Some of this I agree, some of it I don’t… but Adeo Ressi has a front-row seat at Thefunded.com, so it’s all worth noting:
The only time your lawyers will be honest with you in the venture raising process is when you interview them. After that don’t trust anything they say because their motivation is to close the deal and get the fee.
Everyone needs to go and pitch a VC first and expect it to fail. That first pitch will suck no matter what. Bring a business partner who is silent. Have him or her watch the interaction. Every time the VC falls asleep or makes a derogatory statement, your partner writes that down, and you go and fix it.
All you need is a PowerPoint. Make it 20 minutes. Do not throw in detailed financial statements. You are basically throwing a giant hunk of steak into a lion’s den and rolling around in it. Numbers is their business. They will tear you apart.
VCs talk amongst themselves. Most entrepreneurs fall into the classic mistake of pitching serially. There is no such thing as confidentiality. Your materials will be seen by dozens of VCs the second you pitch. It gets worse, if a VC likes you, they will tell the other VCs that you suck. You want to hit as many funds as you can,. I recommend trying to hit 30 funds in two weeks. Typically, you will get one term sheet per 10 pitches.
I guarantee you your first term sheet will be bad. They will lowball you, then they will pressure you to sign it quickly. Hold off. Your goal now is to get the second or third term sheet. Without other offers there is no market.
VCs say we will co-invest. They are trying to share the offer. Tell them, “No. Why don’t you make me an offer? I will evaluate the offer separately.” Do not let them syndicate the deal or merge the term sheets.
There is no confidentiality. Everything you send out will be seen by your competitors.
Courtesy of Tech Crunch. Come to think of it, most of that is 100% right.
For our previous coverage of TheFunded, including interview with Adeo, click on the TheFunded tag below (because I am sure you’ve never come across a tag in your life).
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WatchMojo NewsletterBecause we actually have a day job, we won’t be covering live the conference call that MySpace is holding now… for that check out some other sources: Paid Content, Alley Insider.
However, at first glance, I will say four things:
1- Paying for content: RIP
The premise - or expectation - that consumers would pay for any form of media just got one more nail in the coffin.
Text content? Nyet. Video? Nope. Music… some would argue that Apple’s iTunes shows that consumer would pay… but despite Apple’s success, I am not convinced that the masses online want to pay… and today’s decision by MySpace is a testament to that. It’s the world’s biggest social networking site, a major music oriented hub, and yet, it goes against the grain of what Apple was doing at iTunes… and I think that is the point: to reduce Steve Jobs’ power.
2- Dawn of a New Era: News Corp.’s FIM and MySpace Rise a Few Notches
News Corp. is giving up equity to the other media companies, but judging by the way this all looks (printed statements by other chiefs, MySpace running the show), it’s hard to argue that News Corp. just strengthened its hand here.
I’ve been saying that due to Disney’s considerable online revenue stream (well over $1B per annum), it was hard to argue that they were not the king of new media… but News Corp. has been coming on very strong, and this puts down an option for Rupert Murdoch’s empire to become the king of new media. In many ways, with MySpace being the world’s biggest site by pageviews, they already were… but this pushes them over the top relative TWX, Disney, Viacom, CBS, etc…
I’ve long argued that MySpace’s slant towards entertainment will shelter it from any advances from Facebook (and over time these two will diverge in the role they fill online), but this is considerable. I do expect Mark Zuckerberg and company to hatch plans for music, too… but planning for something and executing it not the same thing.
3 - Media vs. Tech: Line in the Sand
In this case, media companies like Warner Music, Sony, BMG, Universal Music Group (where’s EMI?) are all stating: we might compete amongst media companies but the foe are technology firms who can and will rape our businesses with no upside or value proposition.
Incidentally, MySpace might get criticized for occasionally being error prone etc. (who wouldn’t be after such massive growth), but the fact is that its tech platform made the other media companies more willing / less reluctant to fight News Corp. and instead made them align with it and make it the de facto platform.
4 - Execution Makes or Break Big Hairy Audacious Goals
In theory, this seems like the dawn of something new… but ultimately, we still need to see MySpace et al. execute this, and with so many different personalities and egos in one room (at least spiritually/figuratively), it remains to be seen if all parties pull this off.
[Disclaimer: WatchMojo.com is a content provider to MySpace TV; I worked for News Corp. from Sept. to Dec. 2005]
Yesterday I was asked by a reporter what I thought of online advertising. I remain bullish and you are seeing more and more dollars being pulled out of unmeasurable and expensive venues like TV and print but I do admit the following, for many companies with outsized expectations, it will hard to make the numbers add up to justify irrational valuations or projections.
We saw the exact same thing happen in 2001: companies had business models that required unreasonable amounts of investment, etc. When the giddiness dissipated, things changed very quickly.
For example, men’s lifestyle site TheMan.com was paying AOL hundreds of thousands of dollars per month for distribution. Once the market madness evaporated… all of a sudden, TheMan.com could not pay that fee.
That was the jab. What was the knock-out blow? VC Fred Wilson chimes in:
If a company has lots of users and no real revenues, but keeps its burn rate low and can continue to ramp its user base cost effectively, I think the economic downturn isn’t necessarily bad news for them. After all, if you have no revenue, you have no revenue to lose when your customers stop placing orders. That last bit was sort of tongue in cheek. I don’t want to downplay the importance of revenue and business models. But in my mind, the single most important thing is not revenue in a time like this. The most important thing is cost structure.
TheMan.com had raised $17M in funding and a cost structure that was out of whack.
However, having pricing power and leverage is equally important. If you are in a market with few competitors or retreating competitors, the truth is you can actually start to charge clients.
There are way too many me-too clone companies these days. The idea and rationale for funding these was that someone would come along and buy one of these companies. But because many were funded at obscene valuations, guess what: flipping them isn’t obvious because investors require a return that buyers are not comfortable in forking over… especially if the would-be buyer can pick up the phone and call 5-10 other companies that are fundamentally similar.
Don’t believe the people who say it’s all doom and gloom in a downturn or slowdown. I was part of the team that managed to build an empire during the last downturn and I am even more bullish about the conditions on the front lines this time around.
PLAY
