Henry Blodget’s been a great addition to the blogging landscape, but the past couple of days, he’s proving that too much turkey does cause blurriness.
Yesterday he suggested that Mozilla Firefox rebrand itself Netscape Mozilla. Just wrong.
Today he uses Perez Hilton as a case study for YouTube’s revenue programs. As a content provider to YouTube with 1,000 clips, I’ll spare some of the actual details of YouTube’s actual payouts and what not, but I will say that Perez Hilton is the worst example to use because, well, to quote Center Networks‘ Allen Stern, “Perez is in a tough spot as advertisers might not want their product shown next to Britney’s crotch”. Well said.
Marketers make money when they spend money. It’s not their money they spend, they have jobs in marketing and advertising or sales and they have to spend it. If they didn’t, they would not have jobs. Yet, most of Google’s historical client base have been small and medium sized businesses, so the advertising money is in fact their money. Google bought YouTube last year, then they got sued by Viacom, it took them some time to position YouTube into a money machine. But, like it or not, over time Google will make a lot of money off YouTube, even though neither Perez nor WatchMojo.com will be the main beneficiary of that (wonder who will be? Google).
But, the point is, Robert Scoble is partially right, audience size is not everything, but it is a lot, and if you want a video audience, you have to be on YouTube. Perez Hilton makes enough money from smut and everything else not to worry about YouTube, and in YouTube’s mind, good riddance, because Perez generates streams but little else of value.
For content owners to succeed on YouTube, and in generating revenues in general, they will need:
- reach, as measured by audience
- relevance, as measured by demographics
- frequency, as measured by publishing cycle
- fit, as measured by content.
(online marketers will also look considerably at engagement, or time spent on a site, but I digress. Also want to stress that there are many ways to slice “what marketers look for” as surety of content, for example, comes up too).
Ultimately, Perez lacked in everything but audience, and maybe demographics… but I’m not sure his publishing cycle was frequent enough to merit dollars, and the fit with most advertisers was non-existent.
Video advertising is so nascent and embryonic that if you want to make a case study of someone, you should look at previous models at similar stages, and not a blue-haired homosexual video blogger (not that there is anything wrong with that, of course).
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WatchMojo NewsletterMark Evans, who pens the “A Canadian on Tech” blog states: Canada Needs a Peter Thiel. He’s right, but the problem is, Canada does not deserve it. I’m a proud Montrealer and Canadian, I’ve had the honor and privilege of working at two of the more successful Canadian-started consumer media Internet companies of the past 10 years. But there’s a reason why I wake up and think global and downplay the Canadian factor: Montreal and Canada offer great advantages for businesses, making it a great place to start a company, but is this a place one can scale a company? Nope. Not even close.
Remember when Chris Rock would mock some of his “fellow brothers” for “keeping it real” (as in being ignorant)? Well, sometimes, I wonder if being ambitious and working hard is a sin. In Canada, it is. Canadians have to keep it real by downplaying their drive, basically. We want to win in hockey, basically, anything else, “we want to participate”.
In 2003, I was trying to keep Major League Baseball’s Montreal Expos in the city and approached the usual suspects.
Amongst others, I approached eBay President Jeff Skoll, he had no interest. I also tried to approach Jeff Mallett (a Canadian and former Yahoo! executive) but found out he had invested in the SF Giants. What does that say?
Montreal and Canada are pretty minor league, and we don’t do anything to shatter that perception. We have a bunch of people patting one another in the back, but doing very little to change the conditions on the ground.
In fact, entrepreneurs who show boldness and ambition are actually shun by the chummy club who manage the purse strings, but that’s for another post. Much like in Silicon Valley, the existing investors invest in their inner circle. But in California, there is so much money that there is a trickle-down effect. Here? Nonsense.
Anyway… I know, the Expos were a lousy investment, granted… but financing in Canada is pretty lame. By the time Canadian entrepreneurs strike it big, they have given up and forgotten about Canada because when they needed help from the financing community, the moneymen were nowhere to be seen. It becomes a vicious circle, because the best and boldest entrepreneurs understand this and bolt before sticking it out in Montreal (think Skoll, Mallett, etc. - though Mallett is from BC, which is on the West Coast, while Montreal and Toronto are on the East Coast).
I sincerely wish Mark Evans is right, that from the shadows steps in a white knight who will catapult entrepreneurs to deliver on their big dreams… but I doubt it. I have given up on Canada because I refuse to think small. I’m not the first one to realize this, be it in entertainment, business, etc., remaining in Canada is a one-way ticket guaranteed to remain, well, a “participant” instead of a winner.
A lot of traditional VCs (particularly those based in the West Coast) woke up this morning and tossed some chairs around and broke some really expensive shit because of this article in the Wall Street Journal, lauding Peter Thiel and his partners over at Founders’ Fund, which include Sean Parker, Luke Nosek, Ken Howery. The fund’s investments include:
- Iron Port Systems: email security software (recently sold to Cisco for $830M).
- Slide: the #1 or 2 widgets maker on Facebook.
- Facebook: apparently, a popular social networking site.
- Powerset: the natural search language company launched on the heels of a XEROX patent.
Anyone who has ever read anything on HipMojo.com knows that while I respect VCs, I think the entire industry is one big game of smoke and mirrors. Fred Wilson deserves some credit for introducing transparency to the industry, as does Brad Feld, and a slew of others. While we’re handing out props, TheFunded.com has done a great job of giving some Vulture Capitalists a much deserved public ass-whooping in a fairly open and direct manner, though yes, it has its drawbacks, too. The guys at VentureHacks.com deserve a lot of props for sharing their know-how, because let’s face it, indeed VCs work on term sheets 24/7/365 whereas us hapless entrepreneurs don’t.
