Although I know the folks at Picnik fairly well, I haven’t talked to any of them about the
acquisition and TechFlash has done a great job of
tracking this story. However, I did talk with a friend who makes large acquisitions for a large public company and asked him how Google would have valued that deal. Based on his response, I wrote what’s an estimate of the acquisition price. It’s obviously wrong. Or is it? Feel free to leave some comments with your views or to correct my estimates.
Before I go into the details of the valuation, it’s worth remember that an acquirer buys a company not based on what the startup has/is, but based on the value it will bring to them, also known as “lift”.
Here are the checkboxes Google would use to value this deal:
Brand ($5-20MM): We in the startup world consider Picnik a major successful brand, but in the sea of brands like Google, Adobe and Amazon, Picnik is just a tiny wave.
Team ($15-30MM): There were several companies that used the simplest of the formulas to value startups: $1 million per employee. Some companies would use a variation of that and say $1 million per engineer. Certainly, Jonathan Sposato is executive “material” and he alone could be worth $3-5 MM to Google.
Time to Market ($10-30MM): What if Google was already trying to build their online photo editing tool to compete with Adobe Photoshop Online and Picnik itself. How many developers, designers, testers, managers would that take? There’s no doubt they could build a Picnik-like service, but Picnik has a 4-year headstart and that’s a lot of features just to match what they have and they would still need 9-12 months to take it to market.
User Base ($16-80MM): Picnik says it had 16.8 million unique visitors last month. It’s hard to know how many of those are users vs. passer-bys, but even if you put just a $1 per unique on the valuation, you are talking about $16MM, but that’s a low valuation for a service that has a healthy monetization of their users through a freemium model. This not like that, but YouTube and MySpace were both acquired for $20-ish per unique visitor. Both acquisitions were because of a tremendous fast growth, which is different from Picnik’s steady rise.
Revenue ($0-10MM): Picnik being profitable and having 22 employees plus operations cost would mean they are making at least $3M a year in revenue. It’s pretty hard to believe Google would care about that revenue or whatever cash Picnik had on the bank.
You also have to take into account two important external factors. First, if there were other serious bidders on the deal – Jonathan said there was – that would have a multiplier effect on that valuation, anywhere from 10% to 200%. The second is unknown liabilities in terms of contractual agreements they might have made – like the Flickr deal – which might have a penalty or some other obligations the buyer doesn’t like.
Tallying it up: If you sum it all up, you’ll get a value between $46 and $190 million. Remember Picnik was bootstrapped so the founders own probably 80% of the company, that means at worst case scenario Jonathan and the other co-founders have pocketed $12M, or $3M/year of work, more likely it was $8M/year for each of the founders. Nice!