Saturday, August 10, 2019

Monetizing Like Minds - Section 08

The Jackpot VC Trifecta

With hindsight, it is obvious why my first Facebook encounter left me feeling wary and repelled. But as a bona fide Web worker in 2006, it was death by derision to criticize "FB". Disheartening most of all, though, was to watch Zuckerberg's glare become so quickly and eagerly rewarded.
It is not easy capturing the attention of Jim Breyer, one of Silicon Valley's leading venture capitalists. But Mark Zuckerberg, a 21-year-old Harvard student, managed to do it with a Web site that has attracted 2.8 million registered users on more than 800 campuses since it began in February 2004.

Mr. Breyer was so taken with Mr. Zuckerberg's company, thefacebook.com, which creates online interactive college-student networks, that his firm, Accel Partners, plans to announce a $13 million investment in the start-up today.

''It is a business that has seen tremendous underlying, organic growth and the team itself is intellectually honest and breathtakingly brilliant in terms of understanding the college student experience,'' Mr. Breyer said.

Five years after the Internet bubble burst, a new generation of Web start-ups is quietly attracting investment capital. Thefacebook.com typifies the breed: a company that is built on substance rather than high expectations. While $13 million might seem paltry next to the free-flowing sums of the late 1990's, Mr. Breyer said it was a ''significant investment'' from Accel's new $400 million fund.

...(Thefacebook.com is not the first foray into a college site for Mr. Zuckerberg, a computer-sciences-turned-psychology major. As a prank in November 2003, he set up facemash.com, a site that ''popped up two students' photos and asked users to choose who was more attractive,'' he said. Harvard officials were not amused and they put him on probation. But the university's administration has not voiced any complaints with thefacebook.com, he said.)

...Mr. Zuckerberg arranged a dinner with Sean Parker, the founder of Napster (Comment: Parker is a cyberpirate turned Venture Capitalist), to talk about his Web site, which had swept through Stanford University in a number of weeks. A few weeks later, the two bumped into each other on a street in Palo Alto, Calif. Before long, Mr. Parker...began informally advising the company. He then introduced Mr. Zuckerberg to Peter Thiel, a venture capitalist and founder of PayPal, the online payment service acquired by eBay in 2002.

Mr. Thiel invested $500,000 as seed money, the first major infusion of cash into thefacebook.com, Mr. Zuckerberg said. More important, his connection gave it the imprimatur of an up-and-coming company. Soon, other investors came calling.

But the one who impressed them most was the team from Accel, said Mr. Zuckerberg, who is thefacebook.com's chief executive. At 43, Mr. Breyer, the firm's managing partner, is a seasoned investor who serves on the boards of Wal-Mart Stores and Real Networks.

Mr. Breyer has taken a seat on the company's board, joining Mr. Zuckerberg, Mr. Parker and Mr. Thiel. He would not disclose the size of the stake Accel will take in thefacebook.com. And while he envisions that the company will one day go public, he said there was ''no significant timetable.''

Mr. Zuckerberg and Mr. Parker decline to disclose revenue, which comes solely from advertising, though they say the company is profitable. With the infusion of outside cash, they are also able to pay themselves salaries and rent an office in Palo Alto

...While the breakout success of thefacebook.com is unusual, those in Silicon Valley say there is plenty of room for other Internet companies. According to Allen Wiener, an analyst at the research firm Gartner Inc., a successful company needs to have a ''clearly articulated product and service,'' that will ''save time or money, offer something someone can't find somewhere else and fulfill a greed or lust factor.'' The service offered should be ''compelling,'' adds Mr. Thiel, and one which ''draws in new users to get organic grass-roots growth.''
Accel Partners Invests in thefacebook.com
Corporate Site - 2005- Wayback Machine Archive

Given what we know now, it is reasonable to imagine that these early investors understood the profit potential in Facebook's ability to horde personalized user data and that they chose to ignore the ethical ramifications of selling it. After all, selling user data became Facebook's entire business model without their slightest dismay.

In the preceding Accel announcement, I added the comment about Sean Parker because, for a certain breed of entrepreneur, crime most certainly does pay. The bad-whiteboy-turned-billionaire fraternity is the most exclusive club in the world. The highlighted line at the end sums up what I call the ideal Jackpot VC Trifecta: Bernays marketing, Skinner conditioning, and Internet facilitation. Infection - Addiction - Transmission. And here is an additional noteworthy thought about Peter Thiel. While becoming Facebook's first investor/adviser/board member, Mr. Thiel was also building Palantir, one of the world's biggest of the "Big Data" enterprises.

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Section 07<<<>>>Section 09