Tuesday’s announcement of BT’s acquisition of Ribbit for $105M was great news. Yes, Sand Hill Road, there *are* still good exits possible in the VoIP space. Ribbit was smartly focused on new voice applications that create value and add functionality, rather than paving cow paths with new technologies applied to the same old model for landline phone service, a market that will be dominated by Cable triple-plays for those that still want landlines.
A pre-revenue exit for Ribbit was probably their best choice. Once a startup has a few years of revenue, then its valuation is based on that, and you don’t get the sort of valuation Ribbit got unless you are generating real sales growth. I think monetizing their platform will be an extremely difficult challenge for them and the revenues won’t come quickly. When your growth depends on the ability of your customers (i.e. the people developing apps on Ribbit) to attract and retain end-customers, its hard to manage your own revenue and meet targets. And I suspect most of the developers were focused on free apps or incremental features for which it would be hard to charge a lot of money.
The folks over at RingCentral, which has been around for 10 years, can’t be too happy about this. On March 11 they announced a partnership with BT. Such deals are often a first date in the courtship that can lead to an acquisition, and I imagine their investors Khosla Ventures, Sequoia, and DAG Ventures had high hopes for a quick exit. Ribbit’s platform gives BT everything they need to recreate what RingCentral does, and I suspect that BT will not renew its agreement with RingCentral once its over. It may be that BT did dance around the idea of buying RingCentral, but if they did I’d guess their valuation would have been based on RingCentral’s growth to $10M in revenue over 10 years, which is certainly not enough to get a 10X revenue multiple. Ah, yes, how strange the math of Silicon Valley valuations!