I recently did a Q&A with Thompson Reuters about my Actarus Funds. The piece covers a brief history of theglobe and how it relates to social networking nowadays, as well as financial comparisons etc. It also gave me a chance to plug several portfolio companies including Sonico, Pingg, Badongo, DineroMail, OLX & MagazineRadar.

A summary intro ran here:
http://www.bigwinner.org/2008/06/28/interview-with-theglobe-founder-stephen-paternot/

A segment of it got picked up on Silicon Alley Insider this morning which is timely as there is recent rumor about Facebook staff looking to sell insider shares at a huge discount.
http://www.alleyinsider.com/2008/6/theglobe-com-advice-to-facebook-execs-sell-some-shares-now

The full Q&A ran here (and listed below):
http://www.pehub.com/wordpress/?p=2653

If you’re over the age of 30, you know that before there was Facebook, there was “virtual community” TheGlobe.com, founded in 1994 by then 20-year-old Cornell classmates Stephan Paternot and Todd Krizelman.

The site, where people were invited to share interests like relationships and movies via chat rooms, was hard to miss. Like its peers Geocities and Tripod, it was applauded for pioneering new territory, grabbing headlines, and lots of cash, along the way. Though VCs passed when approached by Paternot and Krizelman, Michael Egan, the founder of Alamo Rent-a-Car, handed over $20 million for a stake in the company. It was the biggest investment by an individual at the time. PeopleSoft cofounder Dave Duffield also invested, even while admitting to the New York Times in 1997 that “I can’t honestly say I understand their products.”

Yet the excitement paled in comparison to theglobe.com’s stunning 1998 IPO. Though the company was still losing money, its shares skyrocketed 606 percent on their first day, the highest gain ever, until VA Linux nabbed the dubious distinction a year later (its opening day shares soared 689 percent).

Practically overnight, Paternot and Krizelman, worth a combined $150 million, were everywhere: sitting across from “Good Morning America” anchor Diane Sawyer; on “The Charlie Rose Show”; splashed across pages of Vanity Fair. In hundreds of media appearances, the rakishly handsome Paternot, in particular, was painted as a whiz kid, a wonder boy, an entrepreneurial genius worthy of admiration and envy.

And then, poof. The tech market nosedived. Shares of theGlobe plunged before Paternot or Krizelman could realize their paper gains.

Krizelman faded from slight, quietly heading to Harvard Business School. In the meantime, Paternot was fast-tracked from media darling to symbol of preposterous excess. He became a joke, and publishing a post-meltdown memoir several years later, A Very Public Offering: A Rebel’s Story of Business Excess, Success and Reckoning, only cemented his place as a punch line.

Fast forward to today, and that’s all behind Paternot, or so it seems. At 34, he says he has no plans to start a business but rather to back other entrepreneurs as the sole general partner of several mini-investment vehicles called Actarus Funds, whose investors include the friends and family who supported Paternot and Krizelman during theGlobe.com’s earliest days. (They’re probably good backers to have. Nestlé was founded by Paternot’s great-great grandfather, and his dad, long the CEO of one of the biggest temp agencies in Europe, is a wealthy private equity investor.)

On Friday, I found him in New York, where he’s currently investing a $5 million “seed stage” fund that has backed eight startups since 2006.

What’s your investing criteria?

I’ll invest anywhere up to $500,000, so it has to be first stage, first financing. And it needs to be a proven entrepreneur.

That’s funny coming from you, once a first-time entrepreneur supported by angel investors.

Well, since I’m not the one building the business, I really need to trust the team I’m betting on, and [repeat entrepreneurs] understand what it takes to build a business. There are always going to be interesting new concepts, but they often require a million course corrections, and if you have a mediocre team, you’re out of luck. Also, guys who’ve successfully built and sold a businesses are more realistic about valuations. They’re also more flexible and they get it and they know how to communicate with investors more clearly than first-time entrepreneurs.

Speaking of investors, VCs passed on the TheGlobe. What did they tell you at the time?

