We like to make our initial investment sometime between the formation of a business and the first dollar of revenue coming in the door. Sometimes that time period lasts a while. In the interim, how do you monitor how an investment is doing? Even after revenue starts rolling in, its helpful to have alternative metrics to monitor the growth and health of a business.
What we do is develop metrics for each investment, usually jointly with the management team, that we will use to monitor progress.
I know that this smacks of the bubble era when public companies were being valued on the basis of page views. But absent revenues, earnings, and cash flows, you need something to work with.
Page views are one metric that we look at. Another is unique visitors per day, week, month. With the advent of RSS, its important to monitor how much consumption happens via that channel.
Most of our companies do something that is more than just content on a website. So we like to identify a company specific metric and monitor that.
In the case of Indeed, we like to watch the number of searches per month.
In the case of Delicious, we like to watch the number of postings per month.
In the case of Tacoda, we like to watch the amount of behavioral data being captured in the TAN network.
We do not attempt to turn these numbers into a valuation. That kind of thinking is foreign to us. I read recently that the Weblogs/AOL deal values blogs at $600 to $900 per inbound link. That would make my personal blog worth $2.3 million. I am not a seller at that price or any price, but that still seems like a crazy way to value something.
What we do is use these numbers to monitor our investment thesis and make sure the opportunity is playing out the way we think it will. And we use them to find places where we need to work harder on the service to make it better. And we use them to show new hires, new partners, and new investors that the business is on a solid trajectory.
I was emailing with my friend Tom Evslin yesterday about some data he was looking for. I called him a "data junkie". It was a compliment. He wrote back that:
We gotta know whether we’re making this stuff up or it’s real
Web based businesses have incredible amounts of data that they spit out. It is critical that the management team and investors monitor that data closely to keep a handle on the business and its progress. It's a skill we work on every day.