E-Mailbag Monday: IPO from India, MP3.com Dodges Missiles, Pre/Post Money Valuations

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.

It will likely take several years for the company to build momentum.
So, an investment in Rediff.com is likely to be volatile. Keep in mind that
another Indian portal, Infosys, is up over 450% since its IPO
last year.

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.

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