We met with a lot of VCs back in 1995, but they were more focused on software and operating systems and enterprise solutions. None of them understood what community was.

How ironic in 2008. Do you consider TheGlobe a predecessor to Facebook?

I think the parallels are more philosophical in terms of vision. Fundamentally, it’s about community and connecting people together. As far as execution, that concept has evolved as technology has become more sophisticated. TheGlobe’s concept was connecting people around topics of interest, movies, illnesses. It was, let’s provide them tools to self-express and self-publish. It was basically a combination of social networking and blogging as we know them today, using chat rooms and personal publishing tools.

Unlike you, Mark Zuckerberg almost never gives interviews. Savvy or pretentious?

I actually think he’s smart to keep a lower profile. The thing is, people have accepted the Internet and the value of social networking — if not fiscally quite yet, then in that intangible way that we experience it every day. Entrepreneurs can just focus on their products; they don’t have to evangelize the concepts they’re based on. Back [in the ‘90s], you sort of had to hold the torch, and explain the community and get out there and capture people’s imagination.

Facebook and its ilk are being rewarded for their focus on user growth instead of revenues. Isn’t that the same strategy that bit TheGlobe in the ass?

I definitely see some repetition. I certainly thought that a hyperinflationary valuation was happening when eBay acquired Skype [for $2.6 billion]. A lot of people argue that the potential of community and of being the first experience people have when they go online is so powerful that [Facebook] could be another Google scenario. And I agree that the revenue Facebook is generating — $250 million a year, last I read — is just the tip of the iceberg. That said, a $15 billion valuation based on that potential is a little steep by anybody’s standard.

Does your experience suggest anything about where Facebook is heading?

The Internet goes through evolutions. People couldn’t see beyond Yahoo for a long time, and suddenly there was Google. I couldn’t see what was beyond the tools that were available to me [at TheGlobe] at the time. But as markets get bigger, they fragment, then gel around more specific ideas. It will re-fragment again. I’m an active Facebook user and have loved it since using it a few years ago. But Facebook has something like 80 million users. Not everyone wants this one homogeneous experience.

Do they want the Spanish-language social networking site that you’re backing, Sonico?

Sonico has a different approach. It’s focusing on Latin America specifically and on local culture relevancy. The idea is to draw out the value of the local communities and demographics.

Another of your investments in the online invitation startup Pingg. Its invitations are gorgeous, but how can it compete against Evite when so many others have tried and — amazingly — failed?

I think competitors haven’t hit it yet because they’ve come up with these really technical solutions. The guys at Pingg came up with this really elegant solution and with less than a million dollars, they’ve built this product that plugs into OpenSocial and FaceBook and MySpace and it’s rocketing right now. It’s especially useful for political fund-raisers and charity events, which don’t use Evite because its invitations are silly are way too college-y.

Many startups in your portfolio, ike Pingg and Sonico, look like me-too companies.

Actually, in many cases, the companies I’ve invested in are replicating a successful business in a new geography. It’s proven somewhere and then imported to where you are. PayPal hasn’t set up localized offices in Latin America, so you have DineroMail, which does person-to-person payments. My first investment as a seed investor was in a ring tone company called Zingy that sold to a Japanese company [called For-Side] for $80 million. Ring tones were already very big in Europe. When my friend Fabrice Grinda started the company here [in the U.S.], the market barely existed.

Fabrice is also an investor in Sonico. Do you tend to invest with cliques of angels?

I co-invest a lot with Fabrice. We’re both backers of DineroMail and [Craigslist competitor] OLX. I like to share the risk and to do that with other entrepreneur angels, who I also like brainstorming with. [Former PayPal CEO] Peter Thiel and I are both investors in [free file hosting site] Badongo.

Are you friendly with Thiel and other Valley angels? Where do you get your deal flow?

You know, after TheGlobe, I ran as far from the Internet as I could go for a while. Todd [Krizelman] and I have never been in the inner cliques of Silicon Valley. I think in New York, there was a lot of rivalry between the Alley and the Valley. A close contact is Dan Miller, the former president of AskJeeves; he’s now an investor in Berkeley with the Roda Group. But most of my contacts are in New York or the U.K.

