Feeds

Why have VCs hosed down an obscure startup with cash?

Our man ponders on the secret that has money men drooling

Choosing a cloud hosting partner with confidence

Lookout provides mobile phone protection and management services in a friendly Mozy pre-EMC kind of way, kind of like a helpful uncle, but its revenue potential seems to be making VCs salivate.

Look at this funding history:

  • $5.5m in A-round in December 2009
  • $11m in B-round in May 2010
  • $19.5m in C-round in December 2010
  • $40m in D-round in September 2011

See how the funding pace accelerated in 2010 and then, this year, $40m came in? What is all this money for, all $76.5m of it? It's a huge amount and this is a software company, not a hardware development company. Certainly it has staff to pay - app security status curators for example - and is building global sales, marketing and partnership infrastructure, with local language European product and partners. That takes a chunk of change, and another big money pot is building out its data centre operation, but $76.5m is still huge sum. What is going on?

Something changed between December 2010 and September this year, something that prompted VC backers to pour in another $40m, almost as much as all the previous funding combined, something that could have been triggered by some business performance benchmark being reached.

But it was something that saw enormous revenue potential in reach, some big, big numbers. What could that be?

Lookout has 12 million customers, with Android as its code platform and likely to remain so. Some proportion of its customers convert to paid-for premium services but Lookout won't say what the conversion rate is. Still we can make a relatively informed guess as the company isn't yet profitable or profitable enough to pay for its build-out without taking $40m VC cash.

So revenues are not $40m. What might they be? Surely high enough to get the VC backers excited. Lets try a 1 per cent conversion rate and $30/year income per paying customer. It's adding, it says a million new customers a year.

Lookout Phone Shot

One percent of 12 million is 120,000; that times $30 equals $3.6m/year. Let's deduct half for revenue sharing with partners and that gives us $1.8m/year. Add in a growth of 1 per cent of 1 million - 10,000 times half a year's $30/new customer revenue split two ways, equalling $150,000 - and that gives us $1.95m a year - not much to excite a hungry VC at all.

Before moving on let's try multiply this to a 5 per cent conversion rate, which gives us a five-fold multiplier, equalling $9.75m, still no great shakes, and a 10 per cent rate giving us $19.5m, a bit more like it. Okay, Lookout is shooting for 100 million customers. A 1 per cent conversion rate of that would give us, approximately, $15m, and a 5 per cent conversion rate $75m/year, and, the kicker, a 10 per cent rate would generate $150m. Ah, VC excitement detected.

If Lookout can offer more paid-for services, such as cloud backup priced by data amount, and/or increase the conversion rate, then we have a money-generating machine here. Our numbers are crude and our calculations simple but, even so, we can begin to see that Lookout could be a cloud ATM for its backers, pouring out a river of cash.

Conversion rate and average revenues per customer will be key, as will retaining the ethos of the founders and their product. If they can pull this off, then Lookout could become a greenback gusher in the cloud. ®

Intelligent flash storage arrays

More from The Register

next story
Netscape Navigator - the browser that started it all - turns 20
It was 20 years ago today, Marc Andreeesen taught the band to play
Sign off my IT project or I’ll PHONE your MUM
Honestly, it’s a piece of piss
Return of the Jedi – Apache reclaims web server crown
.london, .hamburg and .公司 - that's .com in Chinese - storm the web server charts
Chrome 38's new HTML tag support makes fatties FIT and SKINNIER
First browser to protect networks' bandwith using official spec
Admins! Never mind POODLE, there're NEW OpenSSL bugs to splat
Four new patches for open-source crypto libraries
Torvalds CONFESSES: 'I'm pretty good at alienating devs'
Admits to 'a metric ****load' of mistakes during work with Linux collaborators
Ploppr: The #VultureTRENDING App of the Now
This organic crowd sourced viro- social fertiliser just got REAL
prev story

Whitepapers

Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Cloud and hybrid-cloud data protection for VMware
Learn how quick and easy it is to configure backups and perform restores for VMware environments.
Three 1TB solid state scorchers up for grabs
Big SSDs can be expensive but think big and think free because you could be the lucky winner of one of three 1TB Samsung SSD 840 EVO drives that we’re giving away worth over £300 apiece.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.