According to some folks, MySpace’s co-founders Chris deWolfe and Tom Anderson were “shortchanged” in their company’s sale to Fox Interactive Media for $580 million. In this interview with Mercury News, News Corp.’s Fox Interactive Media CEO Ross Levinsohn says:
“I’m not going to address that. I’m not going to speak for Chris and Tom. There’s no indication to me that they’re unhappy.”
I am not going to speak for Mr. Levinsohn, but I’ll say this: that’s business, that’s life. Too bad.
Stock Market Seller’s Regret: It’s Bad, but Move On
First off, I’ll be the first to say that it’s one thing to buy a stock at $20, see it rise to $30, sell, cash in on your profit only to see it go to $50. You might feel seller’s remorse but in the grand scheme of things, you learn to accept it and move on. In fact, sometimes the angst you feel in this scenario is worst that if you don’t sell and see the stock go down to $15. Psychologically in investing is a major factor in how successful you are in the long term. I have learned so much from investing.
Founder’s Regret: It Sucks, but so Does Life
Anyway, it’s admittedly an altogether different thing when you start a company and then sell it too soon. But the fact remains: who knews it would continue growing in value? If you were so sure, why did you sell?
In life, we constantly manage and try to balance out fear with greed. The fear that MySpace might get “Friendstered” was probably so large that they had no qualms about selling. And if they did have any doubts, it was superceded by the fear that they not sell soon enough. What should be noted here is that MySpace had both Viacom and News Corp. interested in them. They got bids and the price moved up and they got $580M for Intermix, Myspace’s parent.
The main thing to consider though is that the decision to sell MySpace was not made by Chris deWolfe and Tom Anderson alone. In fact, it was probably made by the VCs and Intermix, who owned the bulk of the company. But as the poster boys for MySpace, Chris deWolfe and Tom Anderson had a lot of options and considerable leverage. They knew exactly what they did, why they did it when they signed on the dotted line, so they should accept it and move on.
But more on this later.
Been There, Done That
Last year, my colleagues were in a similar predicament. They had built a company over 5 years. The company had “cornered” the so-called lucrative men’s market. We did not have the highest concentration of men 18-24 or 18-34, IGN, ESPN and others did, but we had enough men coming to our site that made us an attractive asset to many traditional and new media companies.
I was a tiny shareholder. I was not ungrateful. It was a reality I accepted when I joined the team in 2000, so I never let it affect me subsequently. It made me into a much stronger person for not letting greed and envy creep up.
In the back of my mind, without knowing it at the time, to me, I think getting some liquidity was worth more than the money I would get. I was handcuffed to the company and despite my overall positive relationship with “the guys,” the tensions were rising (as they would in any environment where you work with 5 people your age).
The point is that as a small shareholder, I had little to gain by holding out and selling. As major shareholders, my partners had a lot to lose by holding out. There could be another stock market crash, there could be another 9/11.
Greed vs. Fear
In other words, by holding out and waiting for a better deal, they could get much more money. But in their own analysis and soul searching, they figured that the risk of losing everything (or a big chunk of their built-up paper wealth) was greater than the potential of being worth more if the market continued to rise and the company grew. There were many other factors at play I am sure, but in their case, fear outweighed greed. They did the sensible thing.
At the time, I told them that they could ask for more money if they insisted. My rationale was that companies in our space were fetching 16.9 times EBITDA, that we were being offered 10 times EBITDA and that as a market leader, we should be getting more than 16.9 times EBITDA, we should be asking for and getting 20 times EBITDA.
That was not unreasonable. I said this to my partners because I felt it was my role to let them know of this, but in the end, once again, they did not push the envelope and settled for about 12 times EBITDA. I do not criticize them for not being greedy in that decision.
But, if they ever complained in the future, I would tell them to stop because they were in control, they knew all the information, they had to decide if they felt that a) the market would go up or down and b) the company would go up or down.
Knowing everything, they made a decision. If they would have held out until now, they would have probably made at least 50% more, if not 50% to 100% more (judging by growth in the industry and other transactions).
Despite this, I think they were very right in selling because they are now a part of, News Corporation, like MySpace.
Yes, it’s a small world.
MySpace
Looking at the MySpace situation, there was no doubt that the co-founders would not be getting the lion’s share of the $580 million paid. After all, that was being paid for Intermix, not MySpace.
Intermix itself owned 53% of MySpace. Click here for a MySpace video profile. Point is that when MySpace was launched, it was not like VCs would have funded the company. So it was spawned out of Intermix, Intermix of course used to be eUniverse, and when the company incubated MySpace, naturally they would have a large chunk of ownership.
VantagePoint Venture Partners, the largest stockholder of Intermix, held about 22.4 percent of the outstanding shares of Intermix.
Whatever percentage that MySpace founders Chris deWolfe and Tom Anderson held was not a large amount of Intermix. If it is true that Chris deWolfe made $5M, he owned 0.86% of Intermix. In other words, he probably knew that the bigger he made MySpace, the more he’d be enriching Intermix, and not himself. As the company grew, he knew what the outcome of his efforts would be.
In other words, he knew what he was getting himself into when MySpace was incubated, he knew who was accruing the value when he walked into his office every day, he knew what he was doing when he sold, and it’s unreasonable to now look back and say “why.”
As Lester Karass says, “in life, you don’t get what you deserve, you get what you negotiate.”
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