Last question: What did you learn about personal money management that you could share with young entrepreneurs today?

I had zero money management experience at the time. I was 24 when TheGlobe went public. I didn’t think to put anything in a bank account and diversify. My advice would be that if you’re company is worth anything, $5 million or $15 million, and you have the chance to take some money off the table, do it!

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I’m pleased to announce one of the latest investments by Actarus Fund III into a social networking company called Sonico. Sonico is the “Facebook of Latin America” and continues to grow at a blistering pace. Below is a recent TechCrunch article announcing the deal.

http://www.techcrunch.com/2008/06/03/latin-american-social-network-sonico-raises-43-million/
by Mark Hendrickson

Back in February Duncan described Spanish language Sonico as “the biggest social networking site you’ve probably never heard of”. At the time, Sonico had raised to an Alex rank of 167 after just 6 months in operation. And with over 8 million users, it was also a top 50 site in several Latin American countries including Colombia, El Salvador, Bolivia, and Mexico.

Fast forward about four months and Sonico has signed up almost 17 million users (although its Alex rank has dropped a bit to 297). The Argentine startup has also decided to raise its first round of institutional funding - $4.3 million from London-based DN Capital and private investors that include OLX’s Fabrice Grinda and Alec Oxenford, and FON’s Martin Varsavsky.

Sonico is among several Spanish and Portuguese-speaking social networks that have established themselves in Latin America - including Orkut, Hi5, and Wamba - but face increased competition from mainstream American social networks like Facebook and MySpace.

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Great review of Pingg in TechCrunch today!

http://www.techcrunch.com/2008/02/25/pingg%e2%80%94invitations-done-right/

Whenever a niche gets really crowded with startups, you know that something is broken. Online invitations, which has been dominated by Evite for the past decade, is one of those areas where there is literally a dozen services trying to make it better-MyPunchBowl, Amiando, Invitastic, MadeIt, Socializr, iPartee, Renkoo, ImThere, Skobee, Zvents, Zoji, Windows Live Events. Now add Pingg. The site launched publicly last week. A little late to the party perhaps. But it starts from a very basic premise that most other online invitation sites surprisingly have ignored. Says co-founder and CEO Lorien Gabel: “We have taken the approach that the invite matters.”

When you get an invite from Pingg, you don’t have to click through to a Website blaring with advertisements just to find the address for a dinner. All the information is right there where it should be, in your email. Pingg’s invites are drop-dead gorgeous. A lot of care and attention has been put into the design of each one (you can choose from about 45 themes like dinner party, baby, wedding, food, travel, and eco-friendly). The invite, image, and event details all come through in your email. And you can RSVP from the email as well.

Of course, each invite is linked to a dedicated Website, where more photos, maps, videos, gift registries, and payment options exist (if guests want to pitch in to fund an event, for instance). The e-mails and Website are free. But you can also send out printed invites as postcards for $1.50 each (including postage) or send the invites as text messages to guests’ mobile phones ($1.50 for 20 messages). Gabel explains why he thinks Pingg is different in this blog post.

In addition to making money from printed invitations and sending SMS messages, Pingg has various other affiliate deals in place. If you don’t like any of the images Pingg provides for its invites, you can purchase one directly on Pingg through micro-stock photography site Fotolia (or upload your own image for free). The gift registry, which is currently linked to Amazon, offers other affiliate-fee opportunities. A ticketing feature will soon be launched, as will premium subscriptions for professional and power users. But advertising will never be part of the equation. “That detracts from the event,” says Gabel. Nobody wants to see a Weight Watcher’s ad next to a dinner invitation.

The site has some other nice touches, including guest-list management and event-reporting tools. Event hosts can set up automatic reminder messages and thank-you notes when they are creating their invites. And the RSVP options include the ability to limit an event’s capacity, or to allow invitees to bring guests or transfer their invites to others.

