Without prejudice…
I actually met Michael Sheridan a couple of times when he was CFO of IGN and oversaw the acquisition of my old company in May 2005. He was the last line of defense before IGN acquired our company.
He came into town and after overlooking our books, my CEO and Controller took him out to lunch, he inquired about one of the more expensive restaurants in town and once there, he ordered an even more expensive bottle of wine. Since his signature and blessing were required to make the deal go through, I think he could have ordered my CEO’s first born son and we would have all been for it because Sheridan seemed like a pretty no-nonsense kind of guy.
Sheridan was definitely a straight arrow kind of guy, so to speak, unlike most of his brethren at IGN who - in my personal experiences with them since I left the company - had no shame or integrity and were proud of their transgressions.
Anyway, Sheridan saw the IGN integration into News Corp.’s FIM and joined Facebook recently.
Suddently, he left, and some time later, we learn that former Yahoo! treasurer, former YouTube CFO (joining one month before the Google acquisition) and short-tenured VC at Sequoia Gideon Yu replaces him.
Naturally many people will try to understand why a CFO like Sheridan would leave such a hot, in-demand, private, pre-IPO company like Facebook.
One reason, of course, could be that Facebook’s income statement is anything but what a straight arrow CFO would like to see. I’m really not insinutating anything, but when you consider that allegedly, Yu would have one set of budgets for YouTube’s internal purposes and another for Google’s M&A team, you get a sense that Valleywag’s assertion that Facebook’s revenues are “fake” might not be all that crazy.
Facebook was rumored to do $100M in revenues in 2007, but in a recent article in TheDeal.com, angel investor Peter Thiel suggested the revenue figure is closer to $150M. Of course, a large share of that comes from MSFT, and is not long-term, sustainable revenue in my humble opinion. In other words, perhaps Sheridan does not feel comfortable in touting Facebook’s revenue potential in an M&A, let alone an IPO process. Yu, it has been noted, has no such qualms.
Another reason, of course, could be that Sheridan came in to take the IPO route: before IGN he was CFO of Sonicwall, a publicly traded Internet security firm. At IGN, he helped the company file to go public, but those plans were shelved as News Corp. paid 40x EBITDA in a $650M sale before the company ever went public.
In other words, it could be argued that Sheridan was more interested to pursue the going public route, and as we’ve noted extensively in “How much is Facebook worth“, the IPO route is anything but given given the company’s long term revenue potential as of now.
All to say, we’re just speculating, but fascinating storyline this Facebook is…
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WatchMojo NewsletterOne of the critiques being leveled at Michael Vick, the troubled Atlanta Falcons QB who is accused of running a dogfighting ring, is that he is surrounded by people to enamored with his power, money and status that they give him bad advice.
I’m not saying that Mark Zuckerberg is allegedly as guilty as Vick seems, nor am I saying that Zuckerberg is getting bad advice, but I just read something that Zuckerberg supposedly said regarding the lawsuit filed by the founders of ConnectU that made my jaw drop. If VCs are into hedging and risk vs. return, maybe someone can step in and be the voice of reason here…
In case you actually have a life and don’t spent too much time on Facebook (or TechMeme), the lawsuit claims that Zuckerberg stole the idea for Facebook, the social networking site, while he was recruited to develop a part of ConnectU. ConnectU - which was originally called HarvardConnection and founded by Divya Narendra, Cameron Winklevoss and Tyler Winklevoss - is a spec in the social networking space while Facebook is making $100M in revenue and boasts a paper value well over $1B.
Related: How much is Facebook worth? | Who will make how much on Facebook deal?
Back to the case:
A Boston judge is expected to decide this week whether or not to proceed with a lawsuit alleging that the founder of Facebook, Mark Zuckerberg, stole the idea for the social networking site from three former classmates at Harvard.
The pending litigation originates from actions brought about in 2004. The lawsuit was refiled earlier this year on March 27.
Cameron Winklevoss has record of 52 email exchanges and three meetings between his team and Zuckerberg, where the group discussed the ConnectU site.
Zuckerberg says that he voluntarily agreed to contribute six hours of coding for the ConnectU site, but denies that he had knowledge of it being a social networking system. Instead, he claims that he believed it to be a personal site to connect students, alumni and employers.
I prefer not to get into the details of what I am about to say, but just trust me when I say that I speak from experience when I say that whether or ConnectU.com prevails has very little to do with facts, arguments and what not.
Of course, it helps to have the arguments on your side and not walk into a court like a pack of peasants trying to argue that, for example, a man is a woman or a moving image is the same thing as static text (random example, I swear). Only an uneducated and crass bunch of idiots would think they can lie and get away with frivolous and meritless accusations like that… not like we’re thinking of any particular bunch of douche bags of course.
