Many people criticize social networks like facebook as distractions and a waste of time, but it looks like it may actually be keeping kids out of jail.
Instead of mugging two men at gunpoint in Brooklyn, 19-year-old Rodney Bradford was playing on his computer in another part of NYC. The proof was the 11:49 a.m. status update Bradford posted on his facebook page.
Facebook has added a new feature to encourage users to reconnect with friends that they haven’t written to in a while…the back thing is that for some users those people had actually passed away. As one user put it - “#MassiveFacebookFail.”
“In an Oct. 26 blog post, Max Kelly, Facebook’s head of security, announced the company’s policy of “memorializing” profiles of users who have died, taking them out of the public search results, sealing them from any future log-in attempts and leaving the wall open for family and friends to pay their respects”
From the department of “no shit”:
A number of the large ad networks have been reaching out to developers to let them know that they essentially have no idea what’s going on. Facebook has taken the latest actions without giving developers any form of early notification and many ad networks feel left in the dark. Those developers that have ad supported business models (the majority of Facebook developers) feel as though their businesses are in jeopardy. The rationale is that if they can’t trust what were previously reliable ad networks, who can they trust?
The developers all share a legitimate concern. One developer I spoke with postulated that if you can’t rely on the ad networks, is Facebook a good platform for running a business?
I don’t mean to sound holier than thou here, after all, we derive 49.5% of our total streams from YouTube, but YouTube owns 75% of the video content space (ie. so we don’t have a choice). However, to hedge against this, we generate less than 5% of our revenues from YouTube and maybe 10% from Google/YouTube combined.
I am not being sarcastic, but Twitter’s $100M funding round at a $900M pre-money or $1B post-money (hmm… does that detail really matter now) makes a lot of sense.
Twitter’s valuation is a perfect:
- manifestation of market supply and demand and
- reflection of the wanton destruction of old media companies and the fact that digital media has overtaken traditional media for good.
Searching for Hits
Over the past few years,
- MySpace stole Friendster’s thunder (if it could be called that) and was acquired by News Corp. for $580M
- then YouTube stole MySpace’s thunder (by piggybacking on MySpace) and it was acquired by Google for $1.65B
- then Facebook also stole MySpace’s thunder (by now a 60W lightbulb, mind you) and it turned down acquisition offers ranging from $800M to $2.3B, ultimately raising over $500M in capital and valuing itself at $15B courtesy of Bill Gates and Steve Ballmer.
While that valuation seemed crazy and Facebook might not ever sell raise money at that valuation - let alone sell for that amount - the recent crossing of 300M users, revenue figures over $500M per year for 2009 and rumored profitability (albeit brief or accounting-driven) suggests that Facebook did the right thing (yes, I admit it). After all, despite all of the naysayers, it did raise another $200M from Digital Sky Technologies at a $10B valuation.
Yes, $10B is 33% off the $15B MSFT valued it just last year, but that was last year. Last year, $5B was a rounding error, even for MSFT. This year, CBS as a whole is worth $5B (ok, so right now it’s $7.5B). While we’re at it, guess how much CBS was worth last year? Yep, that’s right: $15B. That has more to do with systematic factors in old media than CBS, mind you, but still.
But the main point I want to make is, in hindsight, Facebook has to its credit proved a lot of naysayers wrong - at least if we limit history to the period between 2008 and 2009.
Sure, in 2010, Facebook might hit a wall and it might never generate the kind of returns one expects a $10B-$15B valued company to generate… but that is not their main concern now.
And sure, Facebook might never IPO. But the point is, when someone comes to you with $50M or $100M and is willing to invest at any valuation, I am not sure you can blame anyone for saying “nyet”. Though as a fellow entrepreneur who has yet to succumb to VC money and/or crazy paper valuations, I whole heartedly agree with Bill Gates and Zoho’s Sridhar.
So back to Twitter, regardless of the lack of business model, the demand for the company’s stock far outstrips supply. This is why the company’s raised more and more money regardless of the answer to “how will they make money”.
In fact, I can attest that the main problem I have encountered when pontificating with VCs is specifically being able to paint in very clear and candid terms how our company makes money now and how it will make more of it. And therein lies the reason why Twitter is backing up the truck and looting the bank. The instant Twitter dives into “monetization”, investors will have to put down their bongs and start to value the company on an accounting basis, whereas right now, it’s all finance.
