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Are These People Really Worth $200 Million?

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Krizelman: There are very high valuations for Internet companies. But the reality is, there are very few other industries where companies are growing this fast. Many of these companies are growing 100 percent per quarter.

Judson: Growing in what?

Krizelman: In revenue.

Judson: And in concurrent losses as well.

Krizelman: But not at the same growing rate.

Judson: Yeah, but typically what you're seeing is revenues growing and losses increasing.

Paternot: Right, but how do you quantify a bad company, even in these circumstances?

Wolff: Which is why, at least for the present, the market seems to have concluded that there are no bad Internet companies.

Kurnit: I don't agree at all. The dozens and dozens of companies that gone through the IPO process have had to get over the hurdles set by accountants, bankers, and 200 different institutions that you meet along the way.

Nisenholtz: But I think you're asking a bigger question, which is: Are there business models on the Internet right now that we're comfortable saying are sustainable?

Wolff: Let's make this real. Who would you sell at this point? What companies, or what sectors of this industry?

Judson: Anyone who depends solely on ad revenues, anyone who says, "I am going to create original content, and I am going to make money based on ad revenues," without any other clear sources of revenue. My issue is that typically the cost of content and marketing to bring in an audience and hold it makes it impossible for an ad-supported business to be profitable.

Nisenholtz: But the funny thing is that if you look at the revenue multiples, the numbers, the companies that are being rewarded the most right now are content companies.

Wolff: Have we come around again? There was the period in which content was king, and then you couldn't get arrested if you were in the content business -- you certainly couldn't get financing for a content-driven new-media business. Are we back in business on the content side, and therefore, I might argue, on the New York side?

Kurnit: Stewart Alsop said it to me best when I went out to pitch my business to him. He said, "Scott, when has a VC ever financed a movie, a book, or a magazine?" Part of the problem of New York, which is the content center of the universe, is that venture capital is the traditional form of financing. VC financing is required for Internet companies, because unless you're lucky enough to launch out of your dorm room, you require large amounts of capital. In New York, the corporate players are not the financial players. The Time Warners and the Viacoms do not finance start-ups. It's not what they have historically done. So you went out to California, and California says, "We don't know what content is. We've never invested in a content business."

So in a lot of ways, when you were looking for financing, it wasn't that you weren't right. It was that the financing sources didn't understand you. So those of us who were either hybrids, where we had different kinds of models, or able to get the financing to get to a level, people said, "You know what? Content is a good idea."

Suh: I sort of reject the notion that content was at any time out of the picture. Financing is not the final validation of content. Consumption is the final validation of content. And if you measure consumption, the Internet has, if anything, been voracious about content.

Judson: Except that people won't pay for it.

Suh: The phenomenon of people paying for old content or refusing to pay for old content is interesting. The Times is a good example, I think. I pay to look things up that have already been published in the New York Times. I pay money, and I am glad to pay money to do that. But for breaking news? Not really. So what is it that I am paying for? Is it the ability to aggregate the source of information from an authoritative source and get the concept that I want, when I want it?


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