I’m pretty sure I walked over 200 blocks today in Manhattan. Yes: walked.200.blocks.
I am staying in Noho, on Bowery and 3rd street. If you know Manhattan, you be the judge:
- My first meeting was at 111 Broadway, near Wall Street in the Financial District. That is 30 blocks north/south and about 3 blocks east/west, so 33 blocks each way. For some odd reason, despite the heat, I decided to walk to and back. Insane. We’re at 66 blocks.
It’s not even noon yet.
- I got back to my apt for a few calls… then I walked from Bowery and 3rd street all the way until Grand Central Station for my 1:30pm, which is 42nd street, so add 39 streets, or 105 in all now.
It’s 2:30pm. I am checking out an apartment in the West Village at 3:30pm, so since I have some time to kill, I walk all the way from Grand Central Station to the West Village. Add at least 40 streets north/south and about 5 streets east/west, we’re now at 150 streets.
It’s 4pm.
I get back to the apartment and take a well-deserved shower. I take a short stroll to Astor Place for my 4:30pm meeting… we’re now at 160 streets considering the to and from.
I was going to stop by the NY Video Cocktail on Gansenvoort Street, near 9th Ave & Washington St. That is about 20 streets to (so up to 180), and you guessed it, by now, I want to crack 200 streets… so I walked back.
Madness I tell you, madness. Did I mention it was like 90-100 degrees?
Noticed the light blogging in the past couple of days?
Well, here’s why.
Michael Arrington, editor of Tech Crunch, has spent some time this week eulogizing Edgeio, the company that took on Craigslist and burned through $5M in financing, only to shut down this past week. Edgeio shut down because investors no longer wanted to fund operations.
Arrington was an investor in the company. In his latest pontification on the matter, called The Twice Shy Entrepreneur, a few quotes and passages stand out. First, commenting on the 1996-2000 era, he comments:
Life was good in the “old days.” Venture capitalists, flush with cash and a little unsure how long the good times would last, encouraged entrepreneurs to raise money and spend it as fast as possible. Literally. The goal was to get revenues up to a million dollars a quarter and start the IPO process. By the time they got out the door, valued by the market on forward revenue estimates, they’d be a billion dollar company.
That meant raising money, hiring everyone in sight and paying for business development deals that could bring in revenue. Those deals were usually not profitable. You’d pay AOL $10 million per year, for example, to get access to their users in some form.
In fact, I was a witness to some of those deals, but stood on the other side of the field. At the time, I was VP of Ad Sales for a mid-sized men’s lifestyle ezine that did not have VC money, but an angel’s $500,000 in funding to get us through. We could never afford such deals, so we saw from the sidelines and wondered who was foolish enough to do it.
It was part of the institutional imperative: basically jumping off a bridge cause others were doing it.
The companies that did, however, were not always dot coms, but actual business like Esquire, a unit of Hearst Magazine, who initially gladly paid AOL those kind of fees. Esquire was one of our competitors, so was dot com startup TheMan.com, who also struck similar deals.
The truth is, TheMan.com was dead upon arrival because the Highland-backed company wanted to scale overnight, as Arrington alludes to now:
The goal was to get revenues up to a million dollars a quarter and start the IPO process. By the time they got out the door, valued by the market on forward revenue estimates, they’d be a billion dollar company.
TheMan.com’s day of infamy came when Time did a cover story on them. In that piece, founder Calvin Lui mentioned that TheMan.com would be a Walt Disney kind of company. Ultimately, TheMan.com burned through $17M of funding and shut down in November 2000.
By then Nasdaq no longer rewarded sheer stupidity, and no one was there to pay AOL et al. such money.
The market opened up for us. By November 2000, we had gone through about half of that $500,000 in funding, by that time the next year we were breaking even. By late 2001, we were larger than Esquire, Maxim, GQ, etc. TheMan.com was on F*ckedCompany. Again, referencing Arrington:
The intense pressure entrepreneurs were under to get revenue at any cost led them to make decisions that, with hindsight, were blatantly foolish. And when the market crashed on April 14, 2000, those same entrepreneurs had to lay off most or all of their employees after making those decisions. And face outright humiliation on F*ckedCompany, the site that chronicled the downfall of the Internet bubble.
Once TheMan.com landed in the deadpool and Hearst balked at AOL’s upfront fees, what did AOL do then to please its millions of daily users?
ART OF BUSINESS DEVELOPMENT
It turned to my old company that had all of the content AOL and its users needed. Simultaneously, so did MSN. That’s right, without having to fork over any money, we managed to get two of the world’s largest portals (Yahoo! being the holdout) to carry our content.