Pingg is based in New York City (the CEO and VP of marketing share an office with Clickable. First30Days, and independent film company PalmStar Entertainment). Its development and design team is in Toronto. The co-founders, brothers Gabel and CTO Matt Harrop, are Canadian. They founded the company in January, 2007 and self-funded it with $500,000. Then they raised an $800,000 angel round in March, 2007 led by the early-stage Actarus Funds, the investment vehicle of Stephan Paternot, co-founder of TheGlobe.com. (Paternot now runs PalmStar). At least that 1.0 money is now being put to good use.

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Ah, the good ol’ days

From the March 2008 Issue of Vanity Fair…
http://www.vanityfair.com/magazine/2008/03/postscript200803

In January 2000, contributing editor Nina Munk reported on the late-90s Internet gold rush—a surreal time when speculators competed for stakes in Web start-ups, and entrepreneurs with little more than the talent for self-promotion became insta-tycoons by taking untried ventures public (“It’s the I.P.O., Stupid!”). Free Internet provider NetZero, which drained $15.3 million in its first, and only, year as a private company, was valued at $3 billion on the first day of public trading. Online-community site theglobe.com broke I.P.O. records when it rose 606 percent in its initial day of trading, briefly propelling its two giddy twentysomething founders to a combined worth of more than $150 million. Kozmo.com, having just raised $60 million from Amazon.com for its plan to deliver snacks and trinkets to people’s doorsteps, was racing toward a mega public offering, as were Pets.com and Petopia.com. It was I.P.O. mania. But as Munk’s article anticipated, everything would soon fall apart.

In March, the nasdaq, driven by Internet stocks, closed above 5,000 for the first time ever—up from 3,000 just four months earlier. Then, in mid-April, the bubble burst. Suddenly there were no more I.P.O.’s of tech companies. Dot-coms were dot-doomed.

Theglobe.com’s Stephan Paternot and Todd Krizelman, who were each worth at least $90 million on paper at one point, watched their million-dollar fortunes evaporate. Pets.com, which raised $82.5 million in its initial public offering in the last gasp of February 2000, was out of business nine months later. The others—among them Petopia.com (which had funding of at least $79 million, but was later folded into Petco Animal Supplies in order to pay off debts of $2 million) and Kozmo.com (which burned through $250 million before it went bust)—never made it to Wall Street.

The dot-commandos did recover, however. “What do you do after you’ve made and lost a fortune? You pick up where you left off, chasing the dreams that inspired you before you made your first dollar,” says Paternot, who wrote a tell-all book, A Very Public Offering, in 2001. Today, he invests in Internet 2.0 start-ups (including event-management site Ping.com and Craigslist–like Olx.com) and independent movies (Lunar Park and Down & Dirty Pictures). Krizelman started a publishing-data venture called MagazineRadar. Kozmo.com’s C.E.O., Joseph Park, who fell off the map after the delivery site went bust, resurfaced in December 2006, founding Askville.com, an information-sharing Web site under the Amazon umbrella. And former Pets.com C.E.O. Julie Wainwright is a self-employed strategic consultant.

As for NetZero’s C.E.O., Mark Golden, he and his Web 1.0 relic have survived, buying competitor Juno Online Services in 2001 to form United Online, a public company worth less than a third of what NetZero was worth in its heyday. Golden remains C.E.O. of the combined company.

The new Internet frontier is different from the virtual boomtown of the late 90s. “I think everything is more measured—both entrepreneurs and investors,” Krizelman says. Paternot agrees: “It’s founded on significantly stronger companies, many of whom show solid profits and more realistic long-term targets.” But that doesn’t mean Paternot is advocating Web-site I.P.O.’s. “Only go public as an absolute last resort,” he says. “If you absolutely must go public, then at least make sure first that your revenues are steadily rocketing and your profits entirely predictable.” That brings up this question: With so many of today’s Webpreneurs more focused on growing traffic than on building revenues, was anything really learned from the first tech bubble?

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