I felt like I was out of my league, sitting on this panel. I was in legendary company surrounded by the early founders of Yahoo and Ebay on the panel and nearly 150 seasoned investors in the dot com and technology space with all eyes on 5 of us. The investors were from all the named firms, Goldman, Merril, Bear, if they had money, they were there. And they were hungry. You see, the internet economy was making possible, funny money at this time - money not supported by even the most basic of economic principles. They were buying "pixie dust" and "fairy powder" and then selling it to the next group of investors who were convinced it was gold. This had gone on for a couple of years until the valuations and the IPO's eventually collapsed the economy. And we all walked away from the wreckage knowing that in the future companies have to be able to build for viable sustainability, NOT just user growth.
One of the questions posed to our panel was this: "how in the new economy should the investment community be valuing companies? Everyone on the panel had different answers but they all provided some variation of valuations needing to be based on both hard and soft metrics. Brand identity valuation, earnings growth, projections, current market position, etc. When I completed my answer to their question, the laughter began. I said a companies value shouldnt be based on a single factor, but that we have to get back to the primary indicators of growth and sustainability. I said that valuations had to be done over time and take into account good old fashioned metrics like P/E and trend analysis of real revenue growth. Well, investors, who's laughing now? Your strategies failed then and they are gonna fail again.
The reason for telling that story is that it's a reminder of why headlines like: "More Investors Pile Into Twitter’s Funding Round, Now Reportedly Close To $100 Million" are proof that something needs to be done about the recklessness of the capital investment markets. It's pretty simple actually. STOP funding businesses with NO REVENUE MODELS. People will say but they have over 20 million users, this is a goldmine. You're wrong! The fact is that 60% of Twitter users visit once. Tweet once. And never return! That's 60% user attrition in case you missed it. We have to face the facts sooner or later. Twitter is a useless utility. It serves a function - sure, it's fun - ok, it has purpose for some things - yeah, I get it, BUT it has no business model NOW, and yet they have $100 Million dollars supporting their very own "pixie dust". You might say I'm angry and you're damn right. I have done in the past and am currently meeting with VC groups and private investors and I know how hard it is to get someone to listen to a vision, but if I presented my business plan and said I had no way of making money, I'd be laughed out of the room every time.
The driving problem is that investors are continuing to back ventures based solely on user sign-ups, not long term value and revenue. I know what I could do with $100 million dollars of investment capital. I'd be bigger than Google in 3 years. $100 million dollars. Say it again. One Hundred Million Dollars. I've built more successful revenue producing platforms for top tier companies for far less money than that. Yes, revenue producing!
Hey investors, check this out. I'm looking for $9.5 million dollars over 26 months for a web 2.0 business called Wasoobi. I conservatively estimate (and I mean conservatively) that we will generate $560 million dollars in gross revenue within 5.5 years with about $240 million dollars in NET PROFITS. I'm building something that actually has enormous ongoing benefit and utility for everyone. No I'm not gonna save the world, but I am going to start making some changes in this industry. It's time we get back to business. The good old fashioned way. Making money on sustainable and viable businesses.