That was the distribution we sought, and once we did, it made our company. Oddly enough, Esquire and TheMan.com had that distribution, but
a) they could not maintain the frequency that AOL or MSN sought and
b) they could not make the numbers add up… ultimately,
c) the market crashed, and reason came back into the picture.
BUSINESS DEVELOPMENT DONE RIGHT
In fact, another reason why VCs need to operate at arm’s length is because VCs chase elephants and look for overnight hits, but sustainable and successful business take time to build. VCs pretend to be in it for the long haul, they’re not. Don’t get me wrong, they’re not as near sighted as public shareholders who have a quarterly time horizon, but they’re not that different, either…
Reporting from the front lines, this is important: for example, I could sign multi-year business development deals, but sometimes that means giving up more value than I’d like. By taking my time (wow, am I actually becoming patient) and doing a shorter length deal, I get to strike a better deal for our company.
This last comment and this paragraph in itself merits a stand alone post, but the point is, it takes time to maximize value and optimize deals… and a VC’s pressure might be counter intuitive.
But, don’t take it from me, take it from an investor who’s backed successes like Geocities, Tacoda, Feedburner, Delicio.us and others. Fred Wilson says that the main reason VC-funded startups fail is because:
Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.
That is arguably the most important (and true) thing I’ve ever read as an entrepreneur and company builder.
BEST TIME TO BE IN BUSINESS IS TODAY
Interestingly, while Arrington calls that era the good old days, as a content company, I don’t share that view. Today is the best time ever to be in the media business. Why?
Business development is not dead, but it has changed. AOL, MSN, Yahoo!’s party has been crashed by sites like Myspace, Facebook, YouTube… and even within each one of these spheres, a plethora of competitors have spawned, effectively making distribution a commodity and making content more valuable.
WHEN VCs DON’T HELP
The VCs - some of whom get it, many of whom don’t, but all of whom have more money than they care to find out anything differently - might maintain that you need to burn through oodles of money to scale, but the fact is that regardless of whether:
- you have a service or product,
- operate in technology or media,
- rely on software sales or ad revenue,
the rules have changed because distribution is quite easy.
There are established communities and massive audiences already out there, you just have to find them and match them to your offering. That has removed a considerable layer of cost: marketing. Alluding to Arrington’s post, again:
Such deals may only spreadsheet out to a million or two a year in revenue. But the board would approve it anyway - and write the $8 - $9 million loss off as a marketing expense. Since the market was only valuing based on revenue, it didn’t matter anyway. Capital was cheap. Only revenue was valued. Even if you paid $10 to get $2.
As such, today, any startup that burns millions of dollars to reach an audience is going about the problem the wrong way… but to each their own. Forget what I say, sure, but if you connect this last quote with what VC Wilson says, you start to wonder if VCs hurt companies as much as they help. In fact: If I have to ramp up numbers overnight to excite a VC (in Arrington’s example, boost traffic - let alone revenues), then it means doing so at the cost of profits or even sustainable revenues or traffic. Since a VC-funded startup is doing so with other people’s money, they usually end up burning through a lot of money before knowing what the successful business model is, or will be.
VCs MAKE MONEY FOR VCs, NOT ENTREPRENEURS
When I talk about ad networks, I usually say that ad networks don’t make publishers money, they make ad networks money. In the same vein, while good entrepreneurs do make money for investors, I don’t think it’s a guarantee that VCs make money for their entrepreneurs. More often than not, when VCs do have their 1 grand slam hit, it comes at the expense of the entrepreneur… because the entrepreneur/founder’s objectives usually run counter to those of the VCs.
Taking risks doesn’t mean raising more money than you realistically need. It doesn’t mean hiring 20 people to do what 4 can do just fine. And it certainly doesn’t mean taking massive losses in exchange for a small amount of revenue.
But it does mean that you should raise money when it makes sense, hire people when you need them, and grow the business with a bold, take no prisoners attitude. Those are the entrepreneurs that change the world and ensure that their great grandchildren have massive trust funds.
I’m not criticizing VCs, they’re in the business of maximizing returns… but indeed as an entrepreneur, you should have a very clear sense of what defines success…
The main point is, Arrington’s inspiration for the post came from the fact that some VCs think that entrepreneurs are not as trigger-happy as they were in the previous era of euphoria:
Across the board [VCs] agree - many entrepreneurs from the first bubble are overly cautious, and hurting their businesses.
Apparently, before the bubble, when VCs said jump, entrepreneurs asked “how high”:
In general, the venture capitalists were the ones demanding growth at any cost. And the entrepreneurs did exactly what those venture capitalists asked.
