In the previous articles we looked at how a revenue model for a design services company can develop and how it can be grown to create multiple independent revenue streams. This obviously increases the value of the business. The ability to decouple, even loosely, the revenue growth from the headcount is a key step for a design services company. It makes it more robust, more valuable and less impacted by market fluctuations.
Whereas the earlier (staircase) model is a good approach in scaling up revenue and creating new revenue streams, the foundation of the company is still based on the service model: headcount continues to be the main driver (typically up to 60-70% of revenue). In terms of (enterprise) valuation the additional revenue streams, however, will already make a significant difference.
A much bigger leap is possible when shifting the complete model: from service to product. At that moment the enterprise value of the company is determined by the market potential of its product. This is not an easy step to take. The different models we have supported include a buy-and-build approach and a spin-out approach. Both have design services and accumulated product knowledge at their foundation. Both have advantages and challenges, and the root of their choice often depends on the historical developments of the company and its size. Larger companies are more likely to choose for a spin-out approach as it leaves the “mothership” more or less intact (and as such an additional anchor for the spin-out). It also allows for further spinouts based on other valuable technological tangents being developed by the company. Smaller companies tend to be better suited to make the jump as one. For both scenarios successful exits have been achieved with exit values in excess of €350M. As the path to this type of exit requires more thought and preparation, it is less popular.
However, we do observe a higher degree of success when this path is followed. This should make it more worthwhile to (deep-tech) investors to consider and support design services companies.
Many founders underestimate how different deep tech fundraising really is. Deep tech funding rounds don’t follow the same rules as software funding rounds. These rounds take more time, they are larger, and are validation-driven due to long-lasting R&D cycles and capital intensity. Imagine that each round answers the question, then what question would it be?
Early exits are named as such because the exit constitutes an interruption of the regular venture path. There are several paths to an early exit, some organized, some happen by coincidence. For startups, it is important to have a clear focus on the path forward and, based on the technology and product it is developing, to understand the startup’s value path.
TD Shepherd congratulates Keiron Printing Technologies on successful raising Series A round led by Invest-NL. Keiron Printing Technologies B.V. (Eindhoven) commercializes a laser-induced forward transfer (LIFT) platform for solder paste deposition in electronics assembly.