In finance, the formula for Total Return is simply
Return = Income Gain + Capital Gain
Income Gain includes like dividends. No self-respecting web company- including cash-rich Google - pays out dividends.
The Greater Fool Theory
So investors - be it private or public ones - make money on the Capital Gain, which calls for a stock to be worth more tomorrow than it is today. Judging by the sharp rise in capital invested in Twitter in such a short time span, the investors are basically betting that traditional media will continue to shrink, new media will continue to grow… and there will be more investors looking to ride the Twitter train:
A hat tip to Crunch Base for the valuation and funding info.
Twitter is once again following in Facebook’s footsteps and raising a lot of money before focusing on revenue…
To be perfectly fair, if Facebook’s $500M 2009 revenue figure is correct, it might not be that bad of an idea. However, this means Twitter will ultimately have to IPO because with a $1B paper valuation, getting any kind of return in an M&A will be unlikely. Sure, some tech companies like Google, MSFT, Cisco and Apple have a lot of cash on their balance sheets, but with most media buyers being battered and bruised, I am not sure if an M&A is in the stars.
So if an IPO is the long term bet, then it’s fitting to see T. Rowe Price joining Insight Venture Partners to pony up the $100M to Twitter’s war-chest.
T. Rowe Price previously invested in Slide’s $500M round, so I guess this new Twitter investment is either
- proof that they are happy with their Slide investment despite what some of the cynics were saying,
or
- an example of poor diversification in every sense of the word.
Oddly enough, the very same boosters who last year “swore” that Facebook was worth $5-10B (but is now so uncool, or less cool) are saying Twitter is worth $5-10B.
Once every while, the greater fool theory is proven to be true when someone comes along and pushes up the paper value ever so higher than the previous fool (I mean fool here in that cool way, you know: “man, that Michael Jordan is such a fool”). But jokes aside, Twitter and Facebook are actually worth a bundle, but the arguments being used are in fact not in of themselves supporting the multi-billion dollar rationale:
- Celebs use Twitter. Yes, they also used MySpace and today everyone thinks MySpace is dead and worthless.
- Businesses can use Twitter to communicate directly with customers. Yes, same thing could be achieved with a newsletter.
Yes, I am over-simplifying it, and sure, “I don’t get it”. What I do get is “liquidity”, or lack thereof:
No one will come and sign a check for anything remotely near those figures, and the public markets remain untested for products such as Twitter and Facebook.
The point is, unless some kind of liquidity transaction, it’s all moot. So we can all speculate all we want, like the fools we all are.
More on the matter:
From CNN, pretty darn accurate:
Here are 12 of the most annoying types of Facebook users:
The Let-Me-Tell-You-Every-Detail-of-My-Day Bore. “I’m waking up.” “I had Wheaties for breakfast.” “I’m bored at work.” “I’m stuck in traffic.” You’re kidding! How fascinating! No moment is too mundane for some people to broadcast unsolicited to the world. Just because you have 432 Facebook friends doesn’t mean we all want to know when you’re waiting for the bus.
The Self-Promoter. OK, so we’ve probably all posted at least once about some achievement. And sure, maybe your friends really do want to read the fascinating article you wrote about beet farming. But when almost EVERY update is a link to your blog, your poetry reading, your 10k results or your art show, you sound like a bragger or a self-centered careerist.
The Friend-Padder. The average Facebook user has 120 friends on the site. Schmoozers and social butterflies — you know, the ones who make lifelong pals on the subway — might reasonably have 300 or 400. But 1,000 “friends?” Unless you’re George Clooney or just won the lottery, no one has that many. That’s just showing off.
The Town Crier. “Michael Jackson is dead!!!” You heard it from me first! Me, and the 213,000 other people who all saw it on TMZ. These Matt Drudge wannabes are the reason many of us learn of breaking news not from TV or news sites but from online social networks. In their rush to trumpet the news, these people also spread rumors, half-truths and innuendo. No, Jeff Goldblum did not plunge to his death from a New Zealand cliff.
The TMIer. “Brad is heading to Walgreens to buy something for these pesky hemorrhoids.” Boundaries of privacy and decorum don’t seem to exist for these too-much-information updaters, who unabashedly offer up details about their sex lives, marital troubles and bodily functions. Thanks for sharing.
The Bad Grammarian. “So sad about Fara Fauset but Im so gladd its friday yippe”. Yes, I know the punctuation rules are different in the digital world. And, no, no one likes a spelling-Nazi schoolmarm. But you sound like a moron.
