Feeds

Why have VCs hosed down an obscure startup with cash?

Our man ponders on the secret that has money men drooling

SANS - Survey on application security programs

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. ®

High performance access to file storage

More from The Register

next story
This time it's 'Personal': new Office 365 sub covers just two devices
Redmond also brings Office into Google's back yard
Oh no, Joe: WinPhone users already griping over 8.1 mega-update
Hang on. Which bit of Developer Preview don't you understand?
Microsoft lobs pre-release Windows Phone 8.1 at devs who dare
App makers can load it before anyone else, but if they do they're stuck with it
Half of Twitter's 'active users' are SILENT STALKERS
Nearly 50% have NEVER tweeted a word
Internet-of-stuff startup dumps NoSQL for ... SQL?
NoSQL taste great at first but lacks proper nutrients, says startup cloud whiz
IRS boss on XP migration: 'Classic fix the airplane while you're flying it attempt'
Plus: Condoleezza Rice at Dropbox 'maybe she can find ... weapons of mass destruction'
Ditch the sync, paddle in the Streem: Upstart offers syncless sharing
Upload, delete and carry on sharing afterwards?
New Facebook phone app allows you to stalk your mates
Nearby Friends feature goes live in a few weeks
Microsoft TIER SMEAR changes app prices whether devs ask or not
Some go up, some go down, Redmond goes silent
prev story

Whitepapers

Securing web applications made simple and scalable
In this whitepaper learn how automated security testing can provide a simple and scalable way to protect your web applications.
3 Big data security analytics techniques
Applying these Big Data security analytics techniques can help you make your business safer by detecting attacks early, before significant damage is done.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Top three mobile application threats
Learn about three of the top mobile application security threats facing businesses today and recommendations on how to mitigate the risk.
Combat fraud and increase customer satisfaction
Based on their experience using HP ArcSight Enterprise Security Manager for IT security operations, Finansbank moved to HP ArcSight ESM for fraud management.