But, trust me when I say that in the court of law, a lot of the outcome will boil down to luck… largely, like a draft, it will boil down to the luck of the draw: who will be the Judge that will listen to the facts and arguments. The same case can fare very differently depending on the judge you get. It can be a matter of life and death, in fact.
That being said,:
- first of all: 52 emails is a lot of evidence. It’s very easy to identify and pinpoint something damning out of 5 emails, let alone 52 emails!
- second, Mark needs better coaching, because saying what he said is just dumb.
Sure, in Silicon Valley there might be a nuance between a “social network” and a “personal site to connect students, alumni and employers” but I read that a few times and those things are one and the same if you ask me.
I use Facebook to connect to students, alumni and employers… after all. But while I initially thought there might not be a case here, based on the highlighted excerpts above, I think ConnectU.com has a pretty good chance to force Zuckerberg and Facebook to settle and give up shares in exchange for a settlement. Why, because the ConnectU.com are asking for a lot, and depending on the Judge, the verdict can swing either way (if the case is not thrown out of, that is).
Of course, you then keep reading and see that the petitioners are just as bad:
“It’s sort of a land grab,” Tyler Winklevoss has said to the Boston Globe. “You feel robbed … The kids down the hall are using it, and you’re thinking, ‘That’s supposed to be us.’ We’re not there because one greedy kid cut us out.”
Representatives for Facebook said, “We do not comment on pending litigation,” while the founders of ConnectU were not immediately available.
The founders of ConnectU are now are pushing for U.S. District Court Judge Douglas Woodlock to shut down Facebook and give them control and profits of the website.
All right pal, way to bitch about the other greedy guy.
Jason Calacanis has maintained good enough relations with some of his former peers at AOL to get some inside intel, once in a while. Valleywag is reporting that someone tipped off Calacanis - who sold his Weblogs Inc. to AOL for $25M before running Netscape for them - that Time Warner is looking to unload AOL with the help of private equity investors.
Bear in mind, Google plunned down $1B for $5B, implying a $20B valuation.
Related:
- Yahoo!/AOL/MSFT Menage a Trois? Don’t Count on It
- Who is King of Digital Media
- Exercise in Insanity: If I had a billion dollars
When I was a VP of Ad Sales, I used to get a lot of calls from Revenue Science, Tacoda, and another behavioral targeting firm whose name I can’t quite recall… the concept was great, problem was, I could not imagine many publishers jumping on it: a lot of promise, not much substance early on. And let’s face it, publishers want instant gratification.
I’m not alone in that assessment: “According to eMarketer (June 2007), the behavioral targeting market is set to increase to $3.8 billion by 2011, from $350 million in 2006,” says the press release touting the match made in heaven.
In 4 years (3.5 actually), the market for BT is to grow 10 times? Even the video market that has everyone going loopy is set to grow from about $500M to $3B in that time span. That’s 6x growth. What is it about BT that will explode in 10 years? Not sure, not sure at all.
According to the NYPost.com:
AOL’s purchase of Tacoda, which serves ads to 125 million people across 4,000 Web sites, is part of an ongoing online ad-buying frenzy that was kicked off when Google agreed to buy DoubleClick for $3.1 billion. Microsoft plunked down $6 billion on aQuantive, Yahoo! snapped up Right Media for $680 million and WPP Group plunked down $649 million for 24/7 Real Media.
Notice how the ad frenzy caused asset prices of Doubleclick, 24/7 Realmedia and aQuantive to soar, but Tacoda only fetched $200M $275M despite a market set to grow tenfold?
Don’t get me wrong, this is a great deal for AOL and a reasonable one for Tacoda. But if the market was so ready to explode, why sell now? I think this makes sense for large, massive portals who can’t monetize “long tail” inventory. That’s why Yahoo! invested in 20% of Right Media at a valuation of about $200M and then bought the remaining 80% of it for a valuation north of $800M. That’s also why Yahoo! launched SmartAds, an in-house BT product. At the time, I said:
Yahoo! clearly gave some added credibility to a field that both borders on the useful and creepy. BT firms allows marketers and publishers to refine their ad inventory, so say I go to ESPN then go to CNN, well CNN - if they run BT tags on their site - will identify that I am also in a sports psychodemographic category and sell the ad impressions I generate to a sports advertiser, for example. There are many other ways BT helps marketers and publishers, but that example in a nutshell demonstrates the benefits thereof.
When I worked as VP of ad sales for a mid-sized publisher, I was intrigued with BT but felt that giving up my site’s audience’s DNA to an outside firm was not wise. Then, as a consumer, I’m not sure you want to be able to leave a trail. Sure, cookies do the same thing, and guess what, most people don’t like cookies.
