2. Project Objectives
•Identify insights from the data of the top 60 exited Digitally Native Vertical Brands
(DNVBs).
•Understand what makes successful brands and founders. Understand the risks as well.
•Create a repeatable process and framework, based on these insights, to pressure test
investing in brands out of a $75M venture fund.
3. Process: DNVB Survey + Scenario Modeling
Spoke with and surveyed 60 DNVBs (Digitally Native Vertical Brands)
that exited over the past ten years, understanding:
• Years in business (before exit)
• Exit price
• Total funding (over # rounds)
• Revenues at exit
• Multiples on exit
• Age of founders
• Experience of founders
• Race and gender of founders
Interviews with founders to uncover key considerations for successfully scaling + exiting
4. Findings
Top 10 Median Average
2.67
$ 53M
$ 102M
4.28
$ 238M
3.04
$ 140M
Revenue Multiple
Revenues at Exit
Money Raised
# Financing
Rounds
Years to Exit
Valuation at Exit
3.06
5.61
$1.5B
4.3M
2.00
5.00
$100M
$ 50M
2.73
5.72
$678M
5. Top Exits, by Exit Price + Revenue Multiple
$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
$3,000,000,000
$3,500,000,000
$4,000,000,000
$4,500,000,000
$5,000,000,000
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1
2
3
4
5
6
7
8
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RevenueMultiple
$
4.4B
$
1.37B
$
1.1B
$
1B
$
845M
$
575M
$
500M
$
400M
$
310M
$
300M
$
225M
$
200M
$
200M
$
100M
$
100M
$
100M
4.50
3.91
3.62
5.00
8.00
1.61
5.00
5.71
2.07
3.00
4.00
1.18 1.41
6. Benchmark Case – Top Ten Outcomes
What is a fund returner?
• Modeled what a Top Ten company exit
would look like for a $75M fund where
Alpaca wrote a $1.5M Seed check.
• A Top Ten DNVB could return the entire
fund with a 4.2x multiple on revenue.
• However, in a Top Ten use case,
valuations are typically high and so
ownership tends to be lower and
dilutive; also, obvious to note that this
scenario is unlikely.
Size Fund
Total $ Raised
# Rounds
Dilution/Round
Years to Exit
Multiples on Revenues
Age of Founder
Years of Experience
Growth Rate
Average CV Check
Revenues at Exit
Assumptions
$ 75,000,000
$ 101,941,194
3
10.00%
5.61
$ 237,689,000
4.28
32
9
200%
$ 1,500,000
Check #1: Average Valuation
Check #1
Case: Top 10
Total Invested ($)
% Ownership at Exit
Exit Price
$ Returned
TVPI
Return Multiple
Outputs
$ 10,710473
8.75%
$ 1,018,151,574
8.32
1.188
$ 89,067,900
7. Benchmark Case – Median Outcomes
What is a fund returner?
• Importantly, valuation comes into play
when you consider a more Median-
sized outcome.
• Ownership and valuation expectations
become paramount – in this scenario, it
becomes much harder to see a path
toward fund returns
• Since this is the median outcome of the
top 60 exits over the last ten years, the
likeliness of this outcome needs to be
considered.
