Posts from January 2008

Will Price of Hummer Winblad has a good post on how to navigate the coming economic downturn.

He accurately describes what happened in 2001 and 2002:

Valuations seemed absurd in retrospect, companies with no sales were
sitting on $50m-100m post-money valuations, $30m of paid-in-capital,
and absolutely no chance of raising money; save a complete restart. A
collective "what were we thinking" rolled through the valley.

He goes on to tie what may be coming in 2008 and 2009 back to 2001 and 2002:

None of us can predict the markets or future valuations, we all,
however, can understand fundamentals. Businesses that solve real pain
points with disruptive technology, a huge value/price advantage, and a
scalable business model will work – the kiss of death, however, will be
getting the capital structure ahead of those very same fundamentals.
Failure is often a function of too much capital and too high prices
suddenly running into economic expectations that are materially reduced
with respect to market size, market growth, and trading multiples.

To
survive, one may indeed need capital. The trick is to stay lean and not
to overfund and overvalue companies where the investment only "works"
if it eventually trades at 8x revenue and never needs another round of
funding.

It way well be that Slide raising $55m from mutual fund
companies at $500m+ pre-money will be the "what were we thinking"
moment of the current cycle. I think, however, the investor who leads a
$4 on $4m Series A in a company with a differentiated technology and a
direct tie to hard ROI will feel calm in the storm.

I agree with Will that overfunding and overvaluing companies is a bad idea. But I think it will be different this time in a few important ways. I do not think the answer is to rush back to the safe world of enterprise software and infrastructure investments. I do not think we’ll see VCs closing their doors to consumer focused companies.

What I think we’ll see is a flight to quality. Dollars will flow to the established players. If there’s a lesson to be learned from the $55mm round in Slide at $500mm pre, it’s that money right now wants to be with the winners. I don’t think Slide is at all like the companies we were shutting down or recapping in 2001 and 2002. The companies we shut down either had not attracted a customer or user base or had economics that just didn’t work.

So it’s time to assess what is working and what is not working in your business or your portfolio. Focus on the basics. Keep your costs down. Finance your company (or companies) intelligently and most importantly with money that will be around when you are no longer the high flyer darling of Techcrunch.

But don’t look backward for the right model to follow. Look forward.

I am so pleased to watch Barack and Hillary compete to win the hearts and minds of the democratic voter (and me). Barack said last night in his victory speech:

After four great contests in every corner of this country, we have the
most votes, the most delegates, and the most diverse coalition of
Americans we’ve seen in a long, long time.

That last part is one of the things I am watching closely. Can Barack cross over? Because if he does, he will be a very difficult candidate to beat this fall.

Caroline Kennedy says this in her endorsement of Barack in the Times this morning.

I have never had a president who inspired me the way people tell me
that my father inspired them. But for the first time, I believe I have
found the man who could be that president — not just for me, but for a
new generation of Americans.

Caroline is a few years older than me but we are of the same generation and I completely agree with her on that point. I agreed with Bill Clinton’s policies and liked him as a president, but he never inspired me. And the rest of the people who have run this country in my adulthood have simply annoyed me.

So I am hoping that Barack can win me over. More than that, I am hoping he can win over our country. Can he do it?

I think Florida and New York are going to be the big tests. We saw race rear its ugly head in South Carolina and I think Barack came out looking better than the Clintons in that catfight.

Florida is where we’ll see the religion issue come to the forefront. This piece by Richard Cohen in the Washington Post is an example of what’s coming. It links Obama to Farrakhan via his pastor, Jeremiah Wright. I am sure this is going to be an issue in Florida and New York. Jewish voters are not going to like the sound of Farrakhan name being used in the same sentence as Barack’s.

It bothers me a bit that our political system continues to use race and religion as wedges to drive people apart. But at the same time this is an opportunity for Barack to show us what he’s made of. Can he handle this issue correctly and win over the jewish people of Florida and New York?

Barack said last night:

And what we’ve seen in these last weeks is that we’re also up against
forces that are not the fault of any one campaign, but feed the habits
that prevent us from being who we want to be as a nation. It’s the
politics that uses religion as a wedge, and patriotism as a bludgeon. A
politics that tells us that we have to think, act, and even vote within
the confines of the categories that supposedly define us.

I think those forces will be at work from now until the election is over in November. And the only way Obama will win is if he can navigate these issues and in doing so put them to rest. If he does that, he will indeed be Presidential material. It will be interesting to watch. I am rooting for him.

Tom Watson, founder and editor of newcritics, asked all the bloggers who contribute to newcritics to post about the one media moment that most moved them in the past year. It’s newcritics’ one year anniversary this week and there’s a celebration later this week. So I figured I’d better get my post in.