Ultimately, I think there will be a move towards large new media and consumer technology firms wanting to own the data, and not share it with third party BT firms. But that being said, there will be a consolidation in this space, assuming BT firms don’t have unreasonable demands. Something tells me that Yahoo! considered acquiring one of these firms, but someone simply realized that they had enough data and mojo to launch it in-house.
Gee, funny how all of that came true. Tacoda has theoretical value and no one really wants to trust a third-party entity with that task. There was one less taker once Yahoo! launched SmartAds, Google after all has its own BT and it works wonders: it’s called data mining. All to say, I think this puppy has the potential to repeat what the $435M Advertising.com did for AOL: drive a lot of value over time.
Related:
- Yahoo! Gets into Behavioral Targeting
- Top 10 Web M&A Deals of All Time
I’m not sure if Jesus had a computer, high-speed Internet access and time on his hands to kill, so let me ask you this instead. In fact, Jeremy Liew today talks about vertical sites, behavior targeting and synthetic channels so I might as well ask what would Jeremy do…
Anyway, we’re really close to relaunching our flagship WatchMojo.com web video site, and I’m flirting with one of two strategies.
1 - Status Quo
Mojo Supreme’s motif is the “context is king” mantra. When we launched, Mojo Supreme consisted of a vertical search engine (still does) MetaMojo.com. It offered best-of-breed results across a number of categories, such as film, music, video games, health, travel etc. Each category was then reinforced with a media property, usually a blog. All blogs are listed here.
So the music search engine would be showcased on SoundMojo.com, for example. While today SoundMojo.com would redirect to WatchMojo.com/Music/Blog, initially it housed the blog as a separate domain. We made the change four months after launching to simply the management of the sites.
To this day, the blogs each have a shortcut URL but get redirected under the WatchMojo.com umbrella.
While we maintained this strategy with the blogs (hence why HipMojo.com redirects you to WatchMojo.com/Web/Blog), all of the videos we produced were published under the WatchMojo.com “brand”. It was, after all, watch Mojo.
2 - Micro-Publishing
But as maintained our strategy and a) aggregated, b) indexed and c) produced content, we developed fairly deep verticals.
In case you are wondering, we produce video, aggregate top 10s and contests, index text content via our search engine and videos from around the Web. It was pretty maniacal when we set out to do it, but it really strengthens our base.
So, here’s my dilemma:
As we get close to relaunching, I wonder, maybe we should have the SoundMojo.com shortcut URL take you to the vertical category’s main page; the page that aggregates video, blog entries, Top 10 lists, contests and showcases the search engine.
In other words, split up WatchMojo.com into vertical microsites. With 4,000 videos, 10,000 blog entries, 7,500 contests, etc., does it still make sense to have one portal. Or should we break up into verticals? Technically it’s all the same and this is a question of semantics, or domain forwarding, but it does make a difference.
In other words, when you type any of the shortcut URLs, should you go to
a) the blog page or
b) the vertical home that leads with a video but also has blog entries, Top 10 lists, contests etc.?
Any thoughts? Can you tell I can’t wait to relaunch…
If Forbes is right, one of my former competitors is about to be acquired by none other than Hearst in a deal that definitely made me look back and think ahead.
Let’s look at the story first:
On Tuesday morning, Hearst Corp. was expected to announce the acquisition of UGO Networks, a collection of Web sites targeting young men interested in video games, sports and pictures of hot girls. UGO claims 11 million unique visitors a month. Terms of the deal, which took two years to come to fruition, were not disclosed. Forbes estimates the acquisition to be in the neighborhood of $100 million.
On the surface this is pretty impressive and right off the bat I want to congratulate all of the parties, but some food for thought: my last company, who operates in the same space as UGO, had about 5M uniques, 35% market share in the men’s lifestyle (dating, basically) space, $4M in yearly revenues, $1.2M in EBITDA and sold for $13.5M to IGN in 2005. Average M/A multiples were 16.9x EBITDA, my fellow colleagues settled for about 11.25x EBITDA. If you’re keeping tabs: IGN itself sold for 40x EBITDA to News Corp. for $650M in October 2005 and was the market leader in terms of men 18-24 and 18-34.
UGO’s CEO has been trying to sell his company for more than two years. Just about every media giant out there has taken a look at the deal, and then taken a pass. The nine-year-old company has 82 employees and brings in some $30 million in revenue and an estimated $6 million in EBITDA.
Judging by those numbers, UGO sold for 3.3x revenue and 16.6x EBITDA. PaidContent says the deal might be as high as $150M, at that level, this deal would come in at 5x revenue and 25x EBITDA.
As I said on the surface, a $100M payoff looks good, but in fact, UGO has raised $82M in financing over its lifetime.
