Rafat: How do social media deals get funded?
Jason: These are usually young entrepreneurs, and the angel community is a little more forgiving. The big companies sometimes pitch it well, and sometimes not so well (“we love your product…and we want to bring some new people in, change the name of your company…is that ok?”). But a lot of these deals end at the press release….sometimes with the big companies, it’s all about the quarter, it’s all about EBITDA, and you realize all of a sudden that you’re in the middle of a Fellini movie.
Quincy: The entrepreneurs can provide a healthy tension. I’m sure that Chad Hurley is the advocate for the YouTube community, and is the guy saying “please don’t slap that NASCARification of ads all over our people’s eyes, or they’ll go elsewhere.”
Quincy: We like companies like Electric Sheep, which allow us to put a toe in the water and understand the DNA that’s important. If we have observer or actual status, we can learn about the decisions that the entrepreneurs are making.
Rafat to Esthr: You invest in Europe and Russia. What are you seeing there, versus here?
Esthr: There’s a lot more ambient entrepreneurship here. The exits are harder [overseas]. Five years from now, I think a lot of things going on now are going to be interesting to people.
Jason: Big media companies will invest in scale, instead of building themselves sometimes. If you “buy,” you’d better keep the talent around.
Audience: Could you give the entrepreneurs in the room some advice about mistakes that are made during the investment process.
Mike: #1 Not being realistic when talking to the acquirer. The biggest signal for me is “we don’t have any competition.” That’s not realistic. We need a management team that’s going to be realistic and react to that. #2 The other is being way too influenced by the VCs, who may be driving to a hypothetical IPO, versus what the business could really achieve.
Jason: When you have a great product and have grown to scale, sometimes the person running the company should actually be the Chief Product Officer. Those are very important conversations to have.
Quincy: #1 Big acquiring companies have slower growth, and a good at telling you to downsize, and not about managing growth. Remember the context in which you’re being acquired. #2 The acquirers might make mistakes, too. Speak up. Both parties want this to work.
(Staci asks question of CNet representative in the audience)
CNet: We have a different goodie bag to sell the entrepreneur than Quincy and Mike do. We have to sell a culture, and acceleration and not destroy value. You can’t steal anything.
Rafat: Regarding DoubleClick, how do you compete against Google? (Regarding Google about maneuvering Microsoft for the deal)
Quincy: I think Google’s fantastic at acquisitions. But, I think Doubleclick’s decision was an anti-Microsoft decision.
Esthr: There are so many factors. Cultural fit. Earnout. And so forth. How do you compete with Google? Have a position on how you (the acquirer) will treat the entrepreneur better, and make it a better fit.
Mike: The toughest thing in the world is to drive traffic on your own. The MySpace secret sauce is very rare. Try to find ways to partner with distributors.
Kara: Quincy, Mike…what would you be buying today?
Quincy: #1 I look at reach. We don’t compete with Fox…we compete with Lonelygirl. In the Internet world, you have a lot more competitors. #2 I care a lot about “new content.” Regurgitated TV and film aren’t going to cut it.
Mike: The two areas: #1 we are incredibly bullish on video on the Internet. That’s going to be about the user experience, great content and new types of applications. The #2 area is international. It’s clear to us. There are new types of content that only work in some regions of the world, and also mobile.
Audience: What’s your critique of the Skype/eBay deal?
Mike; It was a lot of money. What you read is that it’s driving a new vertical business for them. But I wouldn’t underestimate Meg Whitman and eBay.
Rafat: How long can Facebook hold on?
Quincy: Facebook is a CMO’s dream. It’s very sticky. Also, the reason why these next generation communities are so important to media players is that they’re build AROUND media, but they don’t INCORPORATE professional media.
Esthr: This is interesting. We used to talk about IPOs. Now, everything we’re talking about is a company being acquired by someone bigger.
Staci: Have some companies taken too much funding?
Mike: Yes. You see some of these later stage financings, and the valuations are crazy. Some of these later rounds where they don’t need the money, they take the round, then it limits their options.
Jason: Sometimes, though, the VCs are running the show.
Rafat: Jason, for $50MM more, Myspace would have been part of MTV. How would things be different today?
Jason: I don’t know? They’d (MTV) have to invest in it, they’d have had to get behind it. Newscorp did a great job, and let the original owners do what they had to do. You know, if I was 8 feet tall, I’d play basketball. Newscorp was a model…you help, but you get out of the way.
Esthr: I think the best place from M&A guys to come from is HR. And they never do.