Size Fund
Total $ Raised
# Rounds
Dilution/Round
Years to Exit
Multiples on Revenues
Age of Founder
Years of Experience
Growth Rate
Average CV Check
Revenues at Exit
Assumptions
$ 75,000,000
$ 8,330,303
3
10.00%
5.00
$ 52,500,000
2.67
30
9
154%
$ 1,500,000.00
Check #1: Average Valuation
Check #1
Total Invested ($)
% Ownership at Exit
Exit Price
$ Returned
TVPI
Return Multiple
Outputs
$ 2,252,650
8.75%
$ 140,000,000
5.44
0.163
Case: Median
$ 12,247,200
8. DNVBs are historically overcapitalized and valued too
aggressively at Seed
DNVBs are overcapitalized:
• .82:1 ratio of capital raised to exit valuation, on average
• Highest exit valuations raised substantive funding ($102M, on average) though still
likely resulted in outsized Seed investor returns despite overcapitalization
• Abundant funding won’t likely continue in 2020-2021, so we need to believe a Seed
company can get to scale without hundreds of millions of VC dollars
Seed valuations are too high:
• If exit multiples are at best 2.6-4.2, then Seed multiples need to reflect reality
• Expect companies to get to $55-350M in revenues in order to exit – and model exit
scenarios off that potential (i.e., not $1B)
9. Key considerations to invest: ownership, fund size, profit
Ownership for DNVBs at Seed is paramount:
• Given that exit multiples and revenues are compressed (4.2X on $237M at the high end),
owning substantially more of a Seed round is the primary way to ensure an outsized return
• Of note: Alpaca Fund II’s average Seed ownership is 5.81%
Size of fund matters for relevant outcomes:
• At a $37M fund (our fund II), the top end of DNVB exits presents interesting, fund-returning
results; picking a winner remains the goal
• As our fund size grows over $40M, it becomes harder – if we assume typical ownership – to
return the fund
Profitability and patient capital:
• Brands that did not experience a significant write down were profitable – or close
• 5-6 years to exit means building brands takes time; even if we were to get comfortable with
investing, there is a longer capital cycle to consider
10. An Alpaca Framework for DNVBs
We wanted to create a repeatable framework and lens through
which to investigate DNVBs. The following is what we uncovered:
• DNVB Investing Tool can be used to evaluate Seed-stage
opportunities against the 60 benchmarked companies and to
understand what Alpaca should evaluate in terms of seed
size, valuation, growth rate, dilution, and expected returns.
• We also enhanced our 19 Factor Matrix to incorporate key
considerations for digital brands, specifically, as we diligence.
Both should be used when evaluating a digital brand
11. DNVB Investing Tool
How it works
• Goal Seek TVPI based on different inputs to understand what we need to believe to back a fund returner.
• Inputs to test include round size, company growth, valuation, ownership %, dilution, and expected returns.
$ 3,000,000
32
10
Alpaca Check Size
Size Fund
Total $ Raised
# Rounds
Dilution/Round
Years to Exit
Multiples on Revenues
Age of Founder
Years of Experience
Growth Rate
Seed Size
Revenues at Exit
Assumptions
$ 75,000,000
$ 16,000,000
3
20.00%
5.00
$ 300,125,000
3.04
35
12
250%
$ 1,500,000
Valuation at Seed
Revenues Y1
$ 11,674,804
$ 2,000,000
$ 677,579,677
$ 55,716,267
Total Invested ($)
% Ownership at Exit
Exit Price
$ Returned
TVPI
Return Multiple
Ownership at Seed
$ 2,769,906
8.22%
$ 912,228,938
27.08
1.000
$ 75,011,091
Outputs
13%
1 2Revenues 3 4 5 6 7
1 1 1 1 1 0 0
$ 2,000,000 $ 7,000,000 $ 24,500,000 $ 85,750,000 $ 300,125,000 $- $-
1 2 3 4 5 6Funding
1
$ 3,677,849
6.4%
$ 3,000,000
$ 1,500,000
13%
$ 11,674,804
$ 1,500,000
1
$ 6,676,463
11.6%
$ 1,849,139
10%
$ 93,810,315
$ 190,065
1
$ 47,414,962
82.1%
$ 13,132,230
8%
$ 666,222,933
$ 1,079,842
7 Total
0 0 0 0
$ 57,769,274
$ 17,981,369
$ 912,228,938
$ 2,769,906
12. Analyze
We use these 19 factors to identify key risks.
Team Market
Product Misc.
Confidential
13. Analyze
Brand Market
Misc.
For DNVBs, we have created 12 more factors to consider.
Market
Misc.
ROC – Return on Community:
• Look for repeat customers above 35% in a 12-month period
• “Networking effects” of community are shown through repeat users, low
churn (<10%), low returns (<20%)
Omnichannel = table stakes:
• Online cannot be the sole channel
• Prove wholesale as a viable channel (not just a test/pilot)
• Prove the 4-wall model with >25% margin
Fund non-traditionally:
• Show path to profitability
• Valuations should not be above 4.5X current revenues
• Founders need to de-risk the debt question with LOC
Beyond social paid:
• Unique acquisition channel beyond paid or social
Confidential
