Pre-revenue networks: when even the press doesn’t get it
This week news broke that Viddy has raised a bunch of money at a very high valuation. Cue this comment from Pando’s Michael Carney:
The company’s $1.5 million seed round closed around April 2011 and, according to my sources, was priced at $16 million. That’s a 20-times multiple in just twelve months for a company that has not monetized to any significant degree.
Here’s my frustration with this comment - it lacks understanding of how products like this evolve. For Viddy, the dominant goal should be to get to 100M+ highly engaged users. For a quick-growing UCG/fledgling social network, that is what matters. Not whether they’ve made any money at 10M users. If I were raising a Series A for Viddy at this stage and an investor was pushing me on revenues, I’d politely excuse myself and bounce. Not the right match.
Don’t get me wrong. I love revenues, and startups that generate them early on. Or startups that test out revenue channels without pushing before the community is ready. But it’s critical to realize which levers are important to a given businesses at a given stage, and which can be damaging.
I don’t mean to slam Michael here. I like Pando, and want to see them kick ass. But I see so much of this “my god, valuations are ridiculous, tehy don’t even make money…bubble!!” crap in comments these days that it’s frustrating to see it creep into the articles too.