Wednesday, June 6. 2012
Just when we were despairing that the Social Media bubble had fully deflated, thanks to Facebook, we find it may just have moved, to Crowdsourcing - Liz Gannes:
Kickstarter may be the best-known brand in crowdfunding, but Indiegogo now has the biggest war chest. In a new round announced today, Indiegogo now has the backing of Insight Venture Partners and Khosla Ventures. Along with previous investors, the firms provided $15 million in Series A funding for Indiegogo, adding to $1.5 million raised last year. (Kickstarter raised $10 million in 2011.)
The site levies a 4% fee for successful campaigns, for campaigns that fail to raise their target amount, users have the option of either refunding all money to their contributors at no charge or keeping all money raised but with a 9% fee. Assuming an average 5% fee, and say that it has 33% net margins ongoing, that means that just to get the $16.5m investment cash back assumes that it has to make nearly $1bn in total turnover, in the VC exit timescale of say c 5 years. No pressure there then*.....
That, and the low barriers to entry (think Incubator 2.0) plus (we will bet) other VC or offset-funded "me toos" coming in with lower fee % rakes, will make this an "interesting" sector going forward. To the winner the (increasing returns) spoils clearly, but what will the margins look like longer term?
Incidentally, take a look at this excellent satire on the current Bubbleicious Social IPO craze - Ponzify.com. Truly the "undertaking of great advantage; but nobody to know what it is" 2.0
*I agree that a breakeven analysis is not the best way to value a startup, but it is always a decent sanity check as to "what you have to believe"....
Tuesday, May 29. 2012
Has $FB (Facebook) single handely popped the Socia Meedja bubble behind it? Broadstuff Bubble-O-Meter shows it may have
Facebook went below $30 today, on its way to a 25% price drop from float price amidst lawsuits, disgruntled investors etc etc. But we are more interested in what this has done to the whole Social Media bubble we have been watching.
By re-pricing and increasing the number of shares floated to grab every penny that was ever going to be on the table, and then having such a fiasco of an IPO, it may be that Facebook has burst the whole Social Media bubble. Just as all boats rise in an incoming tide, all sink in the great sucking sound of a rapidly retreating one - Zynga et al have all fallen far farther, far faster than Facebook.
But, of far more selfish interest to us is the future of the Broadstuff Bubble-O-meter. Right now it looks like Facebook has also closed the market for future IPOs. In the beginning of May the Social Media space was hyped to the nines. At its height we saw stories of retail investors (aka "suckers") throwing 40-K, School Fee money and various other essential savings into the gamble (Bubble-O-Meter stage 9), but then - instead of a pop and a frothy rush to Stage 10 and a horde of wannabeee SocMed IPOs behind it, there was a slow hissing sound of a bursting bubble, and by end May the Bubble-O-Meter lies spent on the floor, like the previous nights' rubber johnny, leaving a stain of a high watermark that came - and went - in a matter of minutes. One thing is for certain, the bubble ain't going to re-inflate for quite a while (I'd bet a lot on not in 2012, and probably not 12 months) no mattre how hard the Silicon Valley PR machine huffs and puffs.
And so, we are left with large questions - Will Facebook do a Bubble-O-Meter Stage 10 and buy an Old Media darling with a $16 billion war chest? Or how far back has the Bubble-o-Meter fallen? Or maybe both are true, if Facebook took all the loot on the Social Meedja table so there ain't no more for anyone else? In either case, how long will it take to re-inflate the Social Media bubble? Will it ever inflate again - is this it? Will the Silicon Valley economy collapse again? How many of the Silicon Valley Cheerleader blogs will survive? What Phoenix 3.0's will emerge from the ashes? Has Facebook smartly engineered a Big Bubble Bang behind it to ensure no one can follow it out the gate? How much more can we flog the Bubble-o-meter now that the horse has bolted?
At least we can predict the floor for the stock - with $16bn in the kitty, we calculate Facebook shares are worth at least $6!
Postscript - last Friday I gave a talk on the role of hype in bubble formation - as Facebook was IPO'ng - and noted that once the hype peaks and the slide into the Slough of Despond starts, it is a quick fall for a long way, and an irreversible one at that. Lets see if Facebook follows form.
Wednesday, May 23. 2012
With this IPO, even an an old cynic like me eventually thinks "nah, now that could never happen, surely" - it does. SEC enquiries, Class action law suits....Reuters:
My reaction to this was twofold:
Firstly, that there was a lot of very good independent comment out there saying the same thing, so investors who lost their shirts have only themselves to blame.
