Whether you’re interested in considering an investment in a strong up and coming tech company, or you’re looking for someone to back your business, you have to know your numbers. There’s a lot that goes into a proper evaluation of benefits and a tangible worth for this. Watch this video for the inside scoop on all of the numbers, figures and details most people wouldn’t be aware of. Armed with the right details, you’ll have a strong sense of the company and the people involved.
A case study on tech startup investment
Swift Networks is a company we listed on the stock market. The code is SW1. What I mean by listed is that we met Swift about a year ago. They weren’t an early stage business, but they had a few structural issues. Their cost bases were way too high. They were paying $400,000 a year on rent for an office with 20 people. That is high. The wages for the business were way too high. But it was still a good business – 97% of the revenue is recurring.
What Swift does is – has everyone heard of an SaaS model – they’re content as a service. They have content. They have relationships with Foxtel, they have relationships with Optus and they have their own brand called WiZZ TV, and they distribute that content into mining camps.
What we liked about Swift more specifically is their ability to take that good solid model, they were doing about $14 million of revenue, and distribute that and grow it into different verticals, whether it is aged care or hospitality.
The big difference is, when you’re backing these types of companies, you have to back management.
Xavier Chris, a bit about Xavier and I when we met, he took a business from zero to $200 million and sold that. Then he took another business from zero to $600 million and sold that. Now he is involved in this little $15 million revenue on an enterprise value of $7 million.
Enterprise value, for those who don’t know what that means, when you’re looking at enterprise value, it is really your market cap, less your cash, plus your debt. It’s really important to look at your enterprise value rather than your market cap.
Your market cap is your number of shares times what the stock price is. For an unlisted business or a start up; it’s the number of shares on issue, times what you think it’s going to be valued as a stock price. That gives you your market cap.
It’s important to look at your enterprise value because that takes into account your cash and that takes into account your debt.
But this business has $15 million of revenue trading on an EV of $7 million; they finished their life cycle in debt. They finished on the break even side. They’re cash flow positive, revenue positive. They have a manager there who has taken two businesses from zero to $600 million and has created shareholder value. This business we were happy to put our Peak brand behind it, my name behind it, and list it on the ASX. It’s gone from 15 cents to about 26-27 cents today in a matter of two or three months.
Is 80% return in three months a good return on a tech startup investment? Sure. Is it better than cash of 3%? Yes.
This is an example of the type of case study.
If you picked up the phone to Xavier, and Ben knows him quite well, and asked him how much due diligence did Peak do. We did a lot of due diligence; two months, three months worth of work. So a lot of work. It was meeting managers, speaking to the suppliers, having a look at the financials, looking at the contractors, speaking to the other guys. It’s a lot of work that goes on in the background.
Now that you are grounded in the most important details to understand, you can apply the numbers when considering a tech company for investment. It’s not just about the growth, value, or even the bottom line, but it’s also about the people and management. This is just as important if you are a tech startup looking to present your value to potential investors. No matter which side of the equation you are on, make sure you are armed with facts and consider the right questions for the best chance for success.
Are you looking for expert input regarding your tech startup, or considering and investment yourself? Get in touch with us today.