After a buccaneering but bootstrapping beginning, it seems b5media has decided to go down the venture capital route after all, with a round of VC funding. But you have to read between the lines of a Toronto conference agenda to find the reference. Thanks to Matt of BlogNetworkWatch for digging it out:
Panel: Does Web 2.0 Need VCâ€™s?: Again, weâ€™re about to announce our funding run, so this is huge. Plus, Iâ€™ve tried to stay actively involved in this conversation from an entrepreneurâ€™s standpoint.”
It’s not perhaps Jeremy’s usual style to be so reticent in an announcement of this magnitude. Still, it shows the harsh reality of a hell-for-leather expansion in any business field. These guys are in a hurry. These guys need help.
So what does it mean for the network? Greg Gianforte, CEO of RightNow Technologies and writer of a Thought Leader column over at SiliconValleyWatcher, is quite clear about it. The sheer effort involved in raising money, he says, and the complexity of contractual arrangements, deplete your time and energy which should be concentrated on selling value to customers. That income is the only thing that counts in any business, large or small.
But there’s more. As a type of private equality, venture capital is a very efficient form of funding. Usually, small firms use this form of financing to get their business running and going. Recently emerging firms, small family businesses are the most typical ones to use venture capital. This capital is helping these firms and companies to reach their full potential because these companies are usually deemed to have high growth potential. That growth potential is viewed in terms of both annual revenue and number of employees. This basically means that venture capital firms invest in those growing companies in order to claim an ownership stake. They take the risk of the early start-up campaign hoping to get higher profits in return. Once the VC money is invested, those companies start determining the exit strategy. Things greatly change with the appearance of the investors and those companies are not running things on their own.
Of course, if that was the exit strategy from the beginning it doesn’t matter except that maybe 40 percent of the sale value is lost to the VCs, who will expect a 40 percent annual return on capital invested. With both income and final payout so massively cut, and with so many people to be paid, one senses that a sheet of rice paper has just moved in between b5’s potential and the exuberant expectations of its founders.
Updates: See tech.memeorandum for links to this conversation.
The Alarm Clock questions whether the focus of b5media is right for attracting VC funding. Maybe bootstrapping was the right way forward for this business, after all. See my suggestion on how it could be turned around in the comments.
Jeremy Wright comments on b5 funding: “So, yes, in the last few weeks 2 key opportunities have come our way. Opportunities that weâ€™ve decided to open the door to, to see whatâ€™ll happen. Weâ€™re not going to put the business on hold. We are not going to chat the way we do business day to day. Yes, weâ€™re looking at the funding options available to us (including early stage, obviously) in order to see what makes sense for our bloggers, readers, partners and the future of the industry.”
6 Responses to “b5media Looks for Venture Capital”
We won’t accept funding that:
1) significantly takes away from doing “the work”
2) requires us to have an exit strategy
Also, the funding isn’t because we need the money to survive, by any stretch, so it’s not because of “a hell-for-leather expansion” at all. We could quite happily succeed without the funding, which is one of the reasons we are free to look for the right partner first and foremost.
See this post for more background on where I’m coming from : http://www.ensight.org/archives/2006/04/02/pioneers-of-venture-capital/
By Jeremy Wright on April 10th, 2006 at 12:25 pm
Interesting thoughts on that video, Jeremy, I’ll have to take a look at it.
But what if all the VCs demand a new CEO, as they did with Google? That’s an expensive option and eats into the equity like crazy.
You need to pay bloggers, particularly in the early stages. With the revenue share model, the only way is through a system of bonuses. With 70 bloggers that going to be tough.
My preferred solution would be to build a core of solid, high-end, product-related cash cow blogs that will reliably fund the early stages. These would be run by the founders, so that all revenues can be returned to the blogger tribe through bonuses while they build their blogs. Alternatively, you could offer well-known bloggers small cuts of the equity, say up to 10% total, to build these cash cows for you.
That’s the way I’m building Syntagma Media. Both Microsoft and Google have launched off cash cows which they built themselves. These subsidize the whole operation, particularly the innovatory part and future expansion.
By John on April 10th, 2006 at 12:42 pm
John, I’m not going to talk about our business with a competitor (particularly when you’re trying to make assumptions based on things which simply aren’t true). We don’t mind being open, at the right time and at the right place, but this is simply neither.
You’re asking me to talk about the internals of the business (which we don’t), to talk about funding that we haven’t announced (which we won’t) and to do so in a forum separate from who b5 is (which is odd).
If you want to have a podcast to talk about the generalities of the blog network space and how I see them, or to talk about raising funds and how I see that, I’m more than happy to. But I’ve been talking about raising funds on my blog for 2 years. There are gobs and gobs of posts there which explain my thoughts on the process, and I stand by those today.
It makes no sense for us to spend 6 months raising capital, while putting the business on hold, just so we can give away 50% of it, get a bit of money and be left to our own devices while also being expected to produce massive returns.
It does, however, make sense to find a business partner who recognizes that what they bring to the table is money, wisdom, contacts and knowledge and what we bring is talent, community, energy/time and visibility. If you meet halfway to build something lasting, that makes sense.
And, yes, despite your recent reading of a book by a fantastic guy, there are those types of VC’s out there. And it’s those types of VC’s that we enjoy talking to.
I hope that sheds a little perspective.
By Jeremy Wright on April 10th, 2006 at 1:01 pm
I don’t see you as a competitor, Jeremy. The space is big enough for both of us 🙂 In any case, my approach is radically different from yours, being based on solid foundations and steady growth, rather than fizzing out in all directions.
I agree, there’s been plenty of talk, talk. It’s time to walk-walk. I’ll make this prediction, though, and not just based on Gianforte’s book, that you’ll be worse off if you choose to go for VC funding than if you slow right down and consolidate for six months, concentrating on building revenue streams within the business. It would be a hard first year, but once you reached critical mass, you can pass over the cash cows to others. And you still retain most of the equity. Read John Battelle’s The Search, and David Wise’s The Google Story.
OK, you’re not going to talk about it, but don’t let a fine idea slip through your fingers when you’ve got great revenue earners within the business already.
My 2c … Oh, and the very best of British Canadian luck. 😉
By John on April 10th, 2006 at 1:16 pm
[…] Jeremy said he was interested because “b5media is about to announce weâ€™re going after funding.” This set off a small bombshell, it seems — and a cross-continent one at that. John Evans, who runs a British-based blog network called Syntagma Media, wrote a post about how b5media was going after VC money. […]
By mesh could be interesting for Jeremy Wright » mathewingram.com/work on April 11th, 2006 at 3:16 pm
[…] for the conspiracy theorists out there, here’s a quote from Jeremy Wright circa this past Spring: “We wonâ€™t accept funding that: 1) significantly […]