Secondly, reflecting on my time in the DotCom era, to wonder what - despite all the supposed "improvements" in banking systems in the last decade - has actually changed. Same drivers, same behaviours, same activities, same old same old.
And now there are even people saying the "NASDAQ Glitch" may have been engineered. Right now, I can believe anything.....
Update - US Congressional Committee tolook at IPO - Reuters:
The U.S. House and Senate committees that oversee financial sector matters are planning to look into the issues surrounding Facebook Inc's initial public offering, aides to both committees said on Wednesday.
Tuesday, May 22. 2012
Watching the stock fall, and the fall out from the Facebook IPO Fiasco has been very entertaining, in that never have I seen so many vested (or would that be invested) interests hoisted on such sky high petards:
And now the Regulator is getting interested in that selective disclosure....:
I think times are about to get interesting... this is just the end of the beginning.
Actually, I rather admire Facebook in a perverse way - they used others' predictable greed to rake every penny that anyone was ever going to put on the table into their own trousers, into the biggest war chest ever. They won't need to tap the markets again for ages - probably just as well, the banks won't be laughing.
Still, if you look at the whole Facebook Story of their culture and ethos from Day One, why would one be surprised
Saturday, May 19. 2012
The Facebook IPO really has also been a Tale of 2 Cities - or rather, one city and the Rest Of World. Lets face it, an IPO of this level of hype that sputters, which still forces the under-writers to step in and buy the shares to keep it at the out-the -gate share price, is a Fail. Yet I see many of the Valleyblogs are still faithfully drinking the Kool Aid, while most everyone else is more sanguine - Techmeme records the roster of Kool Aid drinkers and Uh-Oh sayers:
Everything is Rosy through the Kool Aid Lens
John Paczkowski / AllThingsD: - The Price Is Right: Facebook Closes Near Opening Price
Larry Dignan / CNET: - How Facebook's bankers saved an IPO, kept shares above $38
As you can see (with the interesting exceptions of Forbes & TechCrunch), you can define who says what pretty much by closeness to the Facebook epicentre
Incidentally, quite a few of the stories say "observers expected the shares to rise" - I want to know who those observers were, and what they had been drinking over the last few days! They were clearly not reading the newspapers, blogs or financial magazines outside the Kool Aid bubble! (see Tale of 2 Cities - Part 1)
Longer term, pricng it this high really puts the future Facebook under pressure. I think Brent Hoberman's piece in the Guardian said it best - Facebook was "priced for perfection" - meaning they would have to execute perfectly from now on:
The night we went public and raised £120m, Martha and I were very subdued. It felt as if we had the weight of the world, and our employees, on our shoulders, and that the company was priced for perfection. That was massive pressure. However, now I look at Zuckerberg and see someone who really does have the weight of the world on his shoulders, is only 28, and doesn't have a proper business partner.
Update - another SV Pangloss-over on TC on Sunday, my favourite line:
According to the pundits, what really matters is that the stock price didn’t increase in value–or “pop”–post IPO and is being propped up by banks.
Actually, what the (indpendent and knowledgeable) pundits were really noting that what mattered was the underwriting banks were having to come in big time to support the price. Monday should be very interesting....
Friday, May 18. 2012
The Facebook Hype-PO Equation
Well, its all over bar the shouting....they went out at top of range. Facebook overhyped, plus the Punters Overoptimistic had led to an oversubscribed IPO. The Funders have taken their money, its over and out for them - which just leaves facebook under pressure to perform well enogh to step into that $100bn+ valuation.
Still, with $14bn+ in the bank, no one will be worried about cashflow for a while.....
Update - talking about Under Pressure, the stock ended Day One at the nearly same price it set off at, with the under-writing bankers jhaving to do a lot of buying to keep it there - WSJ:
Facebook's underwriters battled to keep the stock from slipping below its offering price of $38 a share. Such a stumble would have been a significant embarrassment, particularly for a prominent new issue like Facebook, the most heavily traded IPO of all time.
Next week should be interesting....
Thursday, May 17. 2012
Bloomberg survey - 79% think Facebook is overvalued - so who is over-buying all this stock?
Readers of this blog may know that we are a tad sceptical of the IPO valuation price (We wrote this in February):
So, what do we have to believe to believe that Facebook is worth the $100bn?
