Do VC Backed Founders actually make any money?

July 2nd, 2007 by Markus

If you are a founder that takes a lot of Cash and your company isn’t growing in leaps and bounds like facebook chances are you aren’t going to be holding more than 5% of your company if a payday comes along according to the clickz’s article (Union Square Ventures  has a presentation saying less than 10%) .

http://www.clickz.com/showPage.html?page=3626306

The author says that if you build quickly and sell quickly you’ll make more money. I agree with that,  but if you are a programmer you really don’t need any VC money and can build a decent product in your spare time.  Taking your hobby company to $100,000/year in profit is the same thing as holding 5% of a company that makes $2 million a year in profit. Not only will you own 100% if your company but chances are that you are far more likely to be successful AND have a buyer  AND its far easier to grow to 200k in profits than it is to get to 4 million in profits.

You’ve probably heard 90% of business’s fail in the first year.   Its probably the biggest urban legend in the business world that won’t die.    The US government says that 65% of new business’s are still operating after 4 years.  There is a report that says more then 66% of companies founded in 98 -2002  are still operating today.

Anyone know what the average VC success rate is?   I bet its no where near 50%  or even 30%.    Would be interesting to see how much money founders walked away from in smaller VC deals.   Even for something as huge as myspace the “founders” only walked away with $5 million or 1% of the sale price.   What would you rather own,   100% of something  or  5% of a dream?

Hotornot…

June 28th, 2007 by Markus

James posts about transforming hotornot here.

From what I’ve heard of pay sites that try advertising they generate about 10% of their revenues from advertising at a small scale.    My traffic exceeds that of match.com and I can tell you I’m not even close to making $30 million a year which is 10% of Match.com’s revenue.

As for growing pageviews via facebook I think that is a mistake for a dating site,  even when they allow advertising you’d make cents on the dollar compared to what you’d make having the visitor on your site.   I couldn’t even create a dating site in facebook that would run with a profit on facebook.  Most of facebooks pageviews aren’t even in the US and you are looking at splitting 5 cent CPM’s with facebook.

I think James will face an uphill battle getting a lot of money via advertising,  assuming his pay section was well optimized he’d have to grow pageviews 10 fold t0 make the same amount of money.  But he still has virtual gifts so maybe its only 5 fold growth needed.   Hotornot has expanded to 14 employees and given away a lot of equity.   That means that he has to grow revenue  far beyond the 5 million he had before to own the same dollar amount of the company.   Ie  owning 50% of a company that nets 3 million a year is the same as owning 10% of a company that makes 15 million a year net.

There is also the problem of market size,  if a site like hotornot wants to make far more as a free site than a pay site  it may not even be possible.   Assuming a free model makes 1/10th  to 1/20th the revenue per user  is the market even big enough to support a company with 20 million in revenue?

If I wanted to generate $100 million in revenues per year  it would be pretty easy,  all I need to do is convert to a paid site.   To generate 100 million a year as a free site is virtually impossible as the market isn’t big enough.  I’m already the largest player in the UK,  Canada, and US.  Growing the company another 10 to 20 fold just isn’t realistic.

At the end of the day I don’t know if hotornot made the right choice.   The answer to that question really depends on how huge the site can get.

Finally Upgrading.

June 26th, 2007 by Markus

Well I finally got a second webserver and put it into production on the weekend. Along with a serveriron load balancer. The main reason for the upgrade is that i’m fast approaching 64,000 concurrent users and you can only have 64k users per IP. But even when using a load balancer its tricky to set up without running into problems.

The SI supports a maximum of 64,000 simultaneous connections on each source IP address. This maximum value is based on the architectural limits of IP itself. As a result, if you add only one source IP address, the SI can support up to a maximum of 64,000 simultaneous connections to the real servers. If you configure 64 source IP addresses, the SI can support more simultaneous connections.

I could have just assigned a second IP and added round robin DNS, but this way I’ve got more redundancy and can just swap in more web servers. Also ServerIrons allow some really cool stuff to happen like load balance passed on Cookies, session data, ip data you can even block bots.