I don’t know, but I’d argue that a lot of entrepreneurs are just as hungry and risk taking as ever, but they recognize that what is best for the VC is not always what is best for the entrepreneur, or the company.
Taking this argument one step further, the conclusion I draw is that entrepreneurs who ended up landing on F*ckedCompany.com or got f*cked by their VCs realize that just because a VC says you have to jump doesn’t mean that you should ask them how high… but rather, what have they been smoking?
Businesses take a very long time to build. If a VC gives you the entrepreneur the feeling that he’s more of a car salesman than a homebuilder, then maybe you should do yourself a favor and say “thanks, but we’ll pass”.
Maybe if Arrington had better - or more appropriate - financial backers, then Edgeio would not be relegated to the Deadpool… but clearly, now we’re the ones doing the pontificating.
One of the best things about starting a company is that you become resilient and patient. I am one of the most impatient people I’ve ever come across (which begs the question, does one actually come across oneself? but I digress).
Last night I met some fellow entrepreneurs and I told them that when you manage a startup and high-growth company, there are really only two things to remember:
If you wake up in the morning and are greeted with bad news, don’t worry too much because you’re bound to get worst news later on in the day…
And if ever you are greeted with some good news, enjoy it cause it won’t last, something is bound to go awry…
If you remember these two tenets of startups, then you will be amazed at how much success you can have because you don’t sweat the small negative stuff and you don’t let the good stuff get to your head.
Be careful what you ask for. A lot of people get into things for money, others for power, a few for respect.
Say you were an entrepreneur and someone came to you and:
- offered you $10M in funding but asked that you had to stay on for 3 years as a condition. Three years isn’t long, but it is an eternity online. YouTube went from URL registration to $1.65B in about 18 months…
- alternatively, what if someone else came to you and offered you $10M in funding but insisted you had to step aside and make room for their new hand-picked CEO.
Would you accept either offer? I think I would. Truth is, I think which offer you prefer has a lot to do with your state of mind. For the record, neither one of these things have happened. I swear we’re talking about the hypothetical. But as more and more advisers approach us and talk to us about the virtues of growing a company, I’ve had different people ask me how I would feel about either scenario.
Interestingly, if you wake up wanting to get the hell out of your company and do something else, I think because life is funny, then you are bound to stumble upon an investor who will tie you down forever as a condition of investing.
Alternatively, if remaining the captain was all you ever wanted and all that was important to you, I am pretty sure that someone would come along and insist that you make room for a new leader…
Trust me, life is odd that way.
I really don’t know what I would do in either situation if it happened, though.
I think, in all honesty, that if an investor came in and told me that they wanted me to step aside and make room for a new CEO, I’d check their heads because very few people know what the f*** is going to happen in web video, let alone web video content or web video advertising.
But by the same token, I also realize life is short, so if someone was capable of running a startup in such a field, it’s not like I would turn the opportunity away.
In life, you usually want what you can’t have and when you have something, you want something else. Trust me, it’s just the way life works…
Ultimately, just be grateful for having options… that’s more than what most people have.
The NY Times has a fascinating piece on Silicon Valley in general and Slide.com’s Max Levchin (formerly of Paypal) in particular. It also quotes other successful entrepreneurs, such as
- Peter A. Thiel, Levchin’s partner at PayPal who now runs hedge fund called Clarium Capital and as one of Facebook’s first investors is sitting one of the biggest paper gains of Web 2.0 fame;
- Dennis Fong, who sold his company to Viacom for $102M last year;
- James Hong, the dude behind HotorNot;
- Scott Banister, who happens to be a close friend of Levchin and who recently sold an antispam company to Cisco for a cool $830 million; and of course,
- Marc Andreessen, who needs no intro, but who summarizes the crux of this post with the following:
“It’s easier to start the next company than it was in the past,” said Marc Andreessen, who was a co-founder of Netscape Communications in 1994, when he was 22. It is also potentially more lucrative than it was even a dozen years ago, said Mr. Andreessen, who despite a net worth estimated to be in the hundreds of millions of dollars is now at work on his third start-up, a social networking company called Ning.
“For the first time in history, you have a global market of 1 billion-plus people, all connected over an interactive network,” Mr. Andreessen said. “The opportunities are bigger than ever before.”
For the past week, I’ve been meaning to write the following, and this article gave the perfect platform. It has something to do with ageism, or to quote from Chris Rock, reverse ageism.
Ageism is stereotyping and prejudice against individuals or groups because of their age, it was coined in 1969 and usually refers to stereotyping against otherwise fine folks who are old, but in this post, I’m explaining how in any place other than Silicon Valley, ageism in business applies to young folks.
