What Tumblr’s 2013 Billion-Dollar Valuation Tells Us About How We Value Startups Today

A ghost of unicorns past ominously re-surfaced yesterday evening.

Verizon agreed to sell its blogging website Tumblr to Automattic, the owner of WordPress.com, for less than $3 million, according to Axios. It’s crazy to think that Yahoo paid $1.1 billion in 2013 to acquire the social media network. When it announced the acquisition, then-Yahoo CEO Marissa Mayer said, “As we promised this morning, we are not going to screw this up.”

By early 2016, Yahoo had written down Tumblr’s value by $230 million, and by 2017, all of Yahoo was sold to Verizon for just $4.48 billion.

How fitting that I wrote about skyrocketing valuations yesterday. I’m not saying every company will be worth way less than it is today, but it’s pretty interesting to see how history has played out.

One Term Sheet reader replied with the following question: “Do you know how many of these ‘unicorns’ would be valued at $1bn+ using a valuation approach (ie discounted cash flow (DCF), price to earnings ratio (P/E), or confirmed sale value etc) other than ‘last equity raise?’”

The short answer is: It’s hard. Share ownership in a private company is difficult to value due to the absence of a public market for the shares. Most early-stage tech startups are not cash generative or EBITDA positive. When Facebook, for example, bought Instagram for $1 billion, the company had 30 million users but zero revenue.

Similarly, when Yahoo bought Tumblr for $1.1 billion, the company had not generated significant revenue. The move was a bet that Tumblr’s large community of users would be a source of potential profits.

When Wall Street analysts asked Yahoo’s CFO Ken Goldman how the company arrived at its billion-dollar-plus purchase price for Tumblr, Goldman said: “We looked at forward EBITDAs multiples out a few years. We looked at an edifying value in terms of monthly active users and unique users.”

In non-cliché speak, he meant that Yahoo looked at the size of Tumblr’s audience (which was more than 100 million people) and then looked at how fast the service was growing and then they estimated what kind of advertising revenue Tumblr could generate in the future if it really got serious about selling ads. And then they made a somewhat educated guess.

But because it was ultimately a guess, that billion-dollar valuation has not held up six years later. The Tumblr acquisition is a healthy reminder that even though 2019 has been a “historic year for unicorns,” we shouldn’t get too excited. A lot can change in a few years’ time.

NEW FUND: Brian Jacobs, the co-founder of venture capital firm Emergence Capital, has launched a new venture firm. He has invested his personal capital to launch Moai Capital, a $10 million seed capital fund focused on consumer, IoT, cloud and impact investing. Within the realm of impact investing, Moai Capital will have a particular focus on autism employment.

Jacobs will continue to be a general partner at Emergence, meaning he will manage his past investments and sit on the boards of several portfolio companies, but he will focus his investment activity on Moai Capital. He is not a general partner in Emergence’s fifth fund.

NEW COMPANY: Aaron Rasmussen, the co-founder of MasterClass, has formed a new company called Outlier.org. Outlier will create online classes, available for $400 each. Students will earn transferable U.S. college credit by taking these courses. The idea is that U.S. students can take the first two years of college for a fraction of what it costs today.

“Today, access to the highest quality education is gated by geography, socioeconomic status, and unnecessary scarcity,” Rasmussen said.

I’ve written before about how America’s student loan debt problem is nearing a full-blown crisis. Outstanding student debt hit $1.5 trillion for the first time ever in 2018, and it doesn’t seem to be getting better. In fact, it appears that the trend is only accelerating when you consider that student debt accounted for $600 billion 10 years ago.

We’re seeing more and more online learning startups pop up to address the thorny problem of more affordable access to higher education. Lambda School, which uses income share agreements to allow students to attend school for free and pay back a percentage of their income after graduation, has raised approximately $48 million in venture funding.

Needless to say, I’m watching this space closely and thinking more about the looming student debt crisis that has the potential to do irreparable damage if left unaddressed.

VENTURE DEALS

- Uniphore, an India-based conversational AI technology company, raised $51 million in Series C funding. March Capital Partners led the round, and was joined by investors including Chiratae Ventures (formerly IDG Ventures), Sistema Asia, CXO Fund, ITP, Iron Pillar, and Patni Family.

- Attentive, a New York-based personalized mobile messaging SaaS platform for brands, raised $40 million in Series B funding. Sequoia led the round, and was joined by investors including Bain Capital Ventures, Eniac Ventures, NextView Ventures, and IVP and High Alpha.

- Pavilion Data Systems, a San Jose, Calif.-based NVMe-over-Fabrics storage platform, raised $25 million in Series C funding. Investors include Taiwania Capital and RPS Ventures.

- Singularity 6, a Los Angeles based online game development company, raised $16.5 million in Series A funding. Andreessen Horowitz led the round, and was joined by investors including LVP and FunPlus Ventures.

- Dostavista, a Moscow-based crowdsourced same-day delivery service, raised $15 million in Series B funding. Vostok New Ventures led the round, and was joined by investors including Flashpoint and Addventure.

- Hazel Technologies Inc, a Chicago and California-based agricultural technology company, raised $13 million in Series B funding. Pangaea Ventures and S2G Ventures led the round.

- Properly, a Toronto-based real estate technology startup, raised $22 million in Series A funding. Prudence Holdings and FJ Labs co-led the round, and were joined by investors including Golden Ventures and Kevin Ryan of AlleyCorp.

- Rimeto, a San Francisco-based employee information platform, raised $10 million in Series A funding. Investors include USVP, Bow Capital, Floodgate, and Ray Dalio.

- Polarity, a Farmington, Conn.-based memory augmentation platform, raised $8.1 million Series A funding. TechOperators led the round, and was joined by investors including Shasta Ventures, Strategic Cyber Ventures, and Gula Tech Adventures.

- Blade, a New York-based cryptocurrency derivatives exchange, raised $4.3 million in seed funding. Investors include Coinbase, SV Angel, A.Capital, Slow Ventures, Justin Kan and Adam D’Angelo.

- Joust Labs, a Denver, Colo.-based banking platform for independent professionals, raised $2.6 million in funding. PTB Ventures led the round, and was joined by investors including Accion Venture Lab, Financial Venture Studio and Techstars.

PRIVATE EQUITY DEALS

- Opus Agency, a portfolio company of Growth Catalyst Partners, acquired Clarity Creative, a Park City, Utah-based content design and visual communication agency. Financial terms weren't disclosed.

- TCV made an investment in Perceptyx, a Temecula, Calif.-based employee survey and people analytics platform. Financial terms weren't disclosed.

- GPRS, a portfolio company of CIVC Partners, acquired the utility locating business of Master Locators, a Glen Mills, Penn.-based provider of private utility locating services in the Northeast U.S.