A high valuation is problematic for a number of reasons. The first, and probably most important, is the impact on the company’s ability to attract quality talent. That’s not to say that you couldn’t (I’m sure the aforementioned microblogging site is seeing a flood of resumes). However, most people in the startup world join startups for the equity upside in a liquidity event or IPO (although the garage sale furniture and stale pizza at 1 a.m. is tremendously appealing). When a highly priced round is completed, guess what–the strike price of the options also go up. In effect, the hurdle for the options to be “in the money” has gone up and the value of the options has decreased. The motivation for the employees coming in after the financing has been materially altered.

Another difficulty in raising a highly priced round is the set of expectations from the new investors. Given the high valuations, the milestones that you’d have to hit to justify the valuation are usually aggressive. The difficulty in setting such aggressive milestones is that if you only complete 50%, you’ve basically built a bridge to nowhere. When you next need to raise capital, you may be faced with a down round, or in extreme circumstances, a complete recap or non-funding. Lawsuits and tensions around the board about fiduciary responsibilities are common. Not very fun stuff.

It sort of reminds me of a quote from a low-profile entrepreneur named Bill Gates who started a software company in Seattle back in the day.  He quit to run a non-profit to help end poverty:

One challenge Microsoft did face, and that Netscape now faces, is coping with a high market valuation. Netscape has little income, but investors have valued its stock at more than $2 billion. When a company’s shares have a high value, expectations from investors, including employee-owners, are correspondingly high. Failure to meet those expectations can be damaging. If you’re giving share options to employees so that they can participate financially in the expected success of a company, a high valuation hurts. If the market’s already anticipated the great work those people are going to do, then their stock options won’t appreciate much in value, if at all. This can make the options worthless. Many times in the past I have felt that Microsoft stock was higher in value than it should be. Subsequently I was proven, in a sense, to be wrong. Controlling expectations—whether about deliveries, product features or stock value—is often wise in a technology business. It’s a lot better to under-promise and over-deliver.

Read more about that here.

[* A lie.  You will see why and how I was on Fast Company in a few days when I post the Fast Company article that mentions WatchMojo.]

Despite the fact that their sites (MSN.com and I guess MSNBC.com as well) garner the highest time spent on site of any company, they cannot convert those eyeballs and engagement into profits?

Then again, maybe it’s specifically the reason why their operations are burning so much money?

Now, Index Ventures and alleged slime ball Mike Volpi are out, and in their place comes the original dashing duo.

Read more.  But I wonder, how long before Volpi leaves Index to “spend more time with his family?”

And seriously, what is wrong with a VC like Index to begin with?

Crazy to see what VCs back.  No comment.

I am extremely happy and honored to greet Paid Content’s Rafat Ali tomorrow on the next installment of WatchMojo Live.  Our first guest was Tech Crunch’s Erick Schonfeld.

When Rafat launched PaidContent.org in 2002, he pioneered a breed of media and information company that spawned a new generation of media publications covering the digital media, technology and marketing segments.  After raising financing from Alan Patricof’s Greycroft Partners, Ali sold PaidContent.org’s parent company Content Next Media to The Guardian Group in 2008, continuing to stay one step ahead of the competition.

Tune in tomorrow at 3pm EST.  If you have any questions you want me to ask him, please email me at ash [at] watchmojo.com.

But today, I ran our October stats and I was floored, first, the graph, then some perspective, and finally some lessons:

Monthly Streams

All-time Streams

This is freaking insane.  When we launched the site in 2006, I used to look at the stats and I would ask myself: do people actually watch videos?  And if they do, do they watch anything other than cats falling off skateboards (well, and porn)?

Eventually, we found out that we had to take our videos to where people consumed them.  We did 550,000 streams in all of 2006, then did 13,000,000 in 2007.  Then 2008 saw a jump to 28,000,000 streams and in 2009 we will do 55,000,000 streams.

We decided to brand the videos heavily to WatchMojo.com, with opening and closing bumpers and lower-third watermark and all.  I thought it was crazy, I pushed for it because I figured if people pirated the content (who would want to do that anyway, was my own counter-argument) then at least we would get some branding.  But today this means our brand has been seen some 87,000,000 times online alone.

That’s the thing, that is only online.  This month I finally decided to run the numbers and see how much presence we had offline.  I fell off my chair.  Our videos - branded WatchMojo again - are seen in 2,000 retail locations and reach 15,000,000 consumers each month.  I will never forget when a would-be investor called me up an hour after we chatted and told me he saw us in a gas station in Los Angeles, or when a former host of ours saw us in a bagel shop in Chicago, or for that matter, when I heard that my former boss curses every time he lands on a site and sees our logo display before a video loads up.

I always laugh when Google scores heavy in InterBrand’s top brand survey because they never set out to build a brand but did so by focusing on the nuts and bolts. 

I always thought WatchMojo could become a strong brand (the logo was always intended to stick out).  I also thought the company could be big, very big; but the company’s popularity, reach, brand and position in the marketplace is starting to floor myself.  And I am a very ambitious and driven individual.   I want to make WatchMojo as successful financially as it has been operationally, and I know there’s lots of work to do on that front, but still…

We’ve had to overcome a lot:

- being a content company, which in the 2000s gets no respect from the media and investors alike,
- the 2006 lawsuit which was frivolous and we won, but almost killed us before we really took off,
- talking to VC groups and then seeing them turn around and fund our “competitors”, which wouldn’t be the end of the world, if it weren’t for…
- … seeing those very same companies scale back or shut down, only to leave a bad taste in the mouths of other would-be investors,
- there not being any ad format in online video that is popular, efficient and effective enough to move the needle, the way Google’s text ads did for search, despite the hundreds of millions that hapless VCs have made in the sector,
- being unfunded (forget being underfunded, I mean literally not funded - ever), so always having one foot in the grave and the other foot on the gas pedal,
- the 2008 recession which basically almost killed everything,
- the 2009 advertising market crumbling in H1.