Andreesseen’s comment hits the nail on the head: the opportunities are bigger, and as such the entrepreneurs aim higher… and frankly, that scares the shit out of a helluva lot of people.
Should you change or should they?
“A hard guy to like, an easy guy to admire.”
Tonight, the Boston Red Sox take on the Colorado Rockies in the World Series, and talking about one Curt Schilling (who pitched Game 2), the announcer said “Schilling is a hard guy to like, an easy guy to admire.”
Funny… if you’re a member of the Boston Red Sox or a Red Sox fan, you love Schilling. But you know what, to everyone else, you can’t stand Schilling, particularly if you’re a Yankees - or Rockies - fan. In fact, while I am sure that Levchin, Fong, Hong, Bannister and Andreesseen are all great guys to friend and families, I’d say they too (or their type) are “hard guys to like but easy guys to admire” both because of their previous success… and the drive and ambition towards future accomplishments.
A World Away From Silicon Valley
As I read the article, I realized how unique Silicon Valley was. In the article, Levchin said a number of things that would raise eyebrows in Anytown, USA but are de rigueur in San Francisco.
And I won’t lie, they hit home because of a recent exchange I had recently.
Last week, I met a couple of gentlemen who told me: “we want to invest in your company and help you take things to the next level.”
Great, I thought.
But not a second passed when I heard the following, less thrilling phrase: “But, word on the street is…”
I looked up, wondering, “what street, and whose word are we talking about?”
“Go on”, I pressed them.
“Either people love you and have nothing but great things to say, or, well…”
Yes?
“… or they have other things to say.”
“What things?”, I asked.
“Some people say you’re crazy, you don’t listen and you can’t be controlled.”
Now I don’t necessarily think that any of those descriptions are right or wrong, when someone - even anonymously - has something to say about you, you should listen.
For the record, of course I know I talk too much (look at the length of this freaking post). I occasionally do crazy things (come on, how crazy?) and surely I know that there’s really only one person that can control me or keep me in check, and I’m not ashamed or embarrassed to say that that person is my wife: she’s my partner in both business and in life, she’s earned that right.
But as I nestled back in my seat and nursed my cup of Joe, I could not help but think of something a great leader once said:
“Call me arrogant, cocky, crybaby, whiner or whatever names you like, at least they’re not calling us losers anymore. If people like you too much, it’s probably because they’re beating you.”
That’s not my quote, but it’s something I certainly agree with. If you’re wondering who said that, it was Steve Spurrier, former Florida Gators football coach from 1990-2001 and one of the most successful collegiate coaches of all time. I first referred to that statement in my first book, Course To Success. In that book, I look at a number of themes and theories, one of which is Sigmund Freud’s Division of Mind Theory, and relevant today in the context of Levchin’s profile and the feedback I was given on myself:
The Id is the mental representation of primal needs such as the drive to satisfy hunger and sexual needs. It does not however distinguish between the internal mind and the outside environment. While it stimulates carnal drives, it fails to separate the imagery from the actual stimuli; in other words, the actualization (or in business terms: the execution).
The Ego does distinguish between the internal mind and the external reality. Without it, images and thoughts remain just that: an unrealized dream or an unsatisfied need. It makes you take the necessary action to meet your desires, dreams and aspirations. This is where actualization or execution comes into play. Those who can execute over and over again may indeed develop an ego, in the loose sense of the term.
The Superego represents one’s moral behavior. It is the mental reflection of a society’s rule of ethics and code of conduct. It is the Superego that balances the Id’s urges. These two are balanced by the more realistic Ego.
I made a parallel in the book between Freud’s framework and business, outlining that essentially, Ego is all that we want, Superego is us understanding that we can’t go after everything that we want without risking alienating others, and Id is the connection between wanting something and getting that thing.
GREED VS. FEAR
The point I’m trying to make, is not that I am a closeted psychology geek, but rather, that those who don’t understand the repercussions of vocalizing their wants and needs too loudly are bound to create enemies and critics. I don’t care who you are, if enough people hate you, you’re going down.
In other words, it’s fine to work hard to serve your needs, but to step on others to please your wants will create envy and jealousy, especially if you attain those. As such, you should certainly encourage your fear overtake your greed.
As a result, both our of sheer goodwill but also admittedly for cover-your-ass purposes, I’ve long sought to avoid making enemies and avoid being greedy, in either the literal or figurative sense of the word.
JUDGMENT DAY
In life, we all face judgment days when our fate is in the hands of others, be it by an employer or a judge/jury etc. Oftentimes, when the evidence is weighed, you might not be in attendance and won’t be able to plead your case. As such, if you don’t come across as a greedy person and have some fear, then the impression you leave others is an overall positive one so when a jury of your peers holds your fate in their hands, they are bound to be fair with you.
