Posts filed under “Venture Capital”

The Dangle: Illusory Promises of Content Farms

“The funny thing about all these frothy millions and billions piling up? Most of the value was created by people working free.”

-David Carr, writing about HuffPo, Twitter, and Facebook


I have been meaning to address this issue for some time; It started with Seeking Alpha, then moved to RGE and Business Insider, before ending with my rejections to offers from Huffington Post and The Daily Beast. All are firms whose business model is to sell advertising on farmed content acquired for free (or nearly free). Carr’s article this morning — At Media Companies, a Nation of Serfs — finally forced me to publish my thoughts.

Over the past few years, numerous content sites have requested permission to rerun my original work. I have experimented with Seeking Alpha, Business Insider and RGE. In my experience (which could differ from yours) the benefits were de minimus.

Based on those experiences, I have said “Thanks, but no thanks” to requests from the Daily Beast and Huffington Post; I recently stopped publishing at Business Insider. And my experiences with Seeking Alpha were less than stellar, I stopped republishing content there several years ago.

Why? Because these are for-profit businesses, and as such, they seek to make a return on investment. They have convinced numerous professional Venture Capitalists to give them substantial piles of cash, with the promise they will seek an exit strategy — buyout or public offering — to generate a return for their equity investors and themselves — but not for their outside contributors.

You would not volunteer to work for free as a greeter at Wal-Mart, a barista at Starbucks or a fry cook at McDonalds — so why should you work for free at these content sites?

The short answer is The Dangle: A promise of rewards in the future for work performed now.

Ahhh, the dangle. In my career on Wall Street, I have discovered the dangle to be an effective way to get something for nothing from some sucker. It is a way for someone with the appearance of power and money to obtain goods and services for free, for a mere promise of future benefits. Early in my career, I fell for the dangle. No more.

In the present discussion, consider these various dangles made by content factories to me over the years:

1) You will get traffic back from the content site;
2) You’re building an audience;
3) You are enhancing your own personal brand;
4) You will raise your Google Page Rank
5) You are developing a reputation

In my experience, all of these are untrue.

Note that most of these promises are rather difficult to measure (except traffic) and all of these are even more difficult to attribute back to the content aggregator. In reality, these promise are illusory, the benefits IMHO never accrue to the blogger.

Do the math: I used to contribute to (on a paid basis, they are NOT a content farm). But as that site got more popular, my columns got lost in a sea of words. Being part of a community was lost as TSCM scaled; I found a more immediate and useful community around the Big Picture.  What is worse, the various aggregator sites have become so busy that to be seen or heard, one must scream — outrageous claims and ridiculous headlines — not outstanding content — are what garner page views there. No thanks.

About now, someone is typing an email saying “Hey Ritholtz, you have other people’s content in the Think Tank — aren’t you being a hypocrite?

Actually, no. The Think Tank contributors are market professionals. They are friends and colleagues who already have a brand and reputation. And, these folks are financially independent. For the most part, they publish to Wall Street, not the public, and the Think Tank was originally conceived as a way to inject their ideas into the broader public debate. More importantly, the Think Tank is curated, meaning two or three pieces get published most days; not untold 100s.

If you currently “donate” your content to an aggregator, I suggest you should ask yourself the following questions:

1) Am I giving away content to a firm that received VC funding? What is their potential upside? What is mine?

2) Has the Dangle been met? Have the promises of benefits made to me occurred? Am I seeing substantial Traffic increase?

3) When I search for my own content on Google, is my site ranked below my own content republished by aggregators?

4) Is any enhancement to my brand or professional reputation coming from the aggregator’s site?

5) What benefits, if any, are accruing from republished content?

As I said, I did the math, and you should as well.

Don’t be a Serf.


At Media Companies, a Nation of Serfs
NYT February 13, 2011

Category: Financial Press, Venture Capital, Web/Tech, Weblogs

Short Memories

Then: In March 2000, the very month that the dot-com bubble burst, Merrill Lynch launched its Internet Strategies Fund. Talk about dismal timing. “People thought that somehow the Internet boom was going to go on forever,” says Russel Kinnel, Morningstar’s director of mutual fund research. The fund lasted only a year before closing its doors….Read More

Category: Venture Capital, Web/Tech

Dear Mark Cuban: Please Buy the NY Mets

I remember my first  baseball game: Yankees vs Detroit Tigers. I was in first grade, and my dad took me to Yankee stadium from Teaneck, N.J. where we lived. The seats were directly behind home plate, but several levels up. We walked out from the maze of stairs into the brightly lit stadium, the brilliant…Read More

Category: Sports, Venture Capital

Boulder CO: Start-Up City

Boulder boasts the most software engineers per capita of any state, with CNBC’s Carl Quintanilla.