Anyway, I’m not complaining.  In fact, I am very grateful.

As we finish Year 3 of WatchMojo’s operations, we have never laid off a single person and technically now have 50% more staff than we did last year (don’t know why I use the word “technically” since we do, in fact, have 50% more staff than last year this time).

Not only am I not complaining, I am counting my lucky stars that we:

- have such a great team,
- have an amazing product,
- provide a valuable service to countless other media companies, both new and traditional,
- are now finally counting amongst our clients marketers such as McDonald’s, Coca Cola, Coors Molson, Malibu Rum and many, many others.

How, on earth, did this all happen?

Well, for one, determination and persistence.  I’ve written on that before, here, here is the quote from former President Calvin Coolidge:

Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.

Determination and persistence is just one part of it, you need a lot of luck and timing… and of course, vision, ambition, execution and focus. 

I have no idea what the future holds… but I used to think we would get a lot of “street cred” if we jumped off the bridge like many others and raised a boatload of money.  The boat never came, the money wasn’t there… and some how we are now totally dominating the industry.

I’ve referred to Sequoia’s “Good Times RIP” presentation and the famous death spiral slide:

I was very concerned about not becoming Company A - you know, the company that didn’t take immediate action and lay off people so that maybe, just maybe, when the dust settled, it could become like Company A, who had the “courage” to lay off everyone and reset its operations.

But, I also didn’t want to be Company B, who recklessly laid off people because it got scared.

Then it hit me, we were neither company A or B, we were a company that was largely off the radar, doing our own thing.  We had written our own playbook and were in the process of writing our own history.  We were, in fact, Company C:

I don’t quite know who is Company A and Company B in our world, and I don’t care, all I know is that we’re coming on strong.  I have always said the beautiful thing about content is that it is not a zero-sum game, our wins won’t necessarily come at the expense of our competitors… but the more we compete in the marketplace, the more often we find ourselves winning.

DeWolfe is likely looking at very small gaming companies run by a handful of stellar developers but that lack the legal, business development, and dealmaking resources to make any kind of a dent in the current social-gaming market.  

Social games are a red hot space, with Zynga allegedly generating $100-250M in annual revenues.

If this all sounds familiar, it’s because DeWolfe’s former boss Ross Levinsohn was also planning on raising money and rolling up assets when he left Fox Interactive Media.  Levinsohn, of course, joined forces with former AOL boss Jon Miller and instead merged their venture capital operations with ComVentures to become Velocity.  Today Miller has left for News Corp’s Digital Chief and Levinsohn has renamed Velocity Fuse.  One thing he learned wasn’t obvious was the whole roll-up strategy.

Roll-ups sound great in theory and every time I mention rolling up video assets (the industry I operate in via WatchMojo) investors get hot and heavy, but the truth is, just because sometimes creative/technical types lack the “legal, business development, and dealmaking resources to make a dent in their market” doesn’t mean roll-ups make sense from a strategic, operational, financial or tactical perspective.

You have to be able to manage a lot of personalities and egos, above all, and then once that is done (if that can be done), then you have to make the numbers add up.

Then again, don’t be surprised if Levinsohn invests in DeWolfe’s venture, who knows.

DeWolfe still has a better valuation landscape today than the one facing Levinsohn when he left FIM, but either way, DeWolfe should avoid suffering from hubris and biting off something that is easier to chew if he plans to catch lightning in a bottle twice.

But approaching on our 4 year anniversary, our videos have been seen over 80,000,000 since 2006 and each month, over 15,000,000 people see our brand in retail outlets.  It’s quite impressive and unbelievable, to be honest with you.

Here is the latest press release with all of the facts and figures.

Demand from Out-of-Home Digital Signage Networks Propels WatchMojo’s Reach to 20 Million Consumers Per Month

With an audience of 5M online and an additional 15M offline, WatchMojo offers a cross-platform opportunity to marketers with a global reach of 20M consumers each month.

New York, NY (PRWEB) October 30, 2009 — With a cross-platform distribution strategy encompassing online, out-of-home digital networks and wireless, WatchMojo’s total reach has soared to over 20M consumers per month.

Online, the company reaches over 5M unique users across a plethora of destinations that include YouTube, Yahoo! Video, MSN, MySpace TV, Hulu, Grab Networks, KIT Digital and many other large destinations where viewers consume video content.

Offline, the company’s content format and style has proven to be perfectly suited for out-of-home digital networks and as such, its reach has soared to over 15M monthly unique users across North America. In fact:

As the company begins to strike marketing deals with advertisers such as McDonald’s, Coca Cola, Malibu Rum and others, the company is extending its reach online and offline by leveraging its library of 5,000 short form, professional, evergreen and ad-friendly videos. It is also rolling out aggressively on mobile platforms as wireless entertainment and advertising takes off.

Online, WatchMojo served its 75,000,000th video in September 2009 and has delivered 50,000,000 streams in the past 12 months alone as more and more media companies turn to WatchMojo for professional video content.

Online video accounts for 27% of total web traffic, and in the past year alone, the number of video streams has grown 88% and swollen to over 20 billion in the US alone. During the same time period, WatchMojo’s streams grew 235%.  

Read more.

Once again, like a used care salesman, Microsoft says “Trust me.” When it comes to WIndows, Microsoft’s promises never end and they never get realized, either.

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