REALITY SETS IN
Of course, that’s idealism at its peak. The simple truth is that in Western culture where we have an envy thy neighbor’s everything, it’s unlikely that others will be honest and fair. Because of that, you cannot live life waiting for others to open doors up and help you become successful, you have to go after things… and I don’t care what anyone says, that is bound to create critics and enemies.
WORKING HARD VS. WORKING SMART
If you are fortunate, then you are born with a silver spoon in your mouth. It’s not your fault if your parents or family was well to do, good for you. But if you consider the data and look around, it’s fair to argue that if people open doors for you, you just don’t work as hard.
Yes, there are exceptions to that rule: Alexander the Great’s father was king, too, and he went on to achieve far more than his father did… but Alexander was driven to achieve more than his father, but there was one Alexander the Great. He was the topic of my second book. I’ll make a mention of my books, and surely some people don’t like that. Go write a f-n book if you have a problem, is what I think. The point is, it’s a test to see how people react.
STUDY THE SOURCE
Besides writing, I do a lot of reading, and despite what some people say, I also do a lot of listening. Sure, I talk a lot (and write a lot, as you can tell), but compared to the amount of information I take in, I’d say it’s quite minimal. But when I read or hear something, I take what is said at face value, but once it sinks in, I also study the source.
When people say “word on the street is so and so” my first reaction is: “don’t tell me who said it, but did you ask yourself why they said that and what their relationship to me is?”
Those are fair questions to ask, and more often than not, the source is either biased or anything but a primary one.
I’m almost pushed to ask: “Who are you gonna believe? Me, who is sitting here in front of you, or what so and so said about me?” I realize that even if a portion of what is said might very well be true, if someone’s conclusions about you is based more on what others say about you than their own interpretation, that says a lot about them.
HUBRIS = DOWNFALL OF MAN
Jack Welch had one of the most successful careers of any executive throughout the history of corporations. He stared his career at GE in 1969 and retired in 2001 as CEO and Chairman of one of the world’s most successful companies. One of his tips for young executives was not “wearing your ambition on your sleeve”, in other words, not showing more interest for your next job than your current one.
He was right… in corporations. That’s why I did not last very long in corporate environments. In July 1998, when I was 20 I began to work in customer service for the nation’s largest bank while I was completing my degree in finance. When peers would ask me what I wanted to in my career at the bank I’d answer “I’d like to run the bank in 20 years or so”. In my delusional mind, I was being modest by adding 20 years, thinking that I could run it for the next 20 years.
Clearly, that pissed off a lot of people… and to a large extent, it was clear to me that I was dreaming, so when my manager blocked my request to be transferred (after honoring my 18 month contract) to the corporate/investment banking arm of the bank, I tendered my resignation and accepted a job at one of the first search engines online, in 2000.
After nine months there, I wanted more responsibilities so I moved to a VP spot at a mid-sized online publisher. I did a lot there and by 2005, the company got acquired and I was effectively out of a job. So for a myriad of reasons, I started Mojo Supreme and focused on WatchMojo.com. It’s been a helluva ride, and I can honestly say that we’re no longer an expensive hobby but a very promising growth company.
A CHAMPIONSHIP TEAM
When you start a company, you are the company, sure. But on Day 2, your number one mandate is to build a team. There’s no feeling like it. I’ve managed to field a fantastic team by surrounding myself with people who compliment my skills and have a lot of runway in areas they hold comparative advantages in. I’d add that some of them don’t even know the extent of their potential, and I’d like to think that WatchMojo.com in particular and Mojo Supreme in general are fantastic platforms for them to go on to great things.
If you work alongside someone and can’t stand his drive or ambition, that sucks for you. Go get a job at a bank. But if you are looking to invest in someone or back an individual by investing your time, energy and network, I got news for you: you better expect to hear a bunch of people talking shit about the entrepreneur you are thinking of investing… because you want that entrepreneur to think big, act bigger and deliver the biggest company you have ever seen.
GO WEST?
It all boils down to culture. In California - namely Silicon Valley - unfortunately money has a disproportionate amount of cachet. But when the sun rises, age is inversely related to how much respect one gets. Yes, experience counts aplenty, and both investors and clients look for it, but you are only as good as your current project. In my city, unfortunately, that mindset does not exist, here, if you are young and driven, you’re invariably a threat, a nuisance, a parasite.
Russell Simmons once said:
“The arrogance of white men is why I’m here today. If it weren’t for them, I wouldn’t be here. What the hell did they need me for if they were open-minded enough to allow this cultural phenomena to be part of their make-up,” says Simmons. “My independence is because they didn’t accept me. So every step of the way I’ve made more money.”
