Overview
Revenues
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NOTE TO READER: Various sophisticated inputs were sought during the building of our pro-formas. There are so many potential markets for Data1Qbit's data and the markets are so large that we were challenged to bring our revenue numbers in line with typical start-up expectations. You will see that earnings as a % of sales are currently projected at 54% for 2018 and 65% for 2019. Seat sales and revenue growth are strong but not reflective of potential demand in this crisis environment. Industry data sales only generate $11M in sales in 2018, going to $36M in 2019. It is our contention that there is great potential to increase revenues/profits by increasing the low VAaaS subscription prices (doubling those prices) and that the immediate demand for VAaaS seats and industry data sales will be much higher than projected. Such changes could quickly drop much more money to the bottom line and radically improve the performance of an already strong pro-forma. BOTTOM-LINE. It is our contention that due to the cyber security crisis, the demand for this type of data and our VAaaS SaaS application will be such that it will drive larger numbers than are described below. |
Data1Qbit's products are digital and our cost of production is very low, especially as we scale. Our data products are typically sold on a recurring revenue basis that leads to very high profit margins. This model is familiar and desirable to SaaS investors.
Once the data is collected and organized, numerous highly targeted, independent, distinct, and high-volume revenue sources can be generated for the company. At this time, we have identified only a few of the possible cyber security data products that will eventually be sold into both broad and specialty markets. Some of those products are:
- Vendor assessment via the VAaaS (B2B) SaaS application
- Vendor management services via a SaaS application
- Various cyber security product and company newsletters and daily bulletins customized and targeted at multiple global markets
- Other reports and customized data for specific industries, such as the insurance and financial services industries
- Consulting, partnership, and other identified revenue streams
Once the data collection systems are operational, our ability to generate revenues will be immediate. It is our assumption that once Data1Qbit is fully funded, the demand for our products will be such that we will be able to pre-sell subscriptions and generate substantial and meaningful revenues ahead of our official launch.
Please refer to the "High-Level Pro-forma Summary" below and also the full pro-forma [see "Confidential Documents" section of this business plan] for a detailed description of products and anticipated revenues.
While it is impossible to accurately predict how many of our various subscriptions can be sold into our targeted global markets, it is meaningful to note that within the pro-forma, the sale of only 46,000 VAaaS subscription seats in 2017 would generate over $7M in revenues. Look at this number in the context of all the products we intend to launch, the enormity of the size of our target markets, and the current lack of meaningful competition--and you can get an idea of the potential of this opportunity.
Pro-forma
We have developed an accountant-level, GAAP-compliant pro-forma model that contains compartmentalized business unit details and complete CAP tables. An abridged, but very detailed 4 year pro-forma is available to qualified investors. The following is a high-level summary of information contained in that pro-forma and some basic assumptions:
- Company funding and launch in January of 2016
- Initial product launch (VAaaS software, plus three newsletters/bulletins [all B2B]) in January 2017
- VAaaS SMB (small-to-medium business) seat/subscription rates of $69/week, $179/month, $649/year
- VAaaS and newsletter package pre-orders starting in July 2016
- Pre-order package rate of $199/year
High-Level Pro-forma Summary
| 2016 Units | 2016 Revenues | 2017 Units | 2017 Revenues | 2018 Units |
2018 Revenues | 2019 Units |
2019 Revenues | |
| Total VAaaS Subscriptions/Seats Sold | - | - | 46,621 | 7,403,111 | 102,960 | 19,860,392 | 131,264 | 30,807,151 |
| Newsltr-Bulletin Subs sold | - | - | 6,210 | 3,475,510 | 11,300 | 4,660,500 | 15,675 | 9,834,150 |
| Pre-launch VAaaS orders sold | 3,000 | 597,000 | 1,500 | 298,500 | 1,500 | 298,500 | 1,500 | 298,500 |
| Data report product sales | - | - | 2,223 | 59,727 | 14,824 | 413,376 | 18,950 | 1,038,550 |
| Industry data sales | - | - | 14 | 1,650,000 | 42 | 10,950,000 | 84 | 36,175,000 |
| Consulting sales | - | - | 150 | 35,000 | 1,950 | 450,000 | 3,000 | 975,000 |
| Country rights sales | - | - | ||||||
| Affiliated product sales | - | - | 761 | 19,013 | 1,992 | 49,791 | 2,460 | 61,488 |
| Data as a Service sales | - | - | ||||||
| Silo Sales | - | - | - | - | - | - | - | - |
| Total Sales | 597,000 | 12,940,860 | 36,682,559 | 79,189,839 | ||||
| Total Operational Expenses | 8,917,952 | 10,996,698 | 16,662,151 | 27,855,425 | ||||
| Cash Flow | (8,320,952 | 1,944,162 | 20,020,408 | 51,334,414 |
It is the Founder's hope that the reader becomes interested enough in this opportunity to carefully study the various additional documents available to qualified investors, including the detailed pro-forma HERE.