At that time we wrote that, it seemed Facebook could do no wrong (There Is No Bubble!), and we seemed to be our usual lone contrarian voice. Lets be clear - they have done some amazing things (and some less amzing, like their approach to privacy), and are run and funded by some very smart people - but nothing we have seen in the last few weeks make us change our mind, in fact as valuations go up yet business numbers go static, you have to believe even more things will go very very right right for a very long time.
But what has been interesting to watch is in the run up to IPO, an interesting split in attitude is opening up between US West and East Coast thinking, between San Fran and New York states of mind, if you like. Yes, the New Yorkers are becoming more sceptical (whats thay you say - New Yorkers are always sceptical). 79% of Bloomberg readers think its overvalued (see graphic above), Madison Avenue, the Wall Street et al are a tad sceptical aboutthe valuation into question now:
NYT on Madison Avenue:
One can argue that Olde New York Establishment is a bit fuddy duddy whn it comes to the New New Things, but principals bailing out of their own company shares at IPO time is not a good sign in any market. The MIT Review (Boston) is even more to the point:
Farhad Manjoo has pointed out that for Facebook to maintain its share price, it needs to figure out how to increase its revenue by a factor of ten. Going from $5 per user per year in advertising revenue to $50 per user per year is about as likely as Facebook going from 1 billion users to 10 billion, which I suppose is the other way the company could increase revenue proportionally, even if it requires an alternate Earth's worth of additional human beings.
The MIT review thinks facebook doesn't have a plan, but their only way out of such an Overvaluation Impasse is to become a bank:
Forget Square, the credit card processing dongle for mobile devices produced by a company headed by Twitter alum Jack Dorsey. What the payments industry needs is a fast follower with serious reach and the desire to vanquish every other player in this space.
Hmmm..they could almost be honorary Londoners .
And then you go over to the West Coast, where excitement is palpable. If New York is going "hang on", San Fran is going "Paaaarty" This is what its all about, the biggest IPO since Google, a megaboost for the Great Startup Dream. A quick visit to Techmeme shows all the usual crowd are like totally boosting up, ready for blast off - TechCrunch is waxing lyrical about overnight sleepathon hackathons, and how they are Big in Brazil and Bangkok, that Eduardo is a bad lad, and how the Big Bad Government is a fly in the future ointment. Nary an economic analysis in sight. GigaOm is hopefully pointing to where the Missing Ad Billions may come from, others say there will never be another deal again like Facebook for the small investor,
Venturebeat is singing the praises:
This week, Facebook’s IPO will be the largest venture-backed IPO of all time, and not in the subjective Kanye West sense. If, as expected, the company’s valuation creeps toward $104 billion, it would be four times larger than Google’s 2004 IPO.
I guess what you think of it all depends on where you are sitting. My concern is more "who is over-buying", given that the smart money is either very sceptical or bailing out. My cynical side (yes, dear reader, it exists) suspects its the dumb money in the main (that's your and my pension funds, by the way....)
But for the Bubble-Watching Analyst in me, it is a fascinating tale.
Wednesday, May 9. 2012
Fred Wilson on the changing nature of Venture Capitalism - GigaOm:
Firstly, it doesn't make money any more:
Secondly, new money is coming in from new sources (I suspect this may be the cause of the above problem):
Fred's view of where VC is going are:
(i) Given all the new pools of funding, he said, it doesn’t make sense for VCs to continue aggregating capital. And considering the industry’s inability to generate returns on more than half of the current investment in venture capital, he added that the allocation aspect is another area ripe for rethinking.
Only those that were in it before 2000 can retire comfortably by the looks of it though
In his own blog, Fred notes his talk was picked up wrongly as the "death of VC"
I can assure you I never said anything about the "death of the venture capital business" in my talk. The venture capital business is not dying.
Defitely not the death. More the circle of life....seems to me that rather than a paradigm shift in VC, another very plausible explanation is that too much new money is flooding in chasing too few opportunities - in other words what we are seeing is good old Bubble behaviour as people start to become irrationaly exuberant again. Then we will have a bubble, then a burst, then it will all flood out again.
That new startups do not need the same funding as the olde style ones is a truism - but all that has done in the last few years is increase the number of boot-strapping startups in the primordial soup. You can't seem to move these days without tripping over another newly set up incubator (more shades of 1997....).
Update - just saw this from Fred Destin on Kernel - Europe is playing out differently:
European venture capital is out of favour with LPs. Even the word seems toxic: I know of one fund who dropped “venture” entirely from its pitch, focusing its messaging on “growth capital for technology companies”. Struggling venture capitalists have to first convince hesitant investors that Europe is a good place to put their cash before they can talk about the relative merits of their particular fund. It’s tough when you have to evangelise your region before you can even get into your own story.
