Why Bootstrapping Is Ju...

Editor’s note:  Contributor  Ashkan Karbasfrooshan  is the founder and CEO of  WatchMojo .  Follow him  @ashkan . Entrepreneurship requires balancing unbridled optimism with delusional foolishness.  Most entrepreneurs are mocked and misunderstood until they are wildly successful, at which point the chorus changes from “good luck with that ‘business’, pal” to “I always believed in ya, buddy!” Master of your Domain There is an undeniable appeal to the notion of bootsrapping your company to success without venture capital. While bootstrapping has many advantages aside from control and ownership—such as being master of your domain and giving you the freedom to build your own Xanadu for all stakeholders—the reality is that the disadvantages may be greater. I speak from experience, having bootstrapped my own company, WatchMojo. Yes, Mo Money = Mo Problems, but Money = Lifeline Throwing money at problems is usually a short term fix.  By lacking capital, you’re forced to tackle issues head-on and generate real solutions. But with no safety net (let alone a warchest) on your balance sheet, you can’t really pivot if your business is hitting a wall.  Even if you’re doing well, money is your lifeline, so lacking it may starve even the most promising of bootstrapped companies, preventing you from investing in growth or supporting your clients.  So in a best case scenario, you’re operating with one foot on the pedal with another in the grave.  You’re basically in a perpetual state of fund-seeking , which is far more distracting than being in fundraising mode. Mind you, we only hear about the wildly successful pivots such as Groupon, not about the hundreds of pivots that fail.  Undoubtedly, some of those earlier models may become successful with time; albeit not big enough by VC definitions. Give equity to grow equity Fundraising is an art , and in Silicon Valley, conventional wisdom suggests that you “raise as much money as you can”.  I’ve heard both Marc Andreessen and Jason Calacanis say this and couldn’t help but imagine that Netscape investor Jim Clark said that to Andreessen, whom Calacanis heard it from and who is now passing it on to the next crop of entrepreneurs. Except raising as much money—or diluting— as much as one can is good for investors but bad for entrepreneurs. No wonder investors say that!  When you’re wandering in the desert for days, you would give anything for that first glass of water, everything after that is a bonus. But this shines a light on another reality of value creation: you have to ensure that others want to see you succeed and prosper, and the only way to do that is to hand out equity; as John Doerr says “no conflict, no interest”. Meet the Board: Your More Objective Bad Cop Once you have investors on board, the board they assemble will come in handy when you need to make tough decisions.  Knowing that you have a regular evaluation and review of the business’ operational and financial metrics helps you succeed, plain and simple. It’s also helpful for the CEO to be able to play good cop to the board’s bad cop.  Indeed, many CEOs lack an objective sounding board and have an emotional attachment to an idea which not only wastes money but more importantly, the best years of your life. So while too many companies chase the flavor of the month  at the behest of their investors, the board will push you until your business takes off or you need to pivot. Psychological Price Floor While businesses should be valued on their financials, the historical valuation that investors place on your company may play a role in at least determining a floor price in a worst case scenario or a framework, at least.  Solely for purposes of illustration, let’s look at how two recent exits may have gone down. In the case of Next New Networks, the company had raised $25 million in venture funding from prominent investors including Goldman Sachs.  The company’s high burn rate offset their success in generating views. Not having yet cracked the code to monetize their audience, investors were wary of adding more money.  They weren’t however going to write off their investment altogether either, so they may have insisted on a purchase price equaling what they had put in the company regardless of the P&L.  Rumor has it that Google paid $25 million to allow preferred shareholders to recoup their investment. In 5Min’s case, it had momentum and growing revenues, so when AOL came knocking, it’s possible that the sale price was a function of both its financials and its funding history.  Let’s hypothesize that 5Min was generating $10 million in revenues; with a 3x multiple it was offered $30 million – too little for 5Min investors to accept.  But having raised $12.8 million over three rounds, it’s perfectly plausible that the final $65 million acquisition price was driven more by a desire to secure a 5x return on the money invested.  Or, assume the VCs had 40% of the company, meaning a weighted valuation of $32 million in exchange for that $12.8 million; a 2x return on that valuation would yield approximately $65 million.  I am clearly making the numbers up, but you see how one’s financing history may affect the final sales price. Conversely, I have been told at least a dozen times that not having raised any venture capital values my company at a discount. The Perception Problem: Red flag? Moreover, not raising money from professional investors is—in all honesty—a potential red flag.  It’s rare for an entrepreneur to run a business and spend millions of dollars without having any outside help.  When that is the case, it’s a normal reaction to wonder: why?  Why hasn’t outside money been raised?  It’s unfair, but saying that it’s never come up would be a lie. No Sympathy Points Ultimately, while you may score extra points for building a large business despite being bootstrapped, you don’t actually score many points for running a small business if you have avoided venture capital, even though 99.9% of VC-funded companies wouldn’t exist or last as long as yours if they didn’t have VC funding to rely on. The cliché is that it’s not the destination that matters, but the journey.  Sure, maybe in Bullshitistan .  In the sports and business world, it’s all about the outcome.  No one remembers the score, let alone how the teams played the game, they remember who won, even if it means giving in to greed and resorting to bad behavior . When it’s said and done, you can own 100% of a lemonade stand or 1% of Coca-Cola. While these are extreme polar opposites and a middle ground does exist, you have to understand that neither approach to building a business comes without its share of problems and drawbacks. In some ways, you build a business despite bootstrapping or raising VC, and not because of it. Photo credit: Leonard John Matthews

