Profile: When Bad Timing Happens to Good People
VantagePoint's David Carlick reflects on heroes and idiots.
"I couldn't have picked a worse time" to join the venture business, says David Carlick. He signed on with VantagePoint Venture Partners in the late 90s. "I had seven portfolio companies that are no longer with us." He pauses. "No, six."
Those were trying days for someone new to the investment game, but Carlick had a wealth of experience with startups. He'd founded Carlick Advertising and poppe.com and was an early co-founder of DoubleClick. He was a founding director of International Network Services and I/Pro. He certainly knew a thing or two about online media and marketing.
"By definition all VCs have money and financial skills," observes Peter Horan, President and CEO of VantagePoint portfolio company Allbusiness.com. "The differentiators are their connections, their perspective on the category, and their own experience in creating successful businesses."
None of these laudable qualities stopped Carlick from making a few regrettable decisions. "We should have been shopping when it was darkest in '01 and '02. I regret that we didn't come back into [Internet and media investing] when we saw signs of life. I regret that we couldn't get companies to wind down and get small to survive." He pauses again. "I regret that we passed on Skype."
During those difficult times, "online companies had to live on crumbs," he says. They had to innovate and produce measurable marketing results on spartan budgets. Thus was born "performance marketing," a metrics-based, results-oriented approach most visible in the practice of search engine optimization.
Eventually Carlick got a break. In late 2003, he invested in a distressed company called eUniverse, a conglomeration of Internet media, marketing, and social networking sites. eUniverse had been de-listed from NASDAQ, its accounting was behind, and it was headed toward insolvency. "But we saw some great people, and great innovation in traffic, media, and direct marketing." VantagePoint invested and hired a new CEO.
"For a board and an investor," says Carlick, "the make-or-break decision is the CEO. The right CEO will make you look like heroes. The wrong CEO will make you look like idiots. Richard Rosenblatt made us look like heroes and not like idiots."
For a startup, it's just as important to pick the right investor. Peter Horan observes that entrepreneurs and venture partners "don't have to eat together or ski together. But they need to be able to discuss issues and make decisions in an environment of respect and trust."
Rosenblatt restructured management and streamlined the company by grouping it into two classes of operation (product marketing and online communities) and selling off underperforming assets. He also gave running room to one of the company's more promising assets, a social networking site called MySpace that caters to media-savvy twentysomethings.
The reorganized company, now called Intermix Media, got relisted on the American Stock Exchange. Its price per share rose precipitously. And then, Carlick sighs, "Eliot Spitzer announced he was suing the company." The suit accused Intermix of illegal spyware distribution, functions that Intermix claimed had been put in place by former management in the company's previous life as eUniverse. The suit was quickly settled.
"Meanwhile," says Carlick, "large media companies have decided this area [social networking] is important. The mathematics are undeniable. Young people are getting drawn away from TV to computers." News Corp bought Intermix for $580 million, generating VantagePoint a reported 9.1X return.
Media investing presents challenges unique from, say, semiconductor investing. "They're similar, in that both [media and semiconductor companies] have to look out to the future and deliver something timed toward that future. But a media company is ever so much more iterative than a semi company," Carlick explains.
Media concerns such as MySpace, for example, can stay in constant conversation with their users. They can update their product whenever they need to. MySpace's founders "absolutely listened to what their users wanted, and they were ahead of users in delivering features that made the site richer and more useful. Just as search engines eventually turned into portals, [social networking sites] went from 'Who's online?' to 'What's my life?'"
According to Carlick, an online media investor has to look for "the talent of a team to generate both product features and distribution arrangements." A startup has to know how to market itself. Google, for example, started as the search engine behind Yahoo and other large Web presences. The company built user loyalty so that when it launched Google.com, people knew and trusted it.
VantagePoint's enthusiasm for media investment shows no sign of stopping. The firm recently invested $60 million in Datran Media. "They're bright, talented direct marketing people who have built a business that's hard to duplicate," says Carlick. "I'm excited."
VantagePoint Venture Partners
Founding date: 1996
Founders: Alan Salzman and Jim Marver
Funds under management: $2.8B
Focus: Multi-stage investing in technology and healthcare