The best line about the whole Skype saga has been that “everyone who has ever done a deal with the Skype guys has walked away unhappy.” I think it came from Tech Crunch.
Now, Index Ventures and alleged slime ball Mike Volpi are out, and in their place comes the original dashing duo.
Read more. But I wonder, how long before Volpi leaves Index to “spend more time with his family?”
And seriously, what is wrong with a VC like Index to begin with?
Lazard CEO Bruce Wasserstein, one of Wall Street’s most storied icons and prolific dealmakers, died yesterday after being hospitalized over the weekend with an irregular heartbeat. He was 61.
(…)
Known as one of Wall Street’s most ingenious wheeler-dealers, Wasserstein, a Brooklyn native, amassed a personal fortune of about $2.3 billion, according to Forbes magazine, doling out merger advice to deep-pocketed clients like billionaires Carl Icahn and Ron Perelman.
CNET’s ZDNET, Iran and Yahoo!? You know this would not end well.
I was very surprised to read that Yahoo! had handed over names of Iranians youth to the authorities. Turns out it was false. Interestingly enough if a blog would have written that, it would have gotten much less consideration… but at the same time, because a “well respected, traditional, new media source” such as ZDNet reported it, it’s a big deal.
I had a chance to sit down with Barbara Corcoran. She’s currently on Shark Tank alongside Robert Herjavec, Kevin O’Leary, Kevin Harrington and Daymond John.
We chatted about numerous things, to read the interview from the beginning, see Part 1 here. Here is Part 2:
WatchMojo: You were quoted as saying that the worst students make the best entrepreneurs. I actually understand why you would say that, but do you think that good students make for bad entrepreneurs?
Barbara Corcoran: With a few exceptions, I would say generally so, yes. And, this is my logic, and I don’t really know, because I’ve not done a survey, but just on my life experience of meeting entrepreneurs’ day in and day out. I think great students operate very well in a defined role, okay? And so, the problem that happens as an entrepreneur is you’ve got to redefine your role constantly, and you’ve got to do it for yourself. You also have to set your own great standards, so you are not reaching for a program that’s been outlined that you can succeed at; you have to create your own program.
I think very often great students don’t have incredible imaginations, whereas kids that are terrible students have the whole school day to daydream. So, they have much more opportunity to practice being creative, because they’ve got to fill in their brain with something while they are not figuring, while they are not getting what’s going on in the classroom. And so, I think entrepreneurs who are terrible students often have a head start of a great student who is stuck with the program.
And then lastly, kids that don’t do well in school can’t wait to get out of school, and so when they get out of school it’s like getting out of jail and they burst out. And, their shear relief of being let go out of the confines of the school role usually creates great energy. And so, they are much more comfortable in a freewheeling, high risk workplace without rules than they are in something that’s defined; that’s my own theory, I don’t know if that’s to be true.
WatchMojo: From my own experience both from working with great entrepreneurs and starting a company I think there is a pattern.
Generally speaking if you are good at working within a framework, I think that makes you excellent to actually take direction and do great things. But, I think entrepreneurs generally like to work when there is no playbook; you throw them in the wild and ask them to solve the problems, that’s when we excel.
Barbara Corcoran: Oh, definitely.
WatchMojo: Now, the interesting thing is whether it’s New York City in particular, the panel on Shark Tank, the real estate world or business in general, women are generally out numbered. Their voices aren’t even heard oftentimes, or if they are heard, they’re not always taken as seriously as they should be. So the question is, how has being a woman played a part in your success?
Barbara Corcoran: It’s been an absolute advantage, or certainly that’s how I perceive it. Because, I walked into an old boys club where the large firms were owned, controlled by men. And, when I would meet, when I would walk into any industry event, I was the only person in skirt, and I made sure I had a red suit on to be noticed. So, I was noticed more, because I was the odd duck, so that’s an advantage to be noticed in any business for better or worse to be noticed is better then not being noticed, right?
WatchMojo: Exactly. That’s why I haven’t changed my name…
Barbara Corcoran: Yeah, right. Because, for you it’s true, isn’t it?
WatchMojo: Yes.
Barbara Corcoran: Because, people will remember your name. And then, the other thing is women operate very differently than men, and in the real estate world even though in my day it was owned by men, it was worked by women. And so, I intuitively knew how women liked to work, what was important to them; how to build a great workplace for females, whereas the men had to guess about it? You know, so I was closer.
WatchMojo: That’s a very good point, because you can have a fantastic company and provide all these opportunities, but if the women are not comfortable, you are right, you are going to lose a lot of talent and a male boss might not even understand why.