Next On Amazon’s Road T...

The rights to Casa.com (Spanish for ‘house’) have been transferred to Amazon, indicating the ecommerce giant’s next dedicated vertical shop may be a home decor site. Amazon’s Quidsi network of sites already runs diapers.com for baby goods, wag.com for pets, beautybar.com for — well, you get it. If you visit  Casa.com  now you’ll find more evidence, with a blank screen explaining “You have reached an invalid location. Maybe you are looking for http://www.diapers.com, http://www.soap.com…” Casa.com could offer a more affordable, traditional home decor shopping alternative to luxury and flash sales sites like  One Kings Lane  and  Gilt’s Decorati . Domain Name Wire  first reported on the domain switch, noting that casa.com was protected by whois privacy for years prior to the transfer. Also, I found that Quidsi employee Morgan C. lists herself on LinkedIn as a “Merchandising Associate at Quidsi Inc., Casa.com”, and Domain Name Wire spotted another Quidsi employee with the same title. You won’t find that logo above anywhere else though, it’s just a mockup I concocted. Amazon bought Diapers.com parent Quidsi for $545 million in November 2010. When Quidsi launched Yoyo.com for toys in September 2011, it’s CEO Marc Lore told TechCrunch that the company’s next vertical site was going to continue its focus its core demographic of moms. Casa.com fits that bill perfectly. The new one-stop shop could include standard Quidsi features such as a combined shopping cart with other Quidsi sites, free 2-day shipping for purchases over $50, seasonal product selections, and featured picks by the site’s team. Considering One Kings Lane was expected to do $100 million in 2011 sales, the home decor market could be a huge opportunity for Amazon.

And The First $1 Millio...

Domain name marketplace operator Sedo this morning announced that it has brokered a big domain name sale before the first week of the new year is over. The company has negotiated a sale of the domain dudu.com to a Dubai-based social networking service provider called – you guessed it – DUDU Communications . Amazingly, the domain name went for as much as $1 million, which is right up there with the sales of furniture.com, sky.com and domainname.com – heck, it even fetched double the purchase price of premium domains like 3D.com, logo.com and puzzle.com. Sedo says negotiations with the former owner of dudu.com, from China, took three months. Said Alibek Issaev, chairman of DUDU: “With the purchase of dudu.com, we will be able to match our platform’s brand with the exact domain name we need, and migrate from using godudu.com to this shorter version. This purchase means we don’t lose important traffic, and at the same time we ensure that visitors from around the globe will remember our brand’s name.” DUDU, started in 2007, is a multi-lingual social network that lets people communicate with each other online even if they don’t speak the same language. Also read: Canadian Rock Band Wants To Cash In On TeaParty.com Sale

Despite Attacks, Klout ...