New York City-based UGO is one of the last Web 1.0 holdouts to have a successful outcome, (…) the few companies that survived raised such ridiculous amounts of money that just about any exit is sure to be an unprofitable one.
What’s ridiculous?
Chief Executive J. Moses and President Michael McCracken spent nine years and $82 million trying to build the ultimate online destination for young men. They burned through multiple business plans. They had to execute multiple rounds of layoffs and multiple fire sales. In order to get out of a lease on a space they could no longer afford, they had to give away millions of dollars worth of data center equipment. Their friends and family told them to quit. “It was total depression. Total freak out,” recalls Moses.
Tenacious, persistent, determined, and yes, ridiculous. But, when UGO started off, everyone in the space was raising ridiculous sums. Ok, well, we didn’t, but more on that later.
At my old gig, my colleagues and I built “the ultimate men’s destination” with, sit down folks, $500,000. I think we went through half of that, the rest was driven by actual sales.
Another one of our competitors, TheMan.com, raised $17M from Bob Davis’ Highland Capital. They shut down within a year. Point is, yes, this is ridiculous, but you have to give them credit for sticking to the business, even if no one trusted them:
All but one of their venture backers gave up on them. And that firm, Los Angeles-based GRP Partners, gave them a cram down. GRP inserted an onerous term called a 5-X liquidation preference, something financiers only dare suggest to the most desperate companies. It means if UGO sold itself, GRP would be guaranteed to reap five times its investment before anyone else got paid.
5-X? Is that the new BMW? Remind me to hold off on the 5-X… and may I ask, who was crazy-er here? Moses? UGO? or the VC? You might think Hearst but given the rounding error that $100M is for an institution like Hearst, this does give them a shot in the arm both online and in the men’s segment… a market that is certainly competitive:
UGO is up against some pretty tough competitors, including ESPN, Maxim, MTV and IGN. Moses and McCracken knew they would be unable to survive against such heavily financed media outlets. “The media business is all about size and leverage,” said Moses in an interview a few months ago.
Hmm… I agree, but again, with all due respect: that is a cop out. Large media companies are great in many ways. Once they move, they really move. But by their nature they’re also somewhat slow: slow to act, slow to react, slow to adapt.
That’s how small media beats old media, that’s how new tech beats old tech, no?
I was part of a team that took on MTV, Maxim, Esquire, etc. and beat them fair and square. The time it took these companies to realize what to do online, we built a business.
I fail to believe that $82M won’t help you do it: we had 1/164th the amount UGO did and were able to. Of course, that’s why we only did $4M in revenues, but in the end, I think the first (and only) investors in our company probably fared better than the first investors in UGO, and for what it’s worth, as a financial manager, that is a priority.
“We can’t make it on our own. When the Web was about words and statistics, we were able to compete. But now it’s about video. And for video, you need more money.”
Hmm… Pardon the shameless plug, but I’m applying the same formula of low-cost, high quality content to video as I did to text with my new company WatchMojo.com. If I had $82M in financing, trust me, the company would exit at $1B.
Sure, the business plan is modified for video and the content is tweaked to serve both demograpics, but the broader game plan is the same. I’m not sure video is all that alien: Yahoo! hired ABC executive Lloyd Braun to spearhead original content. What did Yahoo! have to show for it? The Nine. Pretty lame if you ask me given all of Yahoo!’s resources (disclaimer: own YHOO shares).
At WatchMojo.com, we’ve built up a library of thousands of original, low-cost, high quality, informative and entertaining clips.
Yes, trust me, I can tell you that video is expensive. I see the bills every day. That’s why you need a plan and a strategy.
For a company like Hearst, which has multiple media properties including Lifetime Television, The Houston Chronicle, Esquire and Cosmopolitan, UGO brings nine years’ worth of Internet experience.
This is certainly true.
Kenneth Bronfin, president of Hearst Interactive Media, said he plans to retain both Moses and McCracken, and allow them to run the company as a separate entity.
I just wonder how much Moses and McCracken have left in the tank. Don’t get me wrong, maybe they’ll be rejuvenated thanks to Hearst’s resources, but after spending nine years building up UGO and getting 5-X’d, maybe they want to rest a bit…
I think this deal is good for Hearst because it gives them a foothold in the men’s space, but if Hearst is serious about the Web, this should really just be step 1. By the sounds of it, that’s the plan:
Bronfin will also consider more acquisitions to help build out the UGO property.
I guess the ultimate lesson, frankly, is Moses’s parting words: “In the valley of death, we always found a way out.”
Indeed. As I’ve written in the past, it’s all about the 3 Ps.
Technically, on paper, Hearst’s assets + UGO’s 11M uniques should make this deal a success, but as they say, the devil’s in the details and it all boils down to the next steps and implementation…
Read more on the Hearst/UGO deal.