NOTE: The Pro-forma referred to here and available to qualified investors/interested parties is a forward-looking tool and a set of possible projections that will help interested partners to better understand our business and intentions. However, the pro-forma's primary function is to help us launch and operate the company in an organized and efficient fashion. It is a carefully thought-out document that will guide the deployment of any eventual funding resources. Anyone who might consider investing in Data1Qbit LLC should not base any investment decision upon any information presented in the pro-forma and should seek professional legal and financial advice before making any decisions.
Use of Proceeds
The proceeds of any fundraising will be used to build the IT and human resource systems necessary to IPO (Input-Process-Output) the data and to market that data to our various target markets.
According to pro-forma projections, if $11M were raised by Janurary 2016, it would take until January 2017 to launch the system. It would take approximately $10.8M to bring the operation to cash flow break-even at the end of 2017. From that point on (as a result of all the various possible data products we can sell), it becomes very profitable.
Please refer to the detailed pro-forma and "The Company" section of this business plan for more information. The reader will see that approximately half of all expenses are associated with U.S. and offshore personnel expenses, while the remainder is associated with U.S. and offshore infrastructure expenses.
Valuation
A meaningful valuation for a pre-revenue start-up company is not easy, but not impossible. Unlike efforts to value social media start-ups, for instance, this type of data company does have "comp" examples. Additionally, comp information for other cyber security companies is also available and useful to this effort.
1. Data company comp. As a data company comp, we'll use IHS, which happens to be a Denver-based, data collection and data sales business. It is a publicly traded information technology company focused on older, more established industries such as oil and gas, manufacturing, construction, and healthcare. While it is an IT company itself, its focus is not the IT industry and also not the cyber security industry. It may be noteworthy that IHS, in fact, served as part of the inspiration for the formation of Data1Qbit.
IHS valuation highlights (https://www.ihs.com):
| Sales 2014 | $2B |
| Market cap 2014 | $8B |
| Earnings 2014 | $690M* |
| Market cap X earnings | 12X |
| Market cap X sales | 4X |
| Earnings as a % of sales | 31% |
*NOTE: The earnings for IHS would have been over $200M more in 2014 than reported, but $200M was spent on acquisitions. Historically, IHS spends a large percentage of earnings on acquisitions.
2. Cyber security company comps. As the cyber security crisis becomes ever more evident, valuations associated with cyber security companies are increasing rapidly. A good representation of what is going on in this space is revealed by an examination of the PureFunds ISE Cyber Security ETF. This is an exchange traded fund (symbol: HACK) that focuses on and invests in cyber security companies. Please go HERE for a detailed summary of this ETF fund as of March 6, 2015.
HACK Portfolio Company Valuation Highlights
| Total Net Assets | $434.9M* |
| Number of Cyber Security Stocks Owned by Fund | 32 |
| Price/Prospective Earnings | 31.63X |
| Price/Sales | 3.46X |
| Price/Cash Flow | 21.38X |
*NOTE: The HACK ETF has attracted almost half a billion investment dollars into these 32 cyber security companies in a very short period of time. This is indicative of the investment interest and potential in this space.