I hate to say it, but while I’m not black, I understand that comment all too well. I’ve been able to hold on to much more control and remain independent as a result of many being turned off by my brash ways. And you know what, I don’t care. But not because I’m a know-it-all (I’m not) or I think I am unbeatable (no one is). It’s because it all boils down to studying the source of your criticism.
LISTEN TO YOUR MAMMA
Everyone’s heard the expression: “If you can’t say anything nice, don’t say anything at all”. But when someone asks you what you think of so and so and you can’t say anything nice, you are really only exposing your own lack of confidence.
That’s probably where the saying “A players hire A people” etc., comes from. If you know someone is good at something, you focus on those things, and as an entrepreneur, you recruit those people, and that’s how you go on to build championship teams.
Talking like that might alienate and intimidate lesser men… and that’s a good thing, because only then can you separate the wheat from the chaff.
Ultimately, you have to bear in mind that you can’t show your cards too much because your audience extends away from your backyard… but the people that help you build a championship team tend to be in your backyard, so avoid aligning yourself with the meek, even if it means recognizing what your weaknesses and limitations are.
Apparently, traditional media’s love and hate relationship with YouTube took an interesting turn tonight: NBC canceled its channel on YouTube.
I won’t comment on that directly since WatchMojo.com is a content provider on YouTube and enough people are already commenting on the unconfirmed news, but I’ve been meaning to look at the interesting dynamic between traditional media companies and web video startups, and this is one more chess move in the big game that’s really only starting.
When you realize that Web Video is a $150B market cap opportunity by 2011, but not for traditional media and What The Math Suggests Old Media Should Do with Web Video (invest, not acquire), it’s not a surprise to see media companies wanting to be in control of their destiny.
NewTeeVee has a fantastic overview of media companies’ investments in web video startups, which I will shamelessly copy, paste, update (they forgot CBS’ stake in Spotrunner, for one, amongst a few others). I’ll also add some color.
Does it help or hurt companies when they get an investment by media companies?
Like most fine questions, answer is: It depends.
Why Strategic Money Helps
When it comes to strategic investments, one school of thought is that it encourages VCs to invest because they see a clear connection between investment and exit. From an operational perspective, clearly, getting a media company to invest in you will help in terms of validation, sales and marketing. Right Media said that they got a lot more calls for business after Yahoo! bought 20% for $45M. In their case, it also helped prop up the value of the company, subsequently selling the remaining 80% for $680M. Of course, what helped Right Media mainly was the market environment that saw 24/7 RealMedia, aQuantive and Doubleclick get acquired for high multiples.
Why Strategic Money Hurts
Now, the flip side on selling a stake to media companies: The other school of thought suggests that this also closes potential upside in any negotiations: if (say for example) NBC owns a strategic stake, that is great in many ways, but they might ask for a First Right of Refusal (FROR) in any M&A talks, meaning that it’s their right but not their obligation to match any offer and buy you.
The problem with this scenario is not in theory but in practice, because a would-be buyer, say CBS for example, would not even consider looking at buying you because it means they have to spend time and money on due diligence and then the holder of the FROR can walk in, match the offer and win.
Worse off, there’s nothing that forces the holder of the right to initiate talks. They have the option to do so, but not the obligation. It’s also not like you have the conceptual equivalent of a pull option, which is the right to sell. So while I myself love the allure and operational upside of getting a media company to back you, I also understand why some investors that I talk to don’t share that optimism and bullishness.
So technically, while some amongst the “smart money” might love strategic money, as an entrepreneur, I’d be wary (in all candor, I’d also consider it and reach out for it because the benefits are long and clear, too).
How to Structure a Strategic Investment by a Media Company?
When I was at the Tech Crunch 40 conference, Jason Calacanis (who raised money from News Corp. for his Mahalo project) suggested that the optimal way is to have an institutional investor (such as a VC) set the terms and have other strategic investors tag along, instead of have the media company set the terms. I think that is probably the wisest way to go, though one might not always have the luxury, of course.
What About Derivatives in Lieu of Equity?
Of course, some times a media company does not actually invest cash, but they strike a business deal and want to get some skin in the game. In this case, you can look at derivatives, such as warrants.
We’ve seen this happen before, too. Google did that when AOL and Yahoo! used Google to power their search engine and did not actually invest any money.
I’m not recommending any entrepreneurs to pitch warrants in lieu of equity in exchange for a cash investment… I’m pretty sure if you have NBC, CBS, News Corp., Walt Disney’s ABC, etc. sitting in front of you and showing interest to invest cold hard cash and you suggest warrants, they’d spit in your face and pile-drive you into the boardroom.
