparison, the single most important productivity app of the PC era was
either Office in general, or just Word in particular. How much are those
worth?

~~~
trotsky
what, google maps?

------
janlukacs
Bubble it is. I like Evernote, i like the model however these valuations are
crazy... the good news is that it's not another Instagram. Gambling other
peoples money always turns out bad. "it's different this time" they said...

~~~
cma
There has been considerable inflation since the last bubble.

------
timdorr
All these multi-billion valuations are making me nervous...

~~~
pdubs
Considering flippin' Ducati just sold for around $1 billion...me too.

~~~
brico
Yes it's mind-boggling, e.g.: Bayern Munich is valued at $1.2 billion

<http://www.bbc.co.uk/sport/0/football/17769654>

What I don't get: couldn't you build something like Evernote for let's say
$500mm from scratch? It's not a company, it's a smartphone app!

------
MarlonPro
How do they really perform valuation? I don't understand why Evernote and
Instagram are worth virtually the same.

~~~
gklitt
Do you mean that Evernote should be valued at less than Instagram? I think the
opposite is true.

Evernote has demonstrated that it can monetize its user base, and it has a
strong lock-in effect (I store all my stuff there so it's not worth leaving to
a competitor). I happily pay for Premium just like many others.

Instagram, on the other hand, has a fantastic free app, a giant user
base...and no revenue.

------
goronbjorn
> "the app had 20 million users"

How many paying users do they have?

------
georgemcbay
It's like Oprah for startups.

Everyone look under your seat.

You get a billion dollars! you get a billion dollars! you get a billion
dollars!

------
daemon13
It is difficult to find a black cat in a dark room, especially if there is no
cat.

Many of the comments assume that a valuation, derived from stock price or
venture financing, is rational.

It is not.

Yes, the value of the business is defined by future cash flow adjusted for
time-value of money and risk. In case of new, unknown businesses/industries,
without prior history, it is not possible to estimate the future cash flow and
the associated risk.

Therefore, if we would look at this from investment angle, I would compare
this to a gamble, or, taking into account human component, a poker tournament
[from my financial perspective].

P.S.: of course in case of Dropbox and Evernote, which have revenue, it is
possible to do some financial modeling, but this would not substitute future
cash flow since risk/uncertainty is still an open question.

P.P.S.: in the past the best strategy was to follow the ride and get off the
train before everybody else ..... :-)

------
hristov
I think the reason is that people saw the torrent of media attention that
Instagram got. Every CEO is thinking now "If I can only get the number 1
billion somehow in a press release I will be on every newspaper and blog in
the country." Quite predictably, Instagram got people greedy and spurned them
to action.

If you go to a good securities lawyer and say "We need to get a round closed
at one billion dollar valuation, but the investors need it to be effectively
at a lower valuation because for them 1 billion is just ridiculous" the lawyer
will figure out a way to do it. There are all kinds of tools that you can use
to ensure that the investors still make money for exits under 1 billion even
if the valuation is technically 1 billion.

So this is all just headline grabbing.

------
Tossrock
Man, I've never heard of Evernote before but it sounds exactly like a service
I was mentally designing (which I tentatively dubbed "thoughtbank"). If only
I'd started executing a few years earlier I could be a billionaire!

------
lanstein
Billion is the new million.

~~~
bandy
Mike Meyers taught us that in '97:
<http://www.imdb.com/title/tt0118655/quotes?qt=qt0367876>

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AznHisoka
Evernote has a popular app, I grant them that. But how does that translate to
a $1 billion company? It's not like you can take the same users and sell them
insurance or weight loss pills.

~~~
theorique
Ongoing revenue stream and one of the few consumer apps to really make a
freemium model work right.

------
larsberg
Hopefully now they can afford to extend their iOS client to includes
handwriting input ala Notability (especially the Tablet PC-style input pane at
the bottom).

~~~
trustfundbaby
... and write decent cmd+f functionality on OS X

------
Maro
I have Evernote installed on all my machines and use it regularly. If they
started charging for it I'd probably pay $5/month for it.

Assuming 20M active users and a sky-high 10% conversion rate [+] at $5/month
gives $120M/year in revenue, which would kind of justify a $1B valuation. That
is, until something better comes along for storing text notes across
devices...

[+] I understand their users are pretty f(r)anatic.

~~~
mrtron
They already charge for some additional features. I currently pay 5$/month.

~~~
Maro
I guess I meant if they make their pricing more aggressive so users like
myself also have to pay for it. Eg. you have to pay if you have more than 1
notebook or use it on more than 2 devices...

------
dhaivatpandya
I actually think Evernote is not very well designed; especially on the web
front.

Not sure if there any other people out there who feel the same...

------
heifetz
a notepad app company that's worth 1bn...hmmm.

~~~
AznHisoka
yep, that's all they are - a notepad app. People are overblowing Evernote's
significance when they say it's in charge of our memory... When they come up
with nanontechnology that can backup our entire brain in a flash drive, come
back to me with $1 billion valuation.

~~~
AznHisoka
I got high standards. Gimme some THICK life-changing value! Not thin, retina,
prettified, fluff value! That ain't a billion dollar valuation.

------
gruseom
All this bubble talk reminds me of 1995.

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wildmXranat
Valuation bubble level: Fortune teller. This is getting out of hand.

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loverobots
Someone wake me up when we're talking about real money. Now the investors
think that Evernote is only worth 3-10 times the valuation they bought in...or
around $3,000,000,000.00 to $10,000,000,000.00

------
awayand
evernote really sucks I cannot believe how anyone could find their service
useful

~~~
larrywright
I use and pay for it (over 7,000 notes and counting). Apparently many other
people do as well.