Barbara Corcoran: Yeah. We were the only firm in New York City where we designed our offices like spas where we had, you know shoe shine guys, massage therapists. Why, because 80% of my staff was female and they really liked that, I don’t think a guy would have thought of that one.
WatchMojo: Do you spend more of your time looking for ideas for your production company or investments on the show?
Barbara Corcoran: Both, I have one leg in each. I, you know I had both seat in looking for the story ideas and getting more television appearances, that was my career. Since I’ve been on the Shark Tank, I would have to say I’ve got one foot in each arena, because it’s not just doing the Shark Tank, it’s when you buy the businesses, and I bought twelve in the first season. Once you buy the businesses, now you have to tend to them. You know you’ve got to get the contracts done, you know arrange the funding.
You have to start working, getting to know your entrepreneur. So, clearly you can imagine how much time is involved in that. And, I’ve also had to build a financial team that I didn’t have going into that TV show. I had to hire venture capitalist to work for me, because I don’t want to lose my money.
WatchMojo: Who would?
Come back tomorrow, where we continue our discussion and I ask Barbara what the common traits of the businesses she’s invested in were.
Background
Mike Volpi was the executive at Cisco who ran M&A for John Chambers. His recommendations made millions for others (whose companies Cisco acquired) and helped make Chambers more and more powerful. Over time, he was asked by the founders of Skype, Janus Friis and Niklas Zennstrom, to sit on their board.
Then, Skype is acquired by eBay for over $2B in 2005, Friis and Zennstrom retain the underlying P2P platform, called Global Index, through their ownership of Joltid. In the sale to eBay, investors Index Partners and partner Danny Rimer make a killing.
Joost is Hatched, and Flops
Friis and Zennstrom launch Joost, a video P2P platform, using the same Global Index platform. Company raises $45M from a blue-chip roster of investors including CBS, Viacom, and many others.
Eventually, they recruit Volpi to become the CEO of the fledging video startup. Volpi, Friis and Zennstrom realize that the NBC/News Corp.-backed hulu has stolen their thunder and try to right the ship, by dumping the software client distribution model and adopting a browser strategy. By then, Joost hits considerable headwinds and decides to dump the consumer strategy and focus on white label licensing.
Back to Skype, but How?
Friis and Zennstrom wonder what to do next. Their focus shifts to their one main hit: Skype, currently in eBay’s hands. Volpi, meanwhile, wonders if he did the right thing by leaving the friendly confines of corporate life for the rough and tumble world of startups.
All equally troubled by the turning of events, they meet to explore their options. How crazy would it be for them to hatch a plan to reclaim their crown jewel Skype… but how to do without triggering a bidding war with corporate and private equity giants?
The Plan?
Since Joltid retained the source code for Skype, eBay only had access to an executable program. They probably ask Joltid for the right to tweak the software, Joltid ignores their request or outright denies it. Fearing the worst, eBay starts to tinker with the code, Joltid jumps on opportunity to claim that eBay is violating the terms of the license, they sue to prevent eBay from both tweaking the license AND from selling Skype to anyone else (Google, MSFT, etc.).
Fearing that they might lose the case to eBay, how crazy would it be for Friis and Zennstrom to offer Volpi an offer he could not refuse:
Use confidential material information to sell Skype to a third party by convincing them that he had the secret formula to get around the technical challenges posed by relying on the Global Index, but leave enough of a trail so that Joltid could pursue Volpi and the new buyers Volpi shepherded to ultimately force eBay to instead sell Skype at a steep discount to them as part of a settlement?
This way, Friis and Zennstrom did not have to enter into a bidding war against the much deeper pocketed Google and Microsoft, and private equity players that would underwrite this plan would be once bitten, twice shy about pursuing Skype as well?
You could argue, would Volpi do this?
Honestly, I don’t think so. I also don’t think - judging from the legal documents that Friis and Zennstrom unleashed on Volpi - that this is a case of three buddies hatching a grand scheme, but it does make for a great movie script, doesn’t it?
- Volpi stinks just as much as Friis and Zennstrom.
- Skype Founders Are Destroying Their Reputation and Ability to Recruit and Invest in Talent.
- Joltid jilted eBay, Twice?
Yesterday I suggested that Janus Friis and Niklas Zennstrom are better off letting bygones be bygones, but today the Skype saga got juicier and Mike Volpi is painted as the main culprit.
From GigaOm:
The gist of the lawsuit is that Volpi learned how to modify Joltid’s proprietary software to run on the web without the aid of a peer-to-peer software when he was transitioning Joost from a peer-to-peer service to a web-based Hulu clone. And with this knowledge, he was able to pitch a version of Skype that buyers could take over from eBay while side-stepping ongoing litigation.
(…)
“Volpi and Index lacked the credibility and financial heft to lead a private equity investment consortium to acquire Skype unless and until they advertised their knowledge of the Confidential Information.”
