iBloks is a new media play that recently announced a $3M round of financing, which followed a $500K angel round. Some folks out there have questioned the “utility” value of such a product, and the motives of the investors who parted the linings of their wallets to pony up the $3M.
I stumbled across this post today from Mark Christian Doerschlag:
This new desktop application is being called a “3D multimedia slideshow tool” – it allows you to combine photos, videos and music into an odd media mashup that you can send to your friends.
Each iBlok starts with a “mod” – a basic element that you can customize. For example, you can begin with an animated “dancing man” figure made from a number of gray squares. You can then drag photos and videos from a library and drop them on to the squares – if you drag a video, it will play repeatedly on the surface of the square. You can also add music to the mod, and make the character dance. Other mods include a sudoku game, TicTacToe and an animated loveheart. To confuse things even further, they’ve thrown in Mix Master, a music mixing tool.
The question is: why? Why the heck would anyone want to create these things in the first place? And why would I want to download yet another piece of software that has virtually no utility? The fact that it’s nigh impossible to explain the concept is also a concern: how do you sell someone on your product if you can’t even communicate what it does?
First, let’s look at the angel round of $500K. Any monkey with a Powerpoint deck can raise angel money. What is angel money anyway? Some guy (or gal) that has more money than the entrepreneur who is willing to roll the dice on something that is “different”, “desired”, and/or something that addresses a problem. The world is full of such people.
As far as the $3M institutional round goes, again, I go back to the business plan. Maveron was one of the investors in e-Bay. Maveron’s Howard Schultz is the current Chairman of Starbuck’s, and formerly served on the board of e-Bay as well. Maveron’s portfolio also appears pretty balanced. These aren’t trust fund babies with an itch to get on the train. This is big boy football.
Not all investments are going to pan out – we all know this. iBloks could very well turn out to be a bust. Perhaps their technology is outmoded. Perhaps their market projections or assumptions are out of whack. Who knows? But unless I’ve seen the business plan for iBloks, and am able to conduct due diligence, I can’t feasibly criticize the components or structure of the deal.
Remember – the goal of most investors is not to “change the world” or “make the world a better place.” Most of them simply want to get a 7x to 10x return on their capital. This can come in a variety of ways. You don’t have to invest in a company because you “believe in their product.” You can choose to invest in them because you simply see the opportunity to achieve that desired multiple. Perhaps such an opportunity was identified with iBloks. Again, who knows?
History is rife with “dumb ideas” that produced significant wealth generation.
If I told you in 1993 that I wanted you to invest in a “web site” (assuming you even knew what a web site was in 1993), and that this web site was going to have a name that was nebulous and not indicative of its purpose, and that its mission was to sell books to people online, you probably would have bounced me out on my ass.
In 1996, if I approached investors with a “virtual pet” idea (Tamagotchi), again, I would likely found myself quickly lying face down on the asphalt in front the VC’s office building. However, within a year of launch, they were available in 30 countries, and on nearly 400 different licensed products (t-shirts, hats, etc.) Over 11M units were sold in Japan and the United States. This spawned an entirely new industry segment, populated by players such as Nintendo and Tiger Electronics.
In 1975, if I approached investors with the idea of taking a uniformly rounded, smooth gray stone, wrapping it up, sticking it in a cardboard carrying case, and selling it as a low-maintenance “pet”, I would have been the recipient of a swift boot in my behind. However, Gary Dahl went on to sell over 1M units of his “Pet Rock”, at a unit price of $3.95 each.
My own grandfather bought a boatload of swamp land in Florida. Everyone thought he was nuts, and rightfully so. Imagine the greed-inspired smile on his face the day he sold it to Walt Disney for the expansion of the theme park in Orlando. Again, the presence of an opportunity, rather than a valuable product or service.
Finally, in his post about iBloks, Mark goes on to say:
Here I am trying to grow a services business in a viable market, going at it alone, but everywhere I go it seems I read more about half-baked software product ideas with zero-utility that get millions in funding. There is something wrong with this picture. This is proof that there are investors out there who have the money, but have perhaps been brainwashed into thinking that crap like this is worth funding. I seriously need to consider taking my case on the road to find people who want to invest in something that has a stable future.
Note: this piece is not a knock on Pete or Mark. I don’t know them at all. I’m just sharing my thoughts on this one. I will even go so far as to say that I understand their frustration (especially Mark’s).