The Sympathy-Baiter. “Barbara is feeling sad today.” “Man, am I glad that’s over.” “Jim could really use some good news about now.” Like anglers hunting for fish, these sad sacks cast out their hooks — baited with vague tales of woe — in the hopes of landing concerned responses. Genuine bad news is one thing, but these manipulative posts are just pleas for attention.
The Lurker. The Peeping Toms of Facebook, these voyeurs are too cautious, or maybe too lazy, to update their status or write on your wall. But once in a while, you’ll be talking to them and they’ll mention something you posted, so you know they’re on your page, hiding in the shadows. It’s just a little creepy.
The Crank. These curmudgeons, like the trolls who spew hate in blog comments, never met something they couldn’t complain about. “Carl isn’t really that impressed with idiots who don’t realize how idiotic they are.” [Actual status update.] Keep spreading the love.
The Paparazzo. Ever visit your Facebook page and discover that someone’s posted a photo of you from last weekend’s party — a photo you didn’t authorize and haven’t even seen? You’d really rather not have to explain to your mom why you were leering like a drunken hyena and French-kissing a bottle of Jagermeister.
The Maddening Obscurist. “If not now then when?” “You’ll see…” “Grist for the mill.” “John is, small world.” “Dave thought he was immune, but no. No, he is not.” [Actual status updates, all.] Sorry, but you’re not being mysterious — just nonsensical.
The Chronic Inviter. “Support my cause. Sign my petition. Play Mafia Wars with me. Which ‘Star Trek’ character are you? Here are the ‘Top 5 cars I have personally owned.’ Here are ‘25 Things About Me.’ Here’s a drink. What drink are you? We’re related! I took the ‘What President Are You?’ quiz and found out I’m Millard Fillmore! What president are you?”
VCs try to have their cake and eat it too by inserting clauses pertaining to liquidity preferences, whereby they get all of their investment - or a multiple thereof - back before the entrepreneurs see a penny.
I am not sure if this is what explains what happened in the Facebook/Tipjoy non-transaction, but regardless, it highlights that karma exists and affects VCs too. The facts, from Peter Kafka at Mediamemo:
What’s next for the team behind Tipjoy, a micropayments service that closed its doors this week? For one of the company’s founders, it’s a job at Facebook–the social network that offered to buy the start-up this summer, then walked away from the deal.
In fact, co-founder Ivan Kirigin’s first day at Facebook was last Monday–four days before he and his wife, Abby, announced that they are shuttering their start-up.
Confused? You should be: This is one of the odder M&A stories I’ve seen in a while. Not surprisingly, the tale differs depending on who’s telling it.
Some basic, undisputed facts: Sometime this spring, TipJoy, a year old start-up that lets Web surfers “tip” bloggers and publishers, shopped the service to multiple parties, including Twitter and Facebook. By July, Facebook had offered, via a term sheet, to buy the company. Facebook then pulled its offer, and shortly after, offered Ivan a job. Now he and his wife are shutting TipJoy down and returning what’s left of the $1 million they had raised to their investors.
Also undisputed: No one has accused anyone of violating any laws, or contracts. Facebook’s offer was nonbinding and nonexclusive. And it’s not unheard of for companies to walk away from an M&A deal late in the process. That’s what happened, for instance, when Google (GOOG) bailed out after deep talks with Digg a year ago.
You could see why some of TipJoy’s backers, which include BetaWorks, the Accelerator Group, ex-Googler Chris Sacca and the Y Combinator start-up factory, might cry foul. The argument would be that Facebook’s actions effectively prevented the company from finding another buyer. But even if that was true, it doesn’t mean that Ivan Kirigin had to accept Facebook’s job offer and/or shutter his company.
So call me a socialist, but if Facebook was going to acquire Tipjoy and
a) not pay much,
b) the VCs would have gotten 100% of the proceeds and
c) Kirigin would have to sign away his freedom to Facebook for the deal to go through, then no wonder why these events took place.
Of course, I personally attribute this to another variable, which is
d) don’t build a business on Facebook or any other platform, be it Twitter or Crapstr.
This is just one of the problems that will hit VCs as valuation tumble. The bigger problem is that facing the specter of down rounds, a lot of entrepreneurs will walk from zombie startups, forcing VCs to step in and run them themselves or shut them down prematurely. As I mentioned some time ago: it’s a good thing VCs brag about their operational skills and entrepreneurial roots, they will come in handy.
