Analyzing Autodesk’s acquisition of Lagoa

Although the recent acquisition of cloud-based 3D design and publishing startup, Lagoa, has yet to generate significant headlines (neither company have officially announced the deal on their respective websites), La Presse.ca  and Techvibes are reporting that the US CAD giant has paid $60-62 million for the young, Montreal-based Lagoa.

The deal represents another notable acquisition-exit for an advanced manufacturing service/software company.  Although the details of the deal and the previous venture-backed investment rounds are not available, I’ve gone through the exercise running some conservative estimates to better understand how the venture capital community should regard the transaction: An April 2013 seed round netted $1.3million (Real Ventures, Atlas Venture, Rho Ventures, 500 Startups Canada) and a December 2013 Series A brought in $5.6million (Real Ventures, Siemens Venture Capital, Atlas Venture) – using these figures and assuming simple all equity rounds of 20-40% investment, one generates investor exit multiples of 6-9x for seed-only, 2.3-4.4x for Series A-only and 3.1-5.5x for all investment rounds ($21.6-38million of return generated from $6.9million in investment).  Even though the exit multiples do not reach the 10x level that most venture capitalists strive, the significance is found in the short time period that these returns were generated.  Lagoa was able to reach an exit within 19 months of seed investment and 11 months of their Series A.  An impressive return.

Lagoa’s success represents further validation of the ecosystem investment approach for venture capital investment in advanced manufacturing.  Software is a critical component of the manufacturing process and an area where most venture capital firms feel comfortable investing.  The industry, as a whole, is still plagued by generally low exit multiples (we have yet to experience anything of the magnitude of a Google or Facebook), and will need to grow in overall size to accommodate huge exit multiples, but I believe this to be simply a matter of time as opposed to a systematic issue.  Furthermore, investments in the software/services areas are a bit handicapped because of their general appeal to the VC community.  I outline this phenomena more thoroughly in a separate post, but concisely stated: because the current crop of VCs are already investing heavily in this area (software, cloud, online marketplaces), the standouts startups are likely to demand a higher premium and thus drive down exit multiples.  As the overall market grows, this higher premium will be balanced by a greater capacity to absorb large acquisitions, but this scenario may take a bit of time.

From the strategic perspective, the move makes a lot of sense for Autodesk: Lagoa’s software cloud-based software is designed to enhance product development through photorealistic 3D visualization, an important first-step in advanced manufacturing processes.  This should marry well with Autodesk’s current offerings, enabling users to outsource the processing power needed to render complex 3D designs completely to the cloud.  The exit might be a little quick for Lagoa, but absorbing into Autodesk may provide the horsepower to push their products to the next level and unfortunately industry dynamics might not have allowed for an acquisition later down the road.

If you have any questions on my calculations, just drop me an email.