Valuation Summaries: For both IHS and the 32 companies in the HACK ETF, the companies are valued at about 4X sales. Additionally, IHS is valued at 12X earnings and the HACK companies are valued at a range of 21-31X earnings/cash flow.
Data1Qbit Valuation Projections
Making the assumption that the Data1Qbit founder raises $11M and sells a 30% stake in the company, the start-up/pre-revenue valuation for Data1Qbit would be $36.7M.
The following tables use the 2017 and 2018 Data1Qbit pro-forma revenue numbers (when revenues start to become meaningful) and perform various comps to IHS and the HACK ETF companies. We use IHS valuations as our base-line, but assume that our focus on cyber security will allow us to command a higher premium.
| IHS 2014 | HACK | D1QB 2017 | D1QB 2018 | |
| Sales/Projected Sales | $2B | - | $12.9M | $36.7M |
| Earnings or Cash Flow | $690M | - | $1.9M | $20M |
| Earnings as % of Sales | 31% | - | 15% | 54% |
| Market Cap | $8B | |||
| Market Cap/Valuation X Earnings | 12X | |||
| Market Cap/Valuation X Sales | 4X | 3.46X | ||
| Price/Prospective Earnings | 31.63X | |||
| Price/Projected Cash Flow | $21M | |||
| Data1Qbit Valuation based on 4 X Sales | $52M | $146M | ||
| Data1Qbit Valuation based on 12 X Cash Flow | $23M | $240M |
According to Crunchbase, the typical VC exit occurs between 6-7 years. Below are a few conservative exit scenarios for Data1Qbit. Considering the business model, our many independent sources of revenues, and the many "platform" opportunities the company will have, readers will no doubt have higher sales/cash flow expectations for this company. A data company has extremely high margins. Various margins are assumed and expressed.
| IHS 2014 | D1Qbit 2016 | D1Qbit 2017 | D1Qbit 2018 | D1Qbit 2019 | |
| Sales | $2B | 597,000 | 12,940,860 | 36,682,559 | 79,189,839 |
| Earnings or Cash Flow | $690M | (8,320,952 | 1,944,162 | 20,020,408 | 51,334,414 |
| Earnings as % of Sales | 31% | n/a | 15% | 54.58% | 64.82% |
| Market Cap | $8B | ||||
| Market Cap/Valuation X earnings | 12X | ||||
| Market Cap/Valuation X sales | 4X | ||||
| Valuation at 5 X cash flow | n/a | n/a | 9,720,812 | 100,102,040 | 256,672,070 |
| Valuation at 12 X cash flow | n/a | n/a | 23,329,949 | 240,244,895 | 616,012,967 |
| Valuation at 2 X sales | n/a | 1,194,000 | 25,881,720 | 73,365,118 | 158,379,679 |
| Valuation at 4 X sales | n/a | 2,388,000 | 51,763,440 | 146,730,236 | 316,759,358 |
Exit Strategy
The obvious exit strategy for a company of this kind is the sale of the company to a third party or an IPO. With that said, it should be noted that as mentioned in other places in this document, Data1Qbit is designed as a "platform company." It will not only throw off substantial sums of cash because it will have achieved a monopoly on information related to a critical global market (cyber security), but the company's data assets can be leveraged in many ways to enter numerous other businesses.
Data1Qbit will be uniquely positioned to create and support other businesses or leverage off our business intelligence to profit from other cyber security company activities, thereby generating additional profits and opportunities. Therefore, an exit strategy that included retention of certain intellectual property rights, or access to certain data streams, could yield long-term cash flow beyond the exit.
Our current exit strategy assumes the sale of Data1Qbit to a competitor or a large data customer in three to five years at a multiple of at least 4-7X sales. Therefore, we have identified various competitors and others as target buyers and will engineer our data collection processes to be of greater value to, and maximize our valuation to, those buyers.