Seeing VCs start to sweat and throw in the towel on more and more startups, I realize that there’s really very little value - hence the ‘where’s the beef’ title - to show for despite all of the money VCs have invested in companies since 2003.
It’s a shame. I must have pitched 100 VC/angels (ok, that is a stretch, the number is probably closer to 25) and none of them saw us becoming a $1B exit. So they invested over $10M in companies that they are about to kill because they realize the error of their ways. Make no mistake about it: had investors not invested in clunkers, they would not be ringing alarm bells announcing impending doom and gloom.
Most of these investments had very little to do with any semblance of value based on net present value, replacement value, etc., and everything to do with the time-tested theory of the Greater Fool theory. Even though you would think that media companies will use this downturn to acquire services like Slide, Facebook, Digg etc., you sort of realize: “no, they won’t.”
For one: media companies are being mauled. Look at the loss of value of late. What’s more, many of these companies are also asked to cut costs internally. I don’t care who says what: Digg, Facebook, Slide etc., provide fairly little utility (no wonder why Facebook removed the ‘utility’ description from its main page).
For the record: I love Digg, I think Facebook remains useful if they remove the crap from the site… and Slide I am still trying to understand what that is. But my point is: they all cornered themselves with obscene valuations in recent financing rounds.
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WatchMojo NewsletterTimes are going to get rougher, much rougher.
From NYPost:
Market experts say stocks could continue falling until they’ve lost half the value from their peak in last year’s bubble heyday - meaning the bottom might be a Dow Jones industrial average at 7,000. (…)
While bear markets are officially triggered by a 20 percent drop, at their worst, they can have a sell-off of 45 percent to 50 percent.
Since the Dow’s record close above 14,000 a year ago yesterday, the Dow has tumbled 5,585.34 points - or almost 40 percent. (…)
The economy’s pace will shrink at a 0.2 percent rate in the third quarter, but sharply accelerate to 0.8 percent by Christmas.
Stocks took the brunt of the slowdown fear due to weaker corporate profits ahead and frozen credit markets.
It was the seventh straight session of losses as investors bailed from the market in droves, despite new efforts by the Treasury and the Federal Reserve to goose the stalled economy with hundreds of billions in cash.
“We’re way beyond fundamentals. This is just pure panic, that’s all it is,” said Chris Orndorff, head of equity strategy at Payden & Rygel.
What surprises me is the panic that is setting in amongst VC backed companies:
- Seesmic lays off 7 people, or 33%.
The 33% sounds ominous, but it’s “only” 7 people. Still, not sure if “only” is a fair term to use when people lose their jobs. But the thing is, Seesmic has raised a lot of money from very deep-pocketed firms and people:
The startup in February announced a $6 million Series A round from a long list of investors, including: Atomico Investments, the firm operated by Skype co-founders Niklas Zennström and Janus Friis; SoftTechVC founder Jeff Clavier; LinkedIn Corp. founder Reid Hoffman; TechCrunch founder Michael Arrington; angel investor Ron Conway; former AOL chief Steve Case; FON founder Martin Varsavsky; Goldman, Sachs & Co. managing director Michael Parekh; Knight Center for Digital Media Entrepreneurship director Dan Gillmor; video blogger Steve Garfield; SupportSoft Inc. co-founder Mark Pincus; Topica Inc. founder Ariel Poler; and Pulver.com founder Jeff Pulver.
The fact that they’re not using this downturn to ramp up means that they’re very pessimistic, either about the market or the product. That is a bad sign, but I am not sure if it’s a systematic negative sign. In fact, call me a dick, but I think this is a typical move to blame the economy even though there are probably unique/unsystematic woes. Something, I think, that Nick Denton did just last week, too. I mean, ask yourself, does the Web really need a Seesmic? More on this point here.
The thing is, it’s not only VC-backed firms that are panicking. Privately held ones that technically don’t need to worry about short term demands are also “streamlining” operations:
What’s odd about this is that parent Mansueto is not laying folks off from the print side of operations, but the online unit. Is that normal? Not really.
Today I got the third email this week from a VC looking to unload an asset.
What, on earth, has happened to the media companies’ stocks and market caps?
In early summer 2007, we looked at media companies to determine who was the king of digital media and then used the multiples and figures from each of the publicly traded companies to forecast the value of NBC…
Yesterday Marketwatch ran a piece on how much media stocks have fallen off their highs. You can’t blame them for not trying, though.
I decided to compare values to see what has happened in the past 18 months and folks, it’s a disaster:
Let me guess, Jason Calacanis had a 3-year non-compete, right?
Why do I say this:
- AOL bought Weblogs in early October 2005.
- We’re now October 10 2008.
- By turning his latest venture Mahalo into a “live blog / news service”, Mahalo is now pretty much like Weblogs, no?
That, or the weight of a $16M investment on a $100M post-money valuation is forcing them to add new tactics to the gameplan.
What do you think?
I agree with John Furrier 100%: look for people who can sell, and better yet, be a salesperson yourself.
In January 2006: we launched WatchMojo.com and spent much of that year creating content, building distribution; so sales were a bit moot.
Then in May of that year, my old colleagues and employer sued me, so I got busy with that. Once the lawsuit was settled (I won), I began to look for financing. Call it the “Roadshow to Nowhere”. Having financed the company myself from January 2006, by December 2007, I was pretty much broke even though we were generating six-digits worth of revenue. Broke? Really? To quote Seinfeld: not really.
But our costs were higher than our revenues, so that path was not sustainable.
But the point was: I saw the light. If I continued to play the VC game, I would eventually go broke. So I gave financiers the cold shoulder (after they gave me the one finger salute, mind you) and look to sell, sell, sell.
That was my strength: I had sold $10M of ads during the worst advertising climate since the Great Depression (2001-2005) so that was what I decided to focus on.
In 2008’s first nine months, we generated more revenue than we did throughout all of 2007. And we’ve already booked more revenue for 2009 than we will generate throughout 2008.
Regardless of boom or bust times, you should always think of sales… investors’ mood are fickle, but cash flow isn’t.
