Timing is everything: Buyer’s Market with no buyers in sight
A couple of years ago, digital media executives were talking to venture capitalists and trying to set up “roll up” funds. The timing was bad in the sense that prices were irrationally high. Today, the timing is great in that it is a “buyer’s market” but it is bad in that the credit and financial markets are tight. But since most buyers are on the sidelines now, I think it’s a great opportunity to roll up such assets and maximize potential returns.
Insanity: More of the same, Expect different results
How much do you need? Not $250M. PE HUB’s Dan Primack is reporting that Netscape co-founder Marc Andreessen and his partner Ben Horowitz are raising a $250M fund. He’s a bit skeptical of the amount:
$250 million is an extraordinary amount of capital for a first-time, early-stage fund. Andreessen said in February that initial investments would average just $500,000 (a fivefold increase from the $100k that he and Horowitz currently invest out of their own pockets). That would work out to more than 100 portfolio companies, even if you assume that the fund would quadruple-down on every investment (which it won’t).
Andreessen and Horowitz plan to thin the bloated portfolio size by complimenting their seed deals with a handful of $5 million-ish Series A plays, but I’d think the firm would really need to average $10 million per company to make things manageable.
I am skeptical of the strategy. To me, this seems like continuing to invest in companies that have put up donuts on the IPO scorecard, no?
Now I don’t know whether or not they will be successful in placing all of that money, let alone raising it… but what I think would work really well now would be a roll-up fund to aggregate video assets, with a capital allocation of:
- 15% ad serving and player technology,
- 35% audience,
- 50% content.
I understand Marc isn’t a content guy, but the most astute investors - starting with uber angel investor Ron Conway - seem to agree that branded content is a multi-billion dollar opportunity.
Motivated Sellers
Yet as the sad Spotrunner alleged crimes show, trying to crack the TV advertising inefficiency via technology and algorithms alone is a losing proposition. You need to include content in the mix, the right content. Since most in the content business have yet to find a suitable and scalable revenue model (though we have!), then I think many entrepreneurs would be motivated to sell and join a roll-up strategy.
It’s not just the entrepreneurs that want to sell. I can name you at least 5 VCs who are regretting making their investments in their portfolio companies in the video space because they bought into the hype and adopted a me-too strategy. I’m not crazy to name either the VCs or companies here, but you don’t need a PHD to figure out who I am referring to.
So both entrepreneurs and VCs might very well trade in their clunkers for the shot of redemption, and it won’t cost much.
Wanted: Fresh gunpowder
Since most VCs have hitherto misfired and bet on every imaginable ill-fated trend (starting with UGC, then followed up by me-too aggregators), I think they will be a bit shy to continue to fund potential clunkers. However, if someone has fresh gunpowder, then I cannot imagine them misfiring by buying video assets as per the breakdown I suggest above.
That strategy will give them top notch technology to serve content and ads, roll up the right content and then be able to promote it all against a large enough audience to monetize it effectively.
So, who’s gonna write me that check?
Digg this Blog
Share on Facebook
WatchMojo on Twitter
WatchMojo on YouTube
Add to Favorites
WatchMojo Newsletter
If George Orwell lived in the YouTube era, I am sure he’d pen something along the lines of “all video streams are equal, but some video streams are more equal than others”.
In fact: all video streams are equal, but some videos are more equal than others, or rather, some video streams are worth less than others.
Susan Boyle’s appearance on Britain’s Got Talent is a massive hit, yet it “is not being monetized,” a Google spokeswoman tells Wired (via Business Insider). The video has been seen 100,000,000 times. To put this into context, since 2006, all of WatchMojo.com’s videos have been seen 50,000,000. Both are pretty impressive figures, but it does reiterate a new theme:
How - if at all - can you monetize something?
As we have written before: YouTube (and online video in general) is a great promotional and commercial platform. In this case though, it’s just the former. That’s a shame.
But the Boyle video does capture the many misses that Venture Capitalists have backed: companies that managed to capitalize on online video’s promotional value (UGC, for example) but not its commercial opportunities, be it by way of e-commerce or advertising.
Should Facebook launch an ad network? I am just not sure. Sure, they have lots of data on their users, and data is valuable, but isn’t this the Beacon disaster redux?
By the looks of it, everyone is launching an ad network these days, even Publishers Clearing House, who today announced it is launching the PCH Online Network: “Delivering more than 142 million monthly network-wide ad impressions, marketers gain access to millions of loyal and diverse community members with a play-to-win mindset”.
The PCH Online Network consists of six sites that offer CPA and CPM advertising opportunities, including:
• PCH.com attracts more than 13 million visits per month and 50 million page views and serves as a gateway to the entire suite of PCH’s online network.
• PCHGames.com attracts more than two million visits per month and 21 million page views by offering a large selection of casual games in the arcade, casino, sports, strategy and word categories.
• PCHQuiz4Cash.com attracts more than 600,000 visits per month and eight million page views by challenging site visitors to take quizzes and earn cash across a variety of interest areas.
• PCHLotto.com attracts more than one million visits per month, approximately six million page views and roughly 100,000 new customers per month by offering a variety of lotto games with a chance to win up to one million dollars.
• PCHTV.com and PCHtrivia.com are two of the most recent additions to the PCH Online Network with growing audiences. PCHTV.com allows visitors to watch real winning moments for a chance to win cash and prizes of their own, while PCHTrivia.com offers visitors the opportunity to play a variety of category-specific trivia games for a chance to enter a sweepstakes and win cash prizes.
“Through the PCH Online Network we are providing millions of users the opportunity to explore, have fun and win a wide variety of prizes every day,” said Michael Zane, director of online sales and interactive advertising, Publishers Clearing House Online Network. “We’re also providing brand marketers a wide variety of entertaining ways to communicate to a mass concentration of consumers who are in a receptive, winning mindset.”
It’s actually not a bad idea, but it’s not really a network per se, it’s just selling across their own network.
Not the sexiest of titles, I apologize.
The following people:
- Prashant Shah, Managing Director at Hummer Winblad
- Ajit Nazre, Kleiner Perkins
- Anil Patel, Principal at Clearstone Venture Partners
- Ravi Mohan, co-founder of Shasta Ventures
Answer the following questions:
- What is the best pitch meeting that you remember and why?
- What are the most common mistakes or assumptions smart founders make in pitch meetings with VCs?
- What unfavorable terms do founders often miss or underestimate in term sheets?
- How can someone get you to look at a business plan if they don’t know anyone in your network (e.g. outside Silicon Valley elite, didn’t go to Stanford)?
Long, but interesting read: Is Venture Capitalism Dead? Not Yet. Now that’s an interesting title.
