3 ms·

where does the $2 CPM come from?

by keefe 15y ago

NY_USA_Hacker 15y ago
Not from a good source, just from various claims that $1 to $5 CPM are common, some rough calculations starting with some summary data for Google, etc. I'd very much like a good source. But if the $2 CPM is within a factor of several of reality, then the broad conclusion still holds: By the time a project is live and has users and, thus, qualifies for equity investment, if it is a good project with usage growing rapidly, then it should throw off enough cash to make equity investment unattractive due to how long it takes to get a check and the chances that after a year the revenue and pre-tax earnings will be larger than the check. But, if cut the CPM by a factor of 10 to $0.20 and assume 5 ads per page sent, then the revenue per page sent is only cut in half and so are the monthly and annual revenue figures. Then the broad conclusion still holds: By the time the project is ready for equity funding, if it is a good project, that is, with usage growing quickly, then it should soon no longer need and maybe not want equity funding. And with some irony, here "soon" means in time about the same as that required to raise equity funding. So, the founders can sit there and ask, "For the next six months, what do we do? Do we use the time to jerk the chains of a few hundred investors, pitch to a few dozen, and get a check or just keep working on our project, help the usage keep growing, and at the end of the six months have more in cash in pre-tax earnings than we would get from an equity investment check and still own 100% of our business and not worry about a Board. Also, now we just own the business outright, but the day after an equity investment we will own none of the business and, instead, have to work for about four years on a 'vesting schedule' to get back our fraction of the business, and we will never get it all back. So, what do we do for the next six months?" So, broadly we have to ask, will there soon be some really successful Web sites that never took equity funding? So, for this part of investing, is venture capital dead?
- keefe 15y ago
  my research seems to indicate you start off low, plateau at around a quarter and then once you have a niche you can see these high values. I've heard that $1-$5 are common in the sense that you see them, not in the sense that they are within a small number * standard deviations from the mean. overall the principle holds but the investment is an accelerator, once you have users you have competition.
  - NY_USA_Hacker 15y ago
    Okay, to 'out do' the competition. But that is a relatively new reason or emphasis if only because in the past 'venture capital' could invest in something on the back of a napkin and was needed for a lot in buying hardware and software, office furniture, recruiting, salaries, doing the development, building a marketing organization, starting the selling cycle, etc. before any revenue. Now a motherboard for a 4 core processor with a 3 GHz clock is about $100; a server farm style 1 TB disk drive is about the same; Unix style software is not very expensive, and the Microsoft BizSpark program will let a startup use Microsoft software for free for a while, etc. The venture people want the development done, the site live, users, and, thus, likely revenue, and users and revenue growing rapidly. So, the situation now is much different than before. So, before there were a lot of strong reasons to take equity funding, and now the reasons are much weaker.

where does the $2 CPM come from?

by keefe 15y ago

where does the $2 CPM come from?

Not from a good source, just from various claims that $1 to $5 CPM are common, some rough calculations starting with some summary data for Google, etc. I'd very much like a good source. But if the $2 CPM is within a factor of several of reality, then the broad conclusion still holds: By the time a project is live and has users and, thus, qualifies for equity investment, if it is a good project with usage growing rapidly, then it should throw off enough cash to make equity investment unattractive due to how long it takes to get a check and the chances that after a year the revenue and pre-tax earnings will be larger than the check. But, if cut the CPM by a factor of 10 to $0.20 and assume 5 ads per page sent, then the revenue per page sent is only cut in half and so are the monthly and annual revenue figures. Then the broad conclusion still holds: By the time the project is ready for equity funding, if it is a good project, that is, with usage growing quickly, then it should soon no longer need and maybe not want equity funding. And with some irony, here "soon" means in time about the same as that required to raise equity funding. So, the founders can sit there and ask, "For the next six months, what do we do? Do we use the time to jerk the chains of a few hundred investors, pitch to a few dozen, and get a check or just keep working on our project, help the usage keep growing, and at the end of the six months have more in cash in pre-tax earnings than we would get from an equity investment check and still own 100% of our business and not worry about a Board. Also, now we just own the business outright, but the day after an equity investment we will own none of the business and, instead, have to work for about four years on a 'vesting schedule' to get back our fraction of the business, and we will never get it all back. So, what do we do for the next six months?" So, broadly we have to ask, will there soon be some really successful Web sites that never took equity funding? So, for this part of investing, is venture capital dead?

keefe 15y ago
my research seems to indicate you start off low, plateau at around a quarter and then once you have a niche you can see these high values. I've heard that $1-$5 are common in the sense that you see them, not in the sense that they are within a small number * standard deviations from the mean. overall the principle holds but the investment is an accelerator, once you have users you have competition.
- NY_USA_Hacker 15y ago
  Okay, to 'out do' the competition. But that is a relatively new reason or emphasis if only because in the past 'venture capital' could invest in something on the back of a napkin and was needed for a lot in buying hardware and software, office furniture, recruiting, salaries, doing the development, building a marketing organization, starting the selling cycle, etc. before any revenue. Now a motherboard for a 4 core processor with a 3 GHz clock is about $100; a server farm style 1 TB disk drive is about the same; Unix style software is not very expensive, and the Microsoft BizSpark program will let a startup use Microsoft software for free for a while, etc. The venture people want the development done, the site live, users, and, thus, likely revenue, and users and revenue growing rapidly. So, the situation now is much different than before. So, before there were a lot of strong reasons to take equity funding, and now the reasons are much weaker.