I thought a lot about it and decided that the reblog button in tumblr is the most important piece of media that I came across last year. Here’s why.

Pier 40, the recreational hub of lower manhattan, is facing the prospect of being turned into an entertainment complex. Many of the best known politicians with jurisdiction over Pier 40, starting with Mayor Bloomberg, Governor Spitzer, and Speaker Quinn, all of whom I like, respect, and support, have chosen to be silent on this issue for some unknown reason.

The Mayor’s 30 year plan for NYC puts parks and reduced congestion near the top of his priorities and yet his silence on this issue suggests he’s willing to look the other way when parks and congestion are at their greatest risk.

The Governor inherited the legacy of Hudson River Park from his predecessor, George Pataki, and is basically doing nothing with it.

And Speaker Quinn has so far been uncomfortable wading too deeply into this debate.

But there is one local politician, State Assembly Member Deborah Glick, who many credit as the architect of the Hudson River Park Act that created the amazing park up and down the west side of manhattan, who is not afraid to take a public position on Pier 40. Her opinion piece in The Villager is pointed, direct, and exactly right. She says:

The H.R.P.T. board is not just entrusted with the financial stability
of the park; its pre-eminent duty is to protect it as parkland. If the
board chooses one of the two inappropriate proposals before it on Jan.
31, the board would fail in this duty, making a tragic error that will
change the nature of the park and its neighborhood forever.

I hope Deborah’s courage to take a stand on this issue will rub off on some of her colleagues and bring some much needed common sense to the debate and decision, which is expected next week.

In the NY Times today, there are endorsements for Hillary and McCain. I agree completely on McCain. He is the only republican candidate that I could even imagine voting for. I am still on the fence on Hillary and Obama. And may be until I walk into the booth on Feb 5th. They are such strong candidates and it bodes well for the democratic party that they have such great choices this year.

This showed up in my email inbox today:

Some TheStreet.com (TSCM, Strong Buy rated) investors have expressed concern about the possibility that Rupert Murdoch’s News Corp (NWS, not rated) could decided to make the WSJ.com site completely free-of-charge (today it’s primarily a paid subscription service) ever since News Corp acquired the WSJ.com’s parent Dow Jones last year. However, at the World Economic Forum in Davos, Switzerland, yesterday Murdoch said “The really special things [at WSJ.com] will still be a subscription service, and, sorry to tell you, probably more expensive.” From a competitive perspective, this should be viewed as a positive datapoint for TSCM shareholders. We note that the WSJ.com has just over 5MM monthly unique visitors to its site vs over 6MM at TheStreet.com.

Mark May
Principal, Equity Research
Needham & Company LLC

Daryn must have changed the tumblr player I blogged about last night because when I loaded this page this morning the player in the upper right of the blog now fits squarely in the sidebar and we can autoplay the songs.

Thanks Daryn. That was sweet.

Do me a favor, open this blog in a tab on your browser, click autoplay, and then hit play and let me DJ for you this morning. And let me know what you think.

Rupert Murdoch is clearly the smartest "old media" CEO out there. He’s run News Corp like the entrepreneur he is, by taking big risks and generally having them pay off. His buy of myspace for $500mm may go down as one of the best online buys ever and myspace seems to be solidly established as the low brow social net of choice. It fits perfectly with Murdoch’s taste in media. If Facebook is the New York Times, then myspace is the NY Post.

I was very hopeful that Murdoch’s buy of the Wall Street Journal would lead to the elimination of the one thing that is holding back the WSJ in the online world – the subscription requirement. But at Davos this week, Murdoch apparently said that the WSJ would greatly expand its free content, but that the subcription will remain and will be expanded to include new features and that subscription prices will increase. That reminds me of the NY Times’ ill fated experiment with Times Select which they finally walked away from this year.

Here’s the deal. Digital media is not about scarcity and never will be. That’s the old media game. Online it’s about ubiquity, about being part of the conversation, about links, authority, page rank, and if you are a news organization like the WSJ – its about anchoring the discussion.

The other day I wanted to find Jim Cramer’s column about the threat of a deflationary spiral. I wanted to blog about it and link to it. Then I found out that Jim’s column was at Real Money, Jim’s subscription blog. I ditched that plan and went with another story to make my point. Jim’s story was useless to me. I signed off on Real Money when I was the Chairman of TheStreet.com. I regret the mistakes we made at TheStreet.com with a paid content strategy and I learned from it. Never again.

Rupert will learn that lesson too. Apparently the hard way.