Here is another Video panel with startup founders..

http://blog.guykawasaki.com/2007/06/no-plan-no-capi.html

My Today Show Interview.

June 19th, 2007 by Markus

http://video.msn.com/v/us/msnbc.htm?g=49ee9d34-d815-44d9-a1e7-ee36ed196403&f=05&fg=rss

In the last few months Plentyoffish has become the worlds largest dating site.     I’ve now got number 1 rankings in the UK and Canada  and in the US moved from  5th  to 3rd place in the last few months and just a few percentage points away from taking second place.

Compared to match.com  Plentyoffish has until now been living in obscurity when it comes to media exposure.  I hope that I get more coverage for plentyoffish now that its in the top 3 in the US.

Facebook is transforming into a Social Utility Search Engine.

June 16th, 2007 by Markus

The new Facebook  Application platform seems to be the first stage in Facebooks assult on Google.    Search can really be split into 2 groups,  users searching for information that isn’t social and users searching for information that is social in nature.    The top searches on google tend to be  social networking,  maps/directions, music,   games, traveling, dating  etc etc etc.      

The biggest problem with Google is that Google doesn’t know how good or bad the destination site is.    With facebook  its directory lists social applications by the number of users they have,  how popular they are etc.   In effect Facebook is in the process of transforming into a portal/search engine.   

Appearing on the Today Show.

June 15th, 2007 by Markus

I’ll be on the Today Show on Monday Morning.    The founder of facebook was on the today show last week.  http://valleywag.com/tech/mark-zuckerberg/the-internets-newest-prince-268099.php   I wonder if i’m the only internet entrepreneur not living in the US to appear on the show?

Class action lawsuit filed against true.com

June 14th, 2007 by Markus

http://www.earthtimes.org/articles/show/news_press_release,121814.shtml

A lawsuit has been filed against TrueBeginnings, LLC, the owner and operator of the True.com online dating website. The lawsuit seeks certification of a class action on behalf of True.com customers who were charged service fees by True.com after cancelling their subscriptions.TrueBeginnings, LLC is a Texas-based company, that claims to have millions of subscribers to its online dating website, True.com.

The complaint alleges that True.com charges its customers monthly service fees in excess of $50 per month, and that True.com charges its customers’ credit card or bank accounts for these fees. True.com advertises on its website that memberships can be cancelled at any time. However, the complaint alleges that True.com does not accept cancellations in writing or on its website. Instead, True.com will only accept cancellation requests made over the phone. The complaint alleges that True.com bills its former subscribers service fees, even after those subscribers have attempted to cancel their subscriptions over the phone, and that this is done without the knowledge or authorization of the former subscribers.

Yahoo Personals & Speaking tomorrow.

June 13th, 2007 by Markus

I just checked into the merriot hotel in Santa Clara which happens to be across from Yahoo.   I don’t have my address book with me but are there any people from yahoo personals that want to meet up?

I am here doing a speaking gig tomorrow with james from hotornot and others.   I figure i’ll spend today checking out some of the wineries around here.

http://www.churchillclub.org/eventDetail.jsp?EVT_ID=739

My email is in the about me section.

Facebook & Ilike.

June 13th, 2007 by Markus

Seems that facebook is getting nothing but glowing reviews.

http://blog.pmarca.com/2007/06/analyzing_the_f.html

Ilike is the most successful application on facebook with millions of users signing up.        But take a look at their alexa chart  and you will see they lost 70% of the traffic to their website since launching on facebook.

http://www.alexa.com/data/details/traffic_details?q=ilike.com&url=ilike.com

I think at the end of the day facebook will reduce independent websites like Ilike, lastfm  etc to just another feature that won’t exist outside of a social network.   Just like every other business who have a legal obligation to make money,  Facebook will have no choice but to clone the most successful applications and build them directly into their platform.

Zencon Sold.

June 12th, 2007 by Markus

Zencon has been bought by American Capital  no details are given.  Zencon has been for sale  for well over a year and they run sites like blackpeoplemeet.com.