I’m just saying that in those rare events when it’s a business development partnership, an entrepreneur should consider warrants, as Google did, to get the larger media company interested in seeing you grow, cause the potential capital gain is a nice incentive and bonus.
Investments Made by Media Companies in Web Video Related Startups
Anyway, here are some investments by media company courtesy of NewTeeVee, with a bunch more I’ve added. I’ll continue to update this and if I missed anyone email me at ash@mojosupreme.com.
- Brightcove: video-publishing tool provider
- BroadLogic: video processing chips (with Comcast Interactive Capital)
- Ripe Digital Entertainment: on-demand TV network for young men
- ScanScout: contextually relevant video ads
- Veoh Networks: online video platform
- Visible World: video advertising for TV and broadband (with Comcast Interactive Capital)
Comcast Interactive Capital (CMCSA)
- BlackArrow: video advertising platform for cable
- BroadLogic: video processing chips (with Time Warner Investments)
- Revver: video-sharing with revenue sharing for all creators
- RGB Networks: video networking systems
- Visible World: video advertising for TV and broadband (with Time Warner Investments)
- Vitrue: white-label video sites and advertising services
Peacock Equity (GE)
- Firebrand: commercials as content portal (launching next week)
- Adify: contextual video ads.
- NBC also has an investment in Worldwide Biggies, a digital studio.
Hearst Interactive Media (HTV)
- Brightcove: video-publishing tool provider
- Sling Media: place-shifting hardware devices (sold to EchoStar)
- The NewsMarket: news video archive
- Worldwide Biggies: digital studio
Steamboat Ventures (Wall Disney’s VC Arm)
- Move Networks: streaming television platform
- 56.com: Chinese video-sharing site
- CTS Media: Chinese video advertising
- Netmovie: Chinese VOD
- UUSee: Chinese Internet TV platform
Yes, I noticed the obsession over China.
Bertelsmann Digital Media Investments
- UITV: Chinese Internet TV site
- Joost
- Spotrunner
- Stake in male-oriented video-sharing site Break.com.
- Brightcove: video-publishing tool provider
Yes, everyone owns Brightcove.
That’s just the investments, if you consider acquisitions, the list would be longer, and that’s something I’ll start working on.
You might notice the notable absentee is News Corp., and I don’t think it’s a coincidence.
Yes, they own 5% warrants in ROO, with the option to buy 5% more, but that was given to them… When News Corp. makes investments, they’re not small, they’re in large entities, see for yourself.
As I said, this is not a coincidence. When I was attending another conference, Paid Content’s EconSM shindig, I was in the audience when Mike Lang, Executive Vice President Business Development & Strategy at Fox said that News Corp. wasn’t interested “in leasing companies, he was looking at buying companies” and if I were News Corp., I’d share that outlook, frankly…
Not all media companies have that outlook, of course: it is interesting that CBS’ Quincy Smith and Michael Marquez have decided to take CBS Interactive in a different direction by mainly investing in - and not buying - young new media companies.
Time will tell which decision yields the best results.
Related on HipMojo.com:
- What Old Media Should Do with Web Video: The Math
- Web Video is a $150B market cap opportunity by 2011, but not for traditional media.
I think it’s time for me to dust off my personal site and add a blog there: a place where I can share topics that probably don’t have a place on this blog which is increasingly read by people that “probably” don’t care about my personal life.
But, of all of the blogs in the Blogger Mojo network, HipMojo.com is probably the closest one to a personal blog.
If you noticed the absolute lack of posts today, it’s wasn’t because I was swamped beyond belief or there weren’t enough interesting topics to tackle, it’s that my 97-year old grandma passed away last night. I wish I could live to 79, let alone 97!
Almost two years ago to the day, my then colleague/friend’s brother passed away at the age of 21 in an accident. I was shocked and saddened beyond belief and questioned everything about life, how could someone so young be taken away in such a way?
This morning when my dad called at 9am, I knew immediately why he was calling. Naturally it was a very, very sad moment, but she passed away peacefully last night. When I hung up, it wasn’t like I had anywhere to go, but I just knew that I should go see my parents.
I am embarrassed and ashamed to admit this, but I actually had an important call at 10am. I thought of canceling it, but doing so would have been at the detriment of my colleagues and team (as founder and CEO of a company, I have a responsibility to my colleagues and staff, after all), so I took it.
Of course, I also have a greater responsibility to my family, so I contemplated what the right call would be and I asked myself what my grandmother would have done. My grandmother didn’t work in the traditional sense of the word, but lord knows she worked extremely hard to raise my mother and her four grand children… so I’m sure she could relate to my dilemma. She also sacrificed quite a bit for us.
