Start-up’s new tech benchmark

Here’s a bit of news to brighten your week.

According to a report this morning, Nine Entertainment Company has purchased a 20% stake in a six-month old shoe retailer called StyleTread for $4 million, which values the entire business at $20 million.

If the reports are right, it’s a deal to give heart to every entrepreneur struggling away to build the business of their dreams.

Of course, relatively few start-ups I have seen can justify a $20 million valuation six months into their life, which does raise a few questions.

• What’s so special about this particularly company?
• Are the aggressive tech valuations seen in the United States starting to influence Australian valuations?
• And does this deal represent a new benchmark with which other deals will be assessed?

Like every transaction, there are some pretty particular circumstances surrounding this deal.

For instance, it comes after Nine bought into Cudo and Mark Bouris’ financial services chain Yellow Brick Road and represents a further attempt by Nine to boost its digital presence and diversify away from its media-heavy revenue base.

That may have given the StyleTread owners, German online retail investors Klaus Hommels and Oliver Jung, some extra leverage.

The names of Hommels and Jung would have also commanded a premium. The pair’s Global Online Apparel empire has invested in numerous online retailers around the world, primarily in the area of invitation-only shopping networks, including Australian company BrandsExclusive.

These guys clearly know what they are doing and if you’re betting on someone to make the $20 million valuation a reality, they are the ones to do it.

However, the placing of such a high valuation on such a young business is not something we are used to seeing in this country.

While investment has been pouring into our online businesses in recent months – think 99designs, Retail Me Not, Deals Direct, Spreets, Cudo and Firemint – the valuations involved have been relatively conservative – particularly when you consider the $6 billion a US start up like Groupon has been valued at.

But happily for Australian tech entrepreneurs, this deal does suggest at least some of the aggression around US technology valuations is trickling Down Under.

As little as six months ago, paying $4 million for 100% of a six-month-old Australian start-up would have shocked the market.

Apparently times have changed.

Should all start-up entrepreneurs with six-month-old businesses suddenly be celebrating?

Unfortunately not – this deal would appear to have some pretty specific circumstances around it, including the calibre of the people involved and the buyer’s strategic direction.

However, this investment will certainly make some tech entrepreneurs rethink how much they really could be worth.