Being the CEO of a company is a lonely gig. To placate yourself from the loneliness, you find people who believe in you and your vision and they back you by giving you money for a share of the business. They are supposed to stick with you through thick and thin… it doesn’t always work out that way.
It’s never easy having outside investors, regardless of whether they are VCs or angels. I wouldn’t know, partly because I am an ineffective fundraiser, but mainly because I refuse to agree to draconian terms. That decision is something that has nearly killed WatchMojo.com on a few occasions. But as hard as it has been to get the company to where it is today, as every day goes by, I am pretty thankful about that.
I met Scott Rafer just a month ago at a Paid Content cocktail and I would have never guessed it then, but today he blogged about shutting down Lookery. Scott is a very smart guy and a nice guy to boot. He’s had his share of successes, one of them being Yahoo! buying his old company.
Lookery’s initially problem was being a Facebook-reliant company, this is something I have long criticized and warned entrepreneurs against. I’ve even ridiculed VCs for drinking the kool-aid. I won’t link back to those in this post.
What I will link to is Scott’s post, I suggest every entrepreneur and investor read it here.
Lookery raised $3.15 million in angel funding over the past two years, from notable investors and VCs including Charles River Ventures and former FCC Chairman Reed Hundt.
To me, that is a lot of money, and half the problem.
But Lookery avoided institutional money and terms, which I think probably gave Scott more options. I found out today that one of our VC-backed clients was shutting down/fire-selling (who is that? I am not saying, at least not yet/not). I am not going to write about the details today, but as I learn more about the details of that unwinding, I realize some thing stinks. So in the end, I think shunning VCs gave Scott to go out with class, courtey and on his own terms.
This probably doesn’t make things less painful for him right now… but I wonder: Scott’s post on shutting Lookery down is titled “Couldery Shouldery”, I don’t know Scott that well, but my advice to entrepreneurs who are in a position to fund their own companies and avoid outside money altogether is Should Have, Could Have, Would Have Funded It Yourself.
After all, as much as WatchMojo.com has turned the corner, if I had outside investors, they would have shut down us down ages ago (just to be clear: if I was an outside investor and not the CEO, who knows, maybe I would have shut us down, too, due to the main disconnect at one point between our operations and our finances).
But by really putting my neck on the line, it forced me to find a business model and stick to my guns to make it work. Today we announced supplying Coca Cola with videos on their microsite on MySpace. As proud as we are of that, we will be unveiling something bigger next week. You have 24 hours in a day and one life to live, if you can live it without outside investors, here’s the sad but true reality: do so.
The other half of the problem is that once you raise any kind of money from outside investors, you give up a lot of rights in subsequent fundraising efforts. You have one company to grow, but these investors have a handful to dozens of companies to worry about. If they don’t want to fund in follow up rounds, you might be screwed.
As a student of business and history, I can count on my finger the incidents where outside investors actually help beyond money. I won’t make any friends by saying that in the investment community, but I can also count on my fingers how many people in said community I can count on.
The good news for Scott is what doesn’t kill you makes you stronger. The bad news is that while starting a company isn’t easy, keeping it afloat is even harder… but if the past 10 years show us anything, it’s that having too many notable investors is a sure-fire recipe for disaster.
Too bad no one listens to me, what I wrote about Facebook-oriented funds when they launched, I believe the title was “Why not flush money down the toilet, pal?“. Was I being too nice?
Today:
Some in Silicon Valley have speculated that MySpace isn’t willing to pay more for iLike because it fears Facebook will boot iLike once its main rival takes control of the service. But that doesn’t go far enough in describing the situation, said one of the sources. What has pushed iLike’s valuation down is a problem with control. The company’s managers have no way to prove to potential acquirers that their business model has a bright future because they can’t predict from one day to the next which direction Facebook’s Platform will go. The source said that leaders at iLike, or any other company on the platform, are not truly in control of their fate–Facebook’s Mark Zuckerberg is.
“The cash flow of any company doing business on Facebook’s API, or Facebook Connect, or Facebook platform is inherently at risk,” said the source. “The multiple that an investor can place on that cash flow is not that much greater than 1, because you never know at which point Facebook could change the terms of the relationship or change the technology and cut off that cash flow.”
But seriously, don’t listen to me…
PLAY