In this case it's governments rushing in while Angels fear to tread
Tuesday, April 10. 2012
The Bubblenomic Core Equation
Facebook has bought Instagram for $1bn, not bad for an iPhone mobile photo site with c 30 million users. Is it worth the money? Hell no, its not worth a tenth of it, so what is interesting therefore is why Facebook bought it, and why now. GigaOm's view is that it's to knock out a potential competitor, I think this is part of the truth but not the whole truth, as it were. But it points to the reason - the Facebook IPO.
Facebook has about 1 bn users, that is about 50% of all the current PC using internet population globally, so, into and after the IPO, where will growth come from? The other billion? Maybe, but in general those in the countries where it already exists have got it if they want it, and those who do want it but can't afford it are too economically uninteresting from an Ad-serving point of view. So the Great Leap Forward will come from mobile, and no doubt its baked into the business plan for IPO and onwards.
But, we also hear the rumours that Facebook's own mobile picture sharing service has not been setting the world alight, so they needed something better, and Instagram was that Something Better. They had to do a deal, or else the IPO Biz Plan Story was at risk, and in the Bubbletime, the timing and pricing of the IPO is all. $1bn is shocking for such a small company, but not if its seen as a core of a $100bn story, and if it can be done mainly in stock (I still don't Know the % of stock but would assume its the majority of the deal consideration)
That is the Demand side logic. Even so, $1bn?
So we need to look at the Supply side - is there anything else? Apart from a (limited) choice there is a fascinating funding story, as GigaOm reports:
A few days ago it was rumored to be valued at $500 million. A few months ago it was $300 million. Its last round — just a year ago – valued the company at $100 million. The rising valuation of the company was reflective of the growing audience it has been garnering, despite being just on the iPhone. It had reached nearly 30 million registered users before it launched an Android app, a turbo-charging event for the company.
Sounds to me there were some very savvy investors in this company, a view which is reinforced by the rumours that the last round was closed just before the sale:
This is Silicon Valley remember, so you have to assume the people in the know (and I class most of Instagram's investors in that group), knew that Facebook needed to buy (or at least was able to make some shrewd guesses) and priced - and timed - a rare asset investment (and sale) accordingly. Facebook then has to top that new valuation, and then some to make it interesting - and Voila! - $1bn
So Facebook overpays, but gets its 100x more valuable IPO underwritten. As to the Founders staying with the company, I wonder how long their earnout period is. As an old boss of mine once observed, when you have several hundred million dollars in your pocket, Miami starts to beckon...
Wednesday, March 14. 2012
According to the NYT, "CNN, a unit of Time Warner, and the social news Web site Mashable are in advanced talks that may lead to an acquisition of the site, three people briefed on the talks said." The price being talked about today is $200m. Given that Techcrunch, a bigger and better known site sold to the Huffington Post for between $25 - $40m, this would appear to be (at least) a 10-fold incresae in valuation per eyebal (sorry, "unique" in modern parlance) in a year or so. Mashable gets about 20m hits a month, say 250m a year, that price values each "hit" at about $0.1 (assuming a 5 year revenue based NPV, S curve 75% curve, and a c 20% IRR) which is very, very high compared to current cashflows (think 1/100th of that maybe as a "real" value per hit)
There are only 2 explanations for this:
Good for Pete Cashmore, the founder - but they could buy all of Mashable's 40-odd bloggers for 100+ years for that price. Even Henry Blodgett thinks its only worth c $40m!
CNN could usefully also look at the lessons from most previous Blogquisitions, by and large they have all lost spectacular amounts of value for the acquirer, especially once the Founding Father goes or loses focus, and given that Mashable has a good sideline in
But to me, whether it is a rumour (in the frothy atmosphere of SXSW, more than possible but I'd bet there are talks....) or not, it's evidence we are in BubbleWorld, in that surprisingly few of the articles I've read about it - many from mainstream organs with "serious" tech journalists - are gasping at the price, in fact many don't even question it.....and yet the real evidence is all these sites are selling out, so if anything the industry is no longer seen as value creating, so one assumes quite a few of the others are unofficially for sale.
A smaller engine plus CNN's distribution channels would be a far better buy in my view. But I guess when (if) Mashable now sells for $50 or something, everyone will see its so much less that $200m that they will think its fine.
By the way, at that price, pro-rata-ing the relative traffic levels, Broadstuff will be selling next week and I am retiring to my Greek Island.....
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