“In a very short time, Volpi burned through a substantial amount of the working capital available to Joost at the time he became CEO. Moreover, he had removed from Joost a significant portion of Joost’s innovating and market-driving technology, leaving Joost to rely on third-party technology products. Volpi’s overall business strategy failed. Moreover, it was a failure that was extremely expensive, with Joost expending tens of millions of dollars of investors’ capital.”
—Volpi is described as “a faithless fidicuary” who “took advantage of the trust and confidence placed in him to steal confidential, highly proprietary information relating to an extremely popular Internet-based technology, as well as other strategic, commercially valuable and sensitive information.” As president and CEO of Joost, Volpi, they claim, had access to info from both Joost and Joltid—including the Global Index P2P software that powers Skype and other Zennstrom-Friis efforts. Joost had the source code; Skype had more limited access—an executable-only code form of GUI. (That’s the license that is being litigated in the UK between eBay and Joltid; Skype’s continued use of the code is the subject of the copyright infringement case.)
and Tech Crunch re: the technical aspect of why Skype could never open up to developers:
A source code version of the GI Software is licensed by Joltid to Joost, allowing Joost to be the first company to successfully deliver television and other video content in real-time over a peer-to-peer network. An executable-only object code form of the GI Software was licensed by Joltid to Skype, a well-known Internet-based company that provides users throughout the world with free or low-cost telephone services over the Internet. Skype did not obtain a license to the GI Software source code, however, and the license it did obtain was terminated based on Skype’s breaches of the license agreement.
This is getting ridiculous. Is there anyone in this saga that doesn’t stink, basically?
With about half a dozen merger and acquisitions in the past week alone, I think we are about to see an opening in the M&A window.
But considering that even hot startups like Mint.com exit at the $170M level (despite a whopping $31M in funding), it’s no wonder that VCs are investing alone and foregoing syndicating deals early on. Read more on that here.
I’ve always been suspicious of behavioral targeting (BT), not in the way the government is (re: privacy). I have always doubted that publishers would randomly trust a third party with gathering and analyzing all of that data on their audience. This is why Tacoda sold to AOL, it makes sense for AOL to own that technology for its own sites and the additional reach on Advertising.com, but when I ran sales, I wasn’t rushing to embrace BT technologies.
I think while some VCs might make the argument that: “the government could make monetization even harder for online ad networks and publishers through limiting their ability to do behavioral targeting”, it is an overly-simplistic perspective. Trust me, what makes advertisers hesitate to spend money online isn’t a lack of data, it’s a lack of good content.
You can take all of the BT magic and introduce it on MySpace, at the end of the day, few marketers really embrace social media and the risk that comes with it. This is why MySpace has MySpace TV, to funnel users away from the racy personal profile pages and onto more professional content. Disclaimer: WatchMojo.com supplies videos to MySpace TV, as we did on Coca Cola’s microsite.
Ultimately, this debate is going to be subjective: as a content producer, I will argue that we need more and better premium and super premium content online to boost online advertising; VCs who have invested in all of these BT bells and whistles need to argue that anything that will hinder the ability of BT firms to do as they please is a recipe for doom.
In the end, the truth is somewhere in between, but there is such a thing as great technology no one wants to use or misused technology (hmm: how about adding Skype to eBay - great in theory, useless in practice) and BT is probably one of those examples.
MySpace is about to buy iLike to galvanize its leader in music, and the deal, if it goes through, is a sign of the times for 2 reasons:
1 - At a rumored $20M price tag, the deal is anything but a hit, from TC:
The company has raised a total of $16.5 million from the founders, Scott Banister, Bob Pittman, Vinod Khosla and Ticketmaster to date. But their last round of funding was in 2006, where Ticketmaster put the bulk of the capital in via a third round of financing that valued the company at a whopping $53.2 million.
In Q4 2008 Ticketmaster wrote down a number of their venture investments, including a $5.8 million charge for iLike. Internally, they valued that $13.3 million investment at just $7.5 million. Last month we reported that iLike was considering a new round of financing that would cash TicketMaster out of the company.
But, music is a bitch to monetize and everyone is facing down rounds… which is a major threat to VCs, in my opinion, as entrepreneurs will rather walk than see their already squeezed ownership stakes get diluted even further.
2 - Distribution over Destination
You will see more and more companies look to extend their reach outside of their owned and operated properties. iLike is the top music application on every social network (including Facebook) aside from MySpace, which owns MySpace music.
Ultimately, with the exodus of talent from MySpace, I think a major driver here is the talent that will come with the deal, namely: Ali Partovi, Hadi Partovi and Nat Brown, and the underlying technology.
PLAY