Editor’s note:  TechCrunch  contributor  Semil Shah  is an entrepreneur interested in digital media, consumer Internet, and social networks. Shah currently works at  Votizen  and is based in Palo Alto; you can follow him on twitter  @semil If you even so much as whisper your Klout score within specific circles, you’re likely to be met with a piercing stinkeye. Based in San Francisco with a small pot of funding , there’s something about Klout’s mission — to rank online influence — that ironically draws the ire of many influential people. A few months ago, TechCrunch’s Alexia Tsotsis kicked things off with a great, provocative post (check out the comments, too) arguing results don’t match up with the offline reality of one’s influence. GigaOM’s Mathew Ingram artfully pointed out Klout is being used by companies for promotions and even in hiring. Marshall Kirkpatrick wrote a short post describing how Klout provides value, helping him sort various Twitter feeds by ranking accounts. There’s also a fascinating Quora thread detailing a host of other sentiments. Whether you’re a fan of the service or not, there’s clearly something polarizing about Klout which generates a range of reactions. Despite the sentiments, Klout continues to roll with the punches because our online identities are fragmented across different services. These different sites rank their own users, of course, but typically only factor inputs tied down within their own gardens. The main forces, Facebook, Twitter, LinkedIn, certainly weight their own users’ activity for various reasons, but Klout has built one single, unified score based on its own independent algorithm across these services. Of course, this “PeopleRank” subjects the company to scorn, yet immunizes them against any changing winds within the different social services people use. A few months ago, Klout announced an algorithm adjustment that seemed to lower many Klout scores, which generated even more suspect reactions. In the the follow-up to that announcement, Klout hinted that integrating Quora was on their product roadmap, but Quora hasn’t been shy about wanting to rank people, too, so if Klout is able to pull this off, it would be a significant signal toward their own growing clout. I see no problem with Klout’s aggressive expansion. In fact, in the absence of any viable alternative, it seems to work, more or less. Even PR giant Edelman wants a piece of the space, as does new competitor Kred , but Klout has a great head start. While critics bang the drum for more transparency around the algorithm or hold their nose toward the idea of comparing their rank with others, Klout has been able to manufacture an incredibly simple, strong brand in a relatively short period of time. Larger companies and brands have taken notice, running campaigns with Klout and helping the small startup actually earn money and test revenue models, so much so that they have already hired an experienced Chief Revenue Officer. Klout is a relatively young company. It is not perfect. It is going to make mistakes, and will continue to rub some people the wrong way. In the future, the company may elect to be more transparent about their algorithm, or expand their “perks” offering, or simply soften their onboarding pop-ups. Just as numerous brands are testing the effectiveness of routing messages through the service, Klout itself is experimenting with a range of ways to make this better for users and, in the process, attract more brands. This kind of ad-targeting is already in full-swing on many other sites—it’s just that it’s more overt on Klout. All of this tends to bend back to semantics. “Clout” is a powerful word, which has various definitions, and in this context, we think of “having pull” or “influence.” With that connotation comes the impression of power, and that triggers different reactions. It’s worth remembering that Klout only claims to measure one’s online influence, and I tend to think that much of the backlash against the company is rooted in the misconception that one’s Klout score maps to the offline world. It’s easy to grandstand and take a publicly moral stance against what Klout is doing, but as it is with entrepreneurship and certainly the web, there are no rules. Companies and users are making the rules as they go, and that’s just the way it should be. On the eve of  2012, I wouldn’t be surprised to see Klout move into scoring so-called “expert pundits” in high-value content verticals such as sports, politics, and even technology reporting, as well as partnering with startups themselves to help better tune their initial social-proof marketing efforts . They may also begin to experiment with ad campaigns outside U.S. borders, and could even be an influential social media player as attention focuses around the upcoming American presidential election. Finally, I believe there’s something about the founder Joe Fernandez and team that positions them for success and will help them weather these current and future storms, embodied in the story of how their domain was obtained in the first place (Fernandez tracked down the previous owner of the domain via Twitter, showed up at a restaurant, and plunked down $5,000 in cash on the table). In fact, I’d argue Klout will get bigger and grow even more influential itself in 2012. With all the “newsfeeds” out there driving the information we consume, and as that content surfaces to mainstream channels, every feed will need some mechanism for surfacing consistently relevant and trustworthy content. If Klout can figure out a way to keep making money via brands and help people find the most relevant signals, it will not only grow, but secure its place within the fiber of the social web. Photo Credit: Creative Commons Flickr / Mike Licht , NotionsCapital.com

23andMe Snags GeneticSc...

Quick, how many pairs of chromosomes do you have? If your mind just drew a blank — or an image of Ethan Hawke fiddling around with tweezers in GATTACA — then you probably aren’t alone. The answer, of course, is 23 pairs, for a total of 46 chromosomes. And it’s what the name of well-funded genetic testing company 23andMe , which has raised some  $52.6 million to date, refers to. Despite the reference (which may not be obvious to most people), that name isn’t a bad one, as it makes an intimidating topic sound more friendly and accessible. But now the company has another option at its disposal that’s a lot more straightforward (and SEO friendly, no doubt):  GeneticScreening.com . As was first reported by DomainShane, 23andMe cofounder Anne Wojcicki bought the domain for a mere $2200 on Sedo in the last two weeks. The domain now redirects to 23andme.com. The domain is a big deal for the company. 23andMe is easy enough to remember, but the term ‘Genetic Screening’ is a generic term that can encompass countless types of tests, and could eventually become extremely popular in Google searches. DNA testing isn’t exactly a hot topic for most people just yet, but it will be — in the coming years such testing is likely to explode as researchers uncover which chunks of DNA contribute to which traits and diseases. Reached for comment, the company confirmed that it has indeed acquired the domain, and that while there are no immediate plans for using it, it “may be integrated into continuing business development planning.”