Airtime: Tues. Feb. 1 2011 | 6:15 AM ET

Squawk Box: Brewing a Success Story
Insight on the brewing business in Colorado, with Dan Weitz, Boulder Beer Company.

Airtime: Tues. Feb. 1 2011 | 6:28 AM ET

Squawk BOx: Getting the Ball Rolling Again
Insight on getting back into business after the recession, with John Hayes, Ball Corporation president & CEO.

Airtime: Tues. Feb. 1 2011 | 6:45 AM ET

Category: Venture Capital, Video

5 Questions for Facebook Investors

Back on December 17th, I wrote that Facebook’s founder Mark Zuckerberg getting tagged as Time’s Man of the Year meant the top was likely in for Facebook valuation at $58.75 billion dollars (Uh-Oh: Facebook’s Zuckerberg is Time Man of the Year). This meme has slowly propagated, and quite a few other analysts have looked at…Read More

Category: Valuation, Venture Capital

Putting a Price Tag on Facebook


Why Facebook Is Such a Crucial Friend for Goldman
NYT, January 3, 2011

See also:
Why you shouldn’t ‘like’ the Facebook deal (Marketwatch)

Category: Venture Capital, Video

Trends Don’t Last Forever . . . What is Peaking?

This reminds em of “Downsizing America” post from 2 years ago (February 2009):



Most Trends Don’t Last Forever … Have Facebook and Apple Peaked?
Stacy Curtin
Yahoo Tech Ticker, Jan 03, 2011 07:15am’t-last-forever-…-have-facebook-and-apple-peaked-535762.html

Category: Economy, Venture Capital, Video

Howard Lindzon: Startups Are Safer Than Stocks


“How Crazy Is That?”: Startups Are Safer Than Stocks, Howard Lindzon
Peter Gorenstein
Yahoo Tech Ticker Jul 14, 2010”how-crazy-is-that”-startups-are-safer-than-stocks-howard-lindzon-says-520088.html

Category: Venture Capital, Video

First, Let’s Kill the Angels

April 16, 2010
By John Mauldin

First, Let’s Kill the Angels
Equal Choice, Equal Access, Equal Opportunity
Some Quick Thoughts on Goldman
La Jolla and Dallas

When you draft a 1,300-page “financial reform” bill, various special interests get language tucked into the bill to help their agendas. However, the unintended consequences can be devastating. And the financial reform bill has more than a few such items. Today, we look briefly at a few innocent paragraphs that could simply kill the job-creation engine of the US. I know that a few Congressmen and even more staffers read my letter, so I hope that someone can fix this. The Wall Street Journal today noted that the bill, while flawed, keeps getting better with each revision. Let’s hope that’s the case here.

Then I’ll comment on the Goldman Sachs indictment. As we all know, there is never just one cockroach. This could be a much bigger story, and understanding some of the details may help you. As an aside, I was writing in late 2006 about the very Collateralized Debt Obligations that are now front and center. There is both more and less to the story than has come out so far. And I’ll speculate about how all this could have happened. Let’s jump right in.

First, Let’s Kill the Angels

I wrote about the Dodd bill and its problems last week. But a new problem has surfaced that has major implications for the US economy and our ability to grow it. For all intents and purposes, the bill will utterly devastate angel investing in the US. And as we will see, that is not hyperbole. For a Congress and administration that purports to be all about jobs, this section of the bill makes less than no sense. It is a job and innovation killer of the first order.

First, let’s look at a very important part of the US economic machine, the angel investing network. An angel investor, or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally managed fund. Although it typically reflects the investment judgment of an individual, the actual entity that provides the funding may be a trust, business, limited liability company, investment fund, etc.

Angel capital fills the gap in startup financing between “friends and family” (sometimes humorously given the acronym FFF, which stands for “friends, family and fools”) who provide seed funding, and venture capital. Although it is usually difficult to raise more than a few hundred thousand dollars from friends and family, most traditional venture capital funds are usually not able to consider investments under $1-2 million.

Thus, angel investment is a common second round of financing for high-growth startups, and accounts in total for almost as much money invested annually as all venture capital funds combined, but invested into more than ten times as many companies (US$26 billion vs. $30.69 billion in the US in 2007, into 57,000 companies vs. 3,918 companies). (Wikipedia)

(Incidentally, angel investing got its name from people who invested in Broadway plays, and the term began to be used for investors in similarly risky startups.)

This has become a very big deal in the US. Angel investors put as much money to work as all the mainstream venture capital funds. And the internet has greatly expanded the network of angel investors. In 1996 there were about ten organized angel networks, most quite small. Now there are many hundreds, and some of them are quite large and organized, with some serious money amongst the members.

