BUSINESS BLOGS
BUSINESS BLOGS
category: business
09 Apr 2008

This morning I found out Vidavee sold for $6.6M to Vignette - a CMS company. That’s not a large number by any stretch of the imagination… but it’s even more shockingly low when you realize that the company raised $8M in funding.

I know that a lot of VCs are pulling the plug on companies that don’t represent big payoff opportunities.  Combined with the fact that the company is losing money (I presume this was the case of Vidavee), then usually investors will pull the plug, as they did, here.

Tack on liquidation preferences and I presume the managers, founders and employees got nothing and the VCs salvaged some of their capital to reinvest in better areas.

Mind you, sometimes companies sell for a little bit more than the amount that they raised (GameTrust), other times it’s for less than they raised (Revver).  Usually, companies and investors try to spin it in a positive light.  In this case I presume the VCs just wanted to kill the project or sell it.  I am not surprised they sold it.  The product may be good, but the markat is saturated and Vidavee had no leverage, let alone pricing power.

Vidavee was one of the many, many, many companies to pitch us their services.  We passed.  I thought Vidavee had some interesting features, but they were a victim of a rapidly moving market, poor execution, confusing market positioning and frankly: free alternatives.  I’d say that the last variable created a rapidly moving market which forced investors/managers to change their spiel in the marketplace… and they simply did not execute well.  It’s not my style to say anything when a company is operating and all (especially if I have some kind of contact with them), but now that they have sold… I figure it’s a good case study and the parties there should read this, no matter how much it hurts.

But I’m not sure this is management or investors’ fault [alone]. I’m not saying they’re not at fault, but I don’t think it would have mattered what they did.

Let me chime in:

1- There’s just not that much money in technology plays anymore… before you think I’m a crackhead, let me explain:

2- Even though there are the occasional grand slams, most of those are media-related (ie. some advertising component)

3- The risk / reward tradeoff between media and technology is starting to tilt favorably towards media.

Nothing better illustrates this than MSFT’s major effort to acquire YHOO.  Or if you doubt me, even Google is an advertising-supported technology play.  The answer to this problem is that a lot of companies try to develop ad-supported business models but they can’t pull it off (man, I’d like to name names here).  Vidavee did not attempt that, they went with licensing sales, but they were even more dead in the water as a result.  This is why I think #1 above is true: tech companies are in a bastardly catch-22 these days.

For # 1 - Sure, call me biased as a media entrepreneur.

For # 2 - Look at the recent exits and you will see that the exits come with the promise of advertising one way or another (YouTube, MySpace, etc).  Vidavee never played up that card, they sold licenses to their software and that is really not a defensible position because there are countless alternatives in the marketplace… and nowadays, everything has a free alternative.

As per # 3 - media, content and advertising is the major opportunity because:

a) there are usually less competition (because VCs funded less players) and

b) it’s not a #1 or #2 takes it all kind of game.

For purposes of illustration: I could - pretty much with the press of a button - change blogging platforms from Wordpress to Movable Type seamlessly.  That won’t change the value of this blog and this company…  Admittedly, to WP or MT’s parent SixApart, the loss of one user does not change things… but therein lies the problem: you will have 1,000 wannabes who have to invest a lot of resources to become the #1 or #2 in the space, the others might as well not bother.

It’s really no different in video… and Vidavee was neither Wordpress or Six Apart…

This is why you are seeing more and more digital media/content funds - more here.

Vidavee’s fate shows one thing: platforms are a commodity, I don’t care what anyone says.  What exasperates this is that everyone and their uncle wants to be a platform.

Here’s a new reality for all you wanna be financiers and entrepreneurs: technology, patents, blah-blah-blah.  They’re not all that defensible in the “who cares” sense:
- either they are not defensible because cheap hardware and open-source software makes them not defensible, or

- they are but no one really uses the service or it’s not practical.

Hopefully Vidavee now has a home at Vignette.  In the meantime, I could list 5 or 10 other companies that will end up like Vidavee this year… but I won’t, that’s not classy.