But while Wilson and Feld still represent the VC establishment, and TheFunded.com and VentureHacks.com remain outsiders with little direct, material influence; Thiel and his partners in crime are insiders by virtue of being investors, and have a big impact because regardless what any entrepreneur thinks about the value of his or her company, said value is a function of demand and supply… and in an environment where less capital is required to build an empire (and in less time), Thiel’s fund definitely tips the scales in favor of the entrepreneur.
As an entrepreneur, there are no two ways about it: you love what Founders’ Fund is doing, even if they hitherto only invest in limited segments, amongst people they know, and in a specific geographic area.
Moreover, Thiel and Founders’ Fund differs in one more significant way: their track record is actually very impressive, both as investors and operators. Thiel was CEO of Paypal, which we ranked as one of our 13 most explosive startups ever and its acquisition by eBay as one of the best Web M&A deals of all time.
The experiences at Paypal - which has become a GE-like super factory of technology entrepreneurship and investing (in how it has churned out so many founders, investors and managers) - is actually inspiring.
The experiences the men have had individually - such as the rumor that Thiel resents how Mike Moritz pushed Max Levchin’s then-named Confinity to merge with Elon Musk’s X.com to form Paypal and thus dilute his holdings, or pretty much everything pertaining to Sean Parker at either Napster, Plaxo and Facebook, etc. gives them a lot of street cred with entrepreneurs who have grown wary of anything that comes out of a VC’s mouth. You need not read between the lines: I don’t trust VCs, thankfully I’ve not needed VCs to grow WatchMojo.com thus far. While I am not alone thus far, most entrepreneurs don’t have a choice and throw caution into the wind and accept draconian terms.
The main point of objection I have is that it’s not as if VCs - either individually or as a cohesive group - even have an enviable track record. VCs brag about 5 investments crapping out, 2 to 4 being so-so hits, and 1 being a grand slam that makes up for the others. Huh… note to PR team, draft another elevator pitch, pal. I would not brag about taking other people’s money and then sinking 50% of the investment in a toilet… but I digress.
If I have a beef against VCs, it’s not personal; it’s professional. I see through their spin, I can BS better than them, and being a media content oriented company, it’s not traditional VCs that I really count on to find a financial partner. But again, I digress. Technology startups I advise welcome VCs’ interest though I almost view it as a kiss of death (reference Zantaz, Filmloop, and many others).
Anyway, that out of the way… Some gems from the article:
- “Mr. Thiel, the former CEO of online-payment company PayPal, is making waves in Silicon Valley with an investment strategy that differs significantly from the traditional approach. His company invests only modest amounts of money, sometimes just a few hundred thousand dollars, and focuses on entrepreneurs Mr. Thiel and his partners often know personally. He also takes an uncharacteristically hands-off approach to company management.”
- “Many VCs “have these very cushy jobs, they get paid a lot,” and often can’t relate to founders, he says.”
- “Most traditional VC companies want to invest larger sums, several million dollars, say, for large stakes in start-ups and then exert control over the companies’ operations. Some demand “liquidation preferences,” or guaranteed returns if companies are sold.”
- “Significantly, the fund often buys only a 5% or 10% stake in a company and sets up a special class of stock that start-up founders can sell while they are building their companies — and before venture-capital investors see profits. That way, the thinking goes, the company founders can reap some financial reward and stay motivated to build the company before an IPO or company sale, which can take years.”
- “Some traditional investors don’t think founders should make money before backers do, since early paydays might distract them from the task at hand. All of this is causing traditional VC firms to re-examine the way they invest in tiny tech start-ups. VC concerns including Trinity Ventures, for example, are now letting a few of their entrepreneurs “take money off the table” early on by selling stock.”
- “Mr. Thiel acknowledges his company faced resistance from blue-chip investors when it set out to raise money for its latest, $220 million venture-capital fund. One large institutional investor, who declined to be named, said he was put off by Founders Fund’s anti-establishment pitch. Others wonder whether Founders Fund could soon tap out its close-knit network of entrepreneurs and run out of companies to fund.”
I won’t comment on each one, suffice to say it’s refreshing and a welcome change from VC’s draconion rules of engagement in standard term sheets, something I covered recently here. I’ve also long argued that one reason we don’t see any grand slams anymore is because of the greatest mistake VCs and entrepreneurs make, which is not taking any money off the table in financing rounds. What’s that saying? Bulls make money, bears make money, but hogs get slaughtered… yeah, that one.
A cynic would highlight, however, that Founders’ Fund it too young, too early, and too idealistic to have hit some rough patches. In other words, it’s not what Thiel et al. think and do now in good times, but how they will react in a downturn. Judging by many economic indicators, the economy won’t be spectacular in 2008, but as we’ve outlined before, that will actually help the Web sub-economy in a few ways.
To conclude, Founders’ Fund won’t even be the biggest wave to shake down VCs in the US. That, my friends, will be foreign capital, trickling in more and more in 2008 and flooding American startups in 2009 and beyond. Foreign financial institutions - be it in China, Singapore, Saudi Arabia, etc. - are investing 5-10% in American financial giants. Over time, the same trends will lead many investors to start to invest in US startups as well. For more on this, see our sister publication WorldMojo.com’s post World to USA: Who’s Your Daddy?.
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