“Angel investors committed fewer dollars but increased the number of investments during the first half of 2009,” according to “The Angel Investor Market in Q1Q2 2009: A Halt in the Market Contraction” by the Center for Venture Research at the University of New Hampshire. Total investments in the first half of 2009 were $9.1 billion, a decrease of 27% over the first half of 2008, the study reports. However, 24,500 entrepreneurial ventures received angel funding during the period, a 6% increase from the first half of 2008. The number of active investors in the first half of 2009 was 140,200 individuals, virtually unchanged from the same period in 2008. (Tech Transfer Blog)

And according to a conversation I had with the very enthusiastic David Rose of Angelsoft this week in New York, the numbers are growing as the economy improves. If you assume that as many new ventures were funded in the latter half of 2009, then we are looking at 50,000 new businesses last year. At an average of (my guess) 10 employees a firm, plus all the business they contract for, that is at least 500,000 jobs, with the promise of many more for the firms that become viable.

Angel investors do more than just provide money. Many are successful businessmen, and they give guidance and often bring their networks of contacts and potential business partners to the new venture. While I can’t find the statistics, I will bet you that companies that are started with angel money are more successful than those that aren’t.

And remember, that is 50,000 new businesses or more every year, as 2009 was not exactly a banner economic year. This is the very heart of the job-creation machine in the US. It is what keeps this country competitive. And the Dodd bill places this at severe risk. Let’s look at how it would handcuff potential investors.

Here are a few quotes from Venture Beat, a publication of the venture industry. (

“There are three changes that should have a particular effect on angel investors, a catch-all category which includes everyone from friends and family members who invest in a startup, to unaffiliated wealthy individuals, to side investments made by venture capitalists acting on their own.

“First, Dodd’s bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing. A second provision raises the wealth requirements for an “accredited investor” who can invest in startups – if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.”

Read More

Category: Think Tank, Venture Capital

Dumb Article of the Day: Why Start Ups Don’t Go IPO

I have to call foul on a surprisingly foolish article in today’s NYT. Less than a month into 2010, it is already a leading candidate for the dumbest article of the year. It reads like it was written by the PR firm for a group of VCs and Palo Alto law firms.

There were numerous ignorant comments in the article, but this is the one that actually made me laugh out loud:

“Newer restrictions, like those on executive compensation, have made I.P.O.’s even less attractive to some entrepreneurs, said Doug Collom, a partner at Wilson Sonsini Goodrich & Rosati, a Silicon Valley law firm. “Lawyers now have a profound significance in the boardroom,” he said.”

WTF is this idiot talking about? Last I checked, none of the Silicon Valley tech firms had received TARP money during the bailouts.  The exec comp restrictions this dimwitted Wilson Sonsini lawyer mentioned came with the nearly trillion dollar taxpayer bailout/subsidy for insolvent banks and the incompetent execs who ran them into the ground — not dot com start ups.

What a tool.

I cannot figure out who is more responsible for this brain dead exercise in ignorance and spin  — the writer who (re)typed it from a press release, or the editor who let this nonsense slide by.

Here’s some more stupidity:

“In the last two years, only 18 tech start-ups have gone public, compared with 143 in the two years prior. The Sarbanes-Oxley Act of 2002, which tightened corporate governance and accounting rules, has taken a lot of the blame.”

Astonishingly, the article fails to note the massive decrease in IPOs across all sectors due to the recent turmoil. Even more amazingly, the author somehow fails to deploy so much as one single word regarding the total collapse in the markets, or the simple fact that investors have seen precisely zero gains over the past 11 years.

Quite bluntly, I am embarrassed that this is what passes for Journalism today.


UPDATE: January 18, 2010 3:02pm

Here is a chart of IPOs going back about 3 decades. Note after the 1987 and 2000 and 2008 crashes, the IPO numbers plummeted. I do not know what the actual impact of Sarbanes Oxeley was on IPOs, but the data shows that after SARBOX passed, the number of new IPOs actually went up.

I am NOT suggesting there is a correlation between SARBOX and any subsequent increase in IPOs; I am merely pointing out that blatherings of those mentioned above is factually incorrect, and belied by actual data.

Have a look at these two charts, courtesy of Jim Bianco. They show the number, and the dollar amount raised in IPOs; There appears to be no correlation with SARBOX, but a huge correlation with market crashes.


IPOs by Deal Volume 1991-2010

click for larger chart

IPOs by Dollars (billions) 1991-2010

click for larger chart


More charts after the jump.


For Many Start-Ups, a Spot on the Nasdaq Is No Longer the Goal
NYT, January 17, 2010

Excel Spreadsheet for IPOs anbd secondaries, Bianco Research
Equity IPO And Secondary

Some Factoids about the 2009 IPO Market
Jay R. Ritter, Cordell Professor of Finance
University of Florida, Jan. 14, 2010

Read More

Category: Really, really bad calls, Venture Capital