Somehow*, I came across Paul Lee’s post on high valuations, he’s a founding member and Senior Vice President at the Peacock Equity Fund, a joint venture between NBC Universal and GE Capital:
A high valuation is problematic for a number of reasons. The first, and probably most important, is the impact on the company’s ability to attract quality talent. That’s not to say that you couldn’t (I’m sure the aforementioned microblogging site is seeing a flood of resumes). However, most people in the startup world join startups for the equity upside in a liquidity event or IPO (although the garage sale furniture and stale pizza at 1 a.m. is tremendously appealing). When a highly priced round is completed, guess what–the strike price of the options also go up. In effect, the hurdle for the options to be “in the money” has gone up and the value of the options has decreased. The motivation for the employees coming in after the financing has been materially altered.
Another difficulty in raising a highly priced round is the set of expectations from the new investors. Given the high valuations, the milestones that you’d have to hit to justify the valuation are usually aggressive. The difficulty in setting such aggressive milestones is that if you only complete 50%, you’ve basically built a bridge to nowhere. When you next need to raise capital, you may be faced with a down round, or in extreme circumstances, a complete recap or non-funding. Lawsuits and tensions around the board about fiduciary responsibilities are common. Not very fun stuff.
It sort of reminds me of a quote from a low-profile entrepreneur named Bill Gates who started a software company in Seattle back in the day. He quit to run a non-profit to help end poverty:
One challenge Microsoft did face, and that Netscape now faces, is coping with a high market valuation. Netscape has little income, but investors have valued its stock at more than $2 billion. When a company’s shares have a high value, expectations from investors, including employee-owners, are correspondingly high. Failure to meet those expectations can be damaging. If you’re giving share options to employees so that they can participate financially in the expected success of a company, a high valuation hurts. If the market’s already anticipated the great work those people are going to do, then their stock options won’t appreciate much in value, if at all. This can make the options worthless. Many times in the past I have felt that Microsoft stock was higher in value than it should be. Subsequently I was proven, in a sense, to be wrong. Controlling expectations—whether about deliveries, product features or stock value—is often wise in a technology business. It’s a lot better to under-promise and over-deliver.
Read more about that here.
[* A lie. You will see why and how I was on Fast Company in a few days when I post the Fast Company article that mentions WatchMojo.]
US Video advertising will surpass $1B in billings in 2008. That is a psychological mark more than anything else as video advertising overtakes search advertising in the upcoming decade. It might sound impossible now, but the day Web ads overtake TV ads, it won’t be on the strength of search ads, but rather, the titanic shift of marketing dollars from TV to the internet.
Over the past few years, marketers have began to experiment with video advertising, or rather, advertising around video content. A lot of that has been via pre-rolls, but pre-rolls - while they will remain an important component in years to come - are no different than popunders and popups. Over time, we’ll need something better and less intrusive for users to render the format effective. I suggested maybe the PiP will make a dent, who knows?
In the upcoming years, expect sponsorships to be a popular format. Today Fast Company announced that its upcoming FastCompany.tv programming won’t run pre-rolls, but will be monetized via sponsorships.
To understand why, let’s examine a few factors.
Advertisers look for clickable and unclickable formats.
They also look at tracked, and untracked placements. Mind you these days online everything can be tracked.
But given that Fast Company has an established brand and will be rolling out its video initiative from scratch, it has a lot to lose by selling anything on a tracked and clickable basis. But specifically because Fast Company has brand equity and host Robert Scoble has a following and experience with sponsorship-based programming, this is a wise way to launch into the medium.
As a video producer myself, I welcome this because it will encourage other marketers to give sponsorships a try and drop the rhetoric over pre-rolls. After all, marketers are great thinkers sometimes, but occasionally you will walk into an ad agency and suggest something that is outside of the box and they will look at you like you are an alien.
This is one storyline worth keeping an eye on.
In other words, why Fast Company would want this is a no-brainer, but for marketers to embrace it would be welcome.
As they would say, a small step for publishers, a giant leap for marketers.
Robert Scoble, Microsoft and VC-backed Podtech.net’s former content guy, is set to join Fast Company and help build FastCompany.tv.
As a video content producer at WatchMojo.com, I am always interested and encouraged when more professionals get into the art of storytelling online. If online video advertising is to grow (and overtake search advertising in billings, then we need to change marketers’ perception that online video is only UGC).
I have never met Robert but commend him for the move. Don Dodge outlines the reasons why this shows Scoble’s maturity and wisdom in the move. You have to be honest with yourself in business and in life, and clearly Scoble seems to have his priorities and goals in place.
I will comment on a few themes that this move highlights:
Intrapreneur vs. Entrepreneur
It takes a very different set of skills and lifestyle to start a company than it does to build one. I’ve written quite a bit about the intrapreneur vs. entrepreneur question all executives need to ask themselves before launching a venture.
Ultimately, it boils down to this, from Seeing the Forest Through the Trees:
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…
You can read longer posts on the matter here:
- Intrapreneur vs. Entrepreneur
- Growing startups is all about people
Text Content vs Radio Content vs. Video Content
Print companies are more likely to take a hands-on, proactive approach to online video than TV companies. One reason is that online video poses the risk to shrink TV revenues and TV networks’ businesses whereas it is entirely accretive for print companies. As such, it’s not at all surprising to see Fast Company become proactive with producing content in video format online. Whether or not they succeed, I don’t know. I do know, however, that Fast Company is going to quickly learn that not all content is similar. How so?
From 2000-05 I was a writer and VP of sales for a mid-sized online publisher/online magazine (I know, those two roles were unrelated but we all wore many hats at the company). In 2003, I decided to venture into radio in my spare time. My writing style (asking questions, setting up a hypothesis and proving or disproving it, rapid fire etc.) was actually suited for radio, but I realized that producing content for radio was actually very different than producing content in text format for a magazine. This is why when the company wanted to do radio and shove its content through airways, it did not really take.
In fact, if you look at the landscape of media companies, you have companies that largely emphasize TV, radio or print. Yes, some companies have operations in two of three (if not all three) but the obvious crossover appeal and fit is limited.
FOX is one example whose radio (the FOX Radio network), print (FOXSports.com) and video (FOX News and FOX Sports) do it well.
But lot of print companies take the wrong editorial path in producing video content for the Web. I could write an entire post on this. Oh, wait, I did, it’s called: Video is the Killer App (But not in a Good Way for All).
The more I talk to print companies though, I realize the way they go about moving into video is ill-fated too. But that is a separate post for another day.
One thing is for sure, while FastCompany.tv will face its ups and downs, it is a far better environment to be producing content than within MSFT or a venture-backed startup.
PLAY
