E-Mailbag Monday: IPO from India, MP3.com Dodges Missiles, Pre/Post Money Valuations
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What's looking good with the IPO market?
Reply: This week is fairly prosaic. It should start to change, especially with the Handspring IPO coming up in two weeks.
But you might want to keep an eye on a Net company based in India called Rediff.com. It's basically a portal with 17 channels. The content is localized and there are opportunities for users to engage in e-commerce.
However, the Net market in India is still nascent. Revenues were $1.9 million in the past quarter, which was up from $855,000 in the same period a year ago.
The lead underwriter is Goldman Sachs and the proposed ticker symbol is REDF. The price range is $10-$12.
MP3.com: Tuning Up What do you think of MP3.com?
Reply: I've visited the company and have met with management. The company reminds me of AOL. Both were cutting-edge, controversial and seemed to be on the verge of extinction.
MP3.com has been able to extricate itself from a potentially crippling lawsuit from the recording industry. In fact, the company has been able to turn the situation into a major benefit.
Last week MP3.com settled its case with Time Warner Music and BMG. In the deal, MP3.com will be able to license the music from these labels through the cool MyMP3 service. The deal shows that the recording industry wants MP3.com to survive. After all, millions of people are downloading music from the site. Why not benefit from it?
With MP3.com not under a cloud of legal uncertainty, the company represents an interesting buyout opportunity. A suitor could be Yahoo! For example, it appears that Yahoo! is in negotiations to purchase Myplay. Although the deal may be in trouble because of Mplay's deal with AOL.
Pre/Post Money: What's This All About?
Reply: These are terms used in the venture capital community. The best way to understand the terms is to take an example. Suppose you have a great idea for a Net company, but need to get money. You know it will be huge. You place a $10 million value on the company. Of course, the VC will disagree and say it is really worth $5 million. The VC also says that it will invest $2 million at a pre-money valuation of $5 million. Now, the post valuation will then be $7 million, which is the pre-money valuation plus the $2 million invested. So, the VC will own 28 percent of the company, which is $2 million divided by $7 million. As an entrepreneur, it is important to understand the difference. If the $5 million was post money, then the VC would own a higher percentage.