When Veoh (disclosure: one of WatchMojo.com’s distribution/syndication partners) raised $40M, I thought: “hmm… they’re pushing the innovation envelope, which means that old media is gonna come knocking, I wonder how much of that is earmarked for legal funds.”
Shortly thereafter, Veoh struck pre-emptively and sued Universal Music Group, asking a judge to ask it to stop threatening it with legal action. It was odd, bold and ballsy in one swift move.
Next up, Metacafe and Daily Motion raised massive rounds, too, and in addition to the usual IT and sales/marketing expenses, I figured some of the funds would be allocated to legal defense funds, too.
Today, I hear that Video Egg raised a Series D (D!) round. Video Egg is supposedly generating a lot of revenue, which makes you wonder why a bunch of smart guys from Yale would prefer to keep diluting when their value is soaring and their coffers are brimming. The Series C to bring in WPP was strategic and smart, because the bulk of Video Egg’s inventory is questionable user-generated content, so getting WPP to sway traditional marketers to embrace the genre is key to Video Egg’s long term growth.
Anyway, if you want an answer as to why CEO Matt Sanchez and early investors Maveron, First Capital would dilute, consider one little fact:
Video Egg has a patent application filed on the overlay advertising (mind you, TV companies “invented” this and Brightcove has been doing for a while, too). I suspect Video Egg is jockeying to sue Google and YouTube in the wake of Google’s decision to introduce overlays on video ads on professional content found on YouTube (disclosure: we’re a professional producer on YouTube).
Google, already facing a $1B lawsuit from Viacom, is no stranger to lawsuits. And, while this latest $15M round puts VideoEgg’s financing-to-date over $32M, it’s peanuts compared to the $4B or so of cash Google is hoarding.
Lawyers are expensive. Ask my erstwhile colleagues.
I’ve not read the patent application (a NewTeeVee commenter provides the link), but I suspect that Video Egg is betting that Google will settle with them the same way that it settled with Yahoo! over Overture/GoTo.com’s lawsuit that Google allegedly stole the pay-per-click ad model GoTo.com pioneered… or better yet, Video Egg’s latest investors are betting that Google might simply outright acquire VideoEgg.
After all, as we outlined previously, the missing piece of Google’s quest for world domination is (assuming that DCLK’s acquisition goes through) a sales force to sell video-related ads. Right now, Google has numerous options: Tremor Media, Broadband Enterprises, and Video Egg. While the two former players operate heavily in pre-rolls, Video Egg (along with Brightcove) does seem to have a lead in overlays, something that Google is betting YouTube’s chips on.
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