As you might have seen Amazon announced the acquisition of Lovefilm yesterday for a rumoured £200m. Exits of this magnitude haven’t been too common of late in the UK startup scene so we, along with the Lovefilm management team and the other shareholders were very happy to see this deal completed. Particular congratulations go to Simon Calver, CEO, Jim Buckle, CFO and Simon Morris, CMO for building a fantastic business. Kudos also to Will Reeve, one of the founders of Lovefilm and now a Venture Partner with us at DFJ Esprit.
There are a lot of different elements that contributed to Lovefilm’s success, but I’m going to pick out three that for me were the most important:
- An iron grip on the metrics – an accurate understanding of customer acquisition costs, customer lifetime value, and cash flow can be hard to come by in a business like Lovefilm that acquires customers across multiple channels with different sign on deals, subscription pricing and churn rates, but it is key to cost effective scaling.
- First class execution of marketing – Lovefilm did a great job of keeping the growth going by moving campaigns to new and more mainstream forms of media as the business grew. The switch from online only to online and TV is a hairy one for any startup and its investors but Lovefilm kept the risk to a minimum with good creative and by staying on top of the numbers.
- Use of M&A to become category leader – in the early days there were many competitors in the online DVD rental market and over the years a number of them came together to form Lovefilm, a process that created more value for management and shareholders than if they had all fought it out in the market place. In web businesses scale brings value, and a clear category leader is usually worth disproportionately more than two companies who are neck and neck for first place.