I think sacrifice is a big piece of the puzzle when it comes to being successful. The saying “how badly do you want it” is a testament of that. Be it in sports, entertainment, business or life, it always boils down to persistence and determination, but to get what you want, you have to sacrifice, too.
My grandmother was the only grandparent I ever had. She had one child: my mom. And, when we moved from Iran (aka, candidate #1 on George Bush’ Axis of Evil) to Canada - via Spain - my parents didn’t want to leave her behind alone, so they in turn sacrificed a lot more by bringing her with us. Having a Farsi-speaking 70-year old elderly woman around isn’t obvious when you try to start your life from scratch in a new country, but it was a non-issue for my parents.
We were fortunate to have someone so generous and wise raise us. Maybe that’s why I am such a good cook now, because I learned from the best. More importantly, she was a great human being, a heart the size of Greenland.
Ultimately, she taught me the importance of sacrifice: if you want to be successful in life, you have to be able to sacrifice not only for yourself, and your loved ones, but also for those around you. Her definition of success did not include P&L statements, market share reports and growth rates… but those are details that with time get blurry.
I’m sure my parents are very proud of my accomplishments, but I probably wasn’t the best son or grandson in many ways, partially because I focused too much on my professional career. I guess I sacrificed some things personally and on the family front to succeed professionally. I am surely not alone there, and I’m not writing this as a cliched reminder to “spend time with loved one.”
I’m writing this because everyone sacrifices, though in different ways.
- My grandmother was probably criticized by her sisters and family for picking up and leaving her native country to be with her daughter and grand-children;
- my parents were probably criticized for uprooting a 70 year old woman and bringing her across the globe, but ultimately, I got to spend my entire life with my grandma, something that most people can’t say they had the chance to do.
We all sacrifice in our own way, I guess the lesson at the end of the day is to make sure that sacrifices are worthwhile.
One of the more frequent comments I get is “How do you get time to do so much research, write about it and also run a business?”
I am quite proud of the fact that in the past 18 months, I’ve managed a team that has produced 4,000 video clips and published 2,500 of them on WatchMojo.com, and built a syndication network that reaches well over 95% of people who consumer video content.
But I’m equally proud of the fact that this blog alone has published over 2,000 posts on topics that pertain to Madison Avenue, Silicon Valley and Wall Street. One the one hand I have no idea why I obsessively wrote so much in such a short time span, maybe it really was my third book “Context is King” that came to life here… page by page and chapter by chapter… or maybe it’s because this blog became the knowledge base of every item of news - be it a report, a study, or a deal - that I knew would come in handy when I’d entered a period of due diligence.
Due diligence is a labor-intensive exercise, and honestly, I think most CEOs would lose their mind trying to both manage a company and produce the information required in a regular due diligence exercise. One reason why I’ve been able to manage it quite easily, I think, is because for the past 18 months, I’ve been adding everything that would go on to become the foundation of our business plan, projections, arguments for valuation etc. on this site.
The lesson for all CEOs is simple: don’t wait before you create a knowledge base for yourself, and blogging software makes doing that quite easy… best of all, it helps you enormously with business deals and partnerships.
When iLike launched a Facebook application, the social network’s burgeoning traffic crushed the music service’s servers. Subsequently, iLike’s company founder (and my fellow countryman) Ali Partovi made an empassioned plea for servers, servers, and more servers.It was a tough constraint to meet demand for, for sure, but ultimately, in today’s climate of cheap hardware and open source software, it was a resource that could be somewhat easily met (tell that to iLike… but I digress).
But when it comes to managing a startup, for sure the greatest challenge is managing human resources. For one, unlike machines, human beings are all about mind, body and soul, and that means they are dynamic creatures.
I won’t write about the intricacies of managing human beings, I’ve done that quite a but, particularly in Entrepreneurship vs. Intrapreneurship. I should admit that there remained a pretty large hint of bitterness in my mouth towards my erstwhile colleagues when I wrote that, but time heals most (if not all) wounds…
This post isn’t so much about to manage people and their inner feelings and emotions, but rather how a CEO needs to develop a farm system to have people in place, ready to step up for the challenge the day when you are given the proper resources to scale and build a championship team.
It’s not easy in that until you have the resources, you have to be extremely conservative and judicious with every penny that goes out the door, but you need to plant the seeds and foster the relationships so that when you can grow the company quickly, you have identified the people that will help you win the title. Of course, the key is to manage your financial resources carefully after you raise capital too, but by doing your job of identifying the people you can go to battle with before, then you can ensure that you don’t waste any bullets or time…
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