IBLOKS, UBLOKS, we all BLOKS!
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:
Pete Cashmore over at Mashable! just wrote about iBloks and I just can’t keep quiet on this one. This got both angel and VC funding. What. The. Heck. I am at a loss for words.
So what is iBloks? Pete Cashmore describes it as:
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.
He goes on further to describe it as:
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.
Pete and Mark are struggling to understand the motives of the investors on this deal. From Pete:
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?
I would venture to say that Mark (along with Pete) haven’t actually laid eyes on the iBloks business plan. I would also venture to say that neither of them personally participated in the due diligence process involving iBloks. Neither have I, so I have to initially give the investors the benefit of the doubt for now.
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.
A side note (but somewhat related): As fellow military veteran and entrepreneur/investor Alex Muse shared recently (by way of Diane Mulcahy), here is Jeff Bezos’ path to capital success with Amazon:
- 3rd Quarter 1994: Jeff scraped together $10K of his own cash and borrowed $44K more.
- 2nd Quarter 1995: Jeff’s parents invest $246K
- 4th Quarter 1995: Two angels invest $54K
- 1st Quarter 1996: 20 angels invest $47K each ($937K total)
- 2nd Quarter 1996: Jeff’s siblings invest $20K
- 2nd Quarter 1996 Two Venture firms invest $8MM total
- IPO 2nd Quarter 1997 – 3MM shares sold raising $49MM
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.
Mark – my advice to you is to do it! But do it not because some “inferior” play (such as iBloks) is receiving funding. Instead, do it because you have a bankable idea. Services businesses are a little tougher to get funded, given the cost scaling challenges generally associated with them; however, it can be done. Get out there and shake the money tree! ;)
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).
Cheers.
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Scott,
Both Mark’s view and your’s about investors are way off.
Mark comment… “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.”
… highlights the fact that he has not been able to convince the investors of the viability of his business model. Not the fault of the investors, but Mark’s inability to convince them or his lack of ability to get in front of the correct investors.
Your comments… “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.”
… is equally wrong. Being an investor, I can tell you that Angel’s are more selective about where they invest, then most venture firms. We have to be, we have less runway. We do not roll the dice and we do not support any monkey with a deck. Every investment we make is very calculated.
You both should reconsider your views of Angel investors.
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Fact: Most businesses fail.
Fact: Most startup businesses can be tied to angel investments of some sort (self, friends, family, fools, and even syndicates.)
Fact: A retired heart surgeon worth $20M is considered an angel if he invests $500K in new medical devices company.
Fact: Uncle Jimmy can be considered an angel if he invests $5K in a sewing machine repair shop.
One commonly accepted definition of an angel investor, or “individual investor”, is as follows:
Individual Investor: Definition includes (a) any natural person whose individual net worth, or joint net worth with his or her spouse, exceeds $1,000,000 or (b) any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those two years and has a reasonable expectation of reaching the same income level in the current year.
Conversely, a more “traditional” investment firm can be described as: (a) a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000 or (b) an entity in which all the equity holders are accredited investors.
I know multitudes of people in the angel category, I know 2 dozen people in the latter. It is a numbers game.
Ergo: There are exponentially more individual investors than there are traditional venture capitalists.
And while they may be “selective” as to their investments, it is often on a different level. You often see angels invest in areas where they do not have vertical expertise. A monkey with a deck has a much better chance of convincing an individual contributor than he does a venture capitalist.
Angels also have a higher propensity for investing out of emotion.
The numbers support it. There is a lot more diversity in the ranks of angels than there is in institutional or traditional capital.
Not to say that it can’t work the other way – it can – but the probability/proportionality is greater within the angel community.
I stand by my comments about angels … ;)
Cheers.
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Again, you are misguided.
Your definition of Angel is way to broad. You argue that anyone who invests is an Angel. I would disagree. There is a great distinction.
Let start with the web definition …
“An angel investor is a person who invests in a business venture, providing capital for start-up or expansion. These individuals are looking for a higher rate of return than would be given by more traditional investments. Angel investors are perceived of as “filling the gap” between the financing provided by family and friends and venture capitalists. Individual angel investors typically invest up to $150,000, but it’s becoming increasingly common for angels to operate as part of an angel syndicate, which raises their potential investment level accordingly.”I would also add to this, that angel investors tend to be serial investors. A huge distinction.
You lump anybody who invests as an Angel. Let look at your statements…
“Fact: Most startup businesses can be tied to angel investments of some sort (self, friends, family, fools, and even syndicates.)” – Typically: self, friends, and family are not considered Angels.
“Fact: A retired heart surgeon worth $20M is considered an angel if he invests $500K in new medical devices company.” – This could go either way; I still would argue that it needs to be serial.
“Fact: Uncle Jimmy can be considered an angel if he invests $5K in a sewing machine repair shop.” – I would disagree. This assumes that anyone who invests is an Angel. The person who just purchases $10,000 worth of stock from a small publicly traded company that is growing by your definition could be considered an angel. My son who invested $10 in the lemonade stand on the corner, by your definition could be considered an Angel.
I would disagree.Finally: “One commonly accepted definition of an angel investor, or “individual investor”, is as follows:” – what you described is not the definition of an individual or angel investor, but the definition for an Accredited Investor. Granted most Angels are accredited.
While we might disagree on the definition, you miss the real point, you make the same mistake that Mark makes. Mark in his frustration to get funding, lashes out at one of the potential communities that he could potentially get funding from.
You being a serial entrepreneur, realize that your next venture will probably require Angel assistance. Why would you refer to this segments as “fools” and that “any monkey with a deck” can get money from?
You are both alienating a segment of potential investors. Where is the logic?
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I’m not lashing out at anyone – angels are a necessary component to a capital market.
I’m just pointing out that statistically speaking, it is much easier to raise angel money, if for nothing else, than because there are more of them to approach. Many angels don’t even realize they are angels until they are knee deep in their first investment.
I also didn’t refer to angels as being “fools”. Although, I did use the word “fools” in the sense of the 3Fs (as they are commonly known – friends, family, fools.)
I think you are putting too much stock into my choice of words (my “monkey with a deck” comment.) The message remains.
Cheers.
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Funny … I came by to harvest the URL to your “Linear Entrepreneurship Sucks” to add to my comment on jeremy.zawodny’s BurningMan post, and noticed this post.
It’s about sizzle. You can’t entice over-fed folk with steak … with sizzle? Yes. Not with fresh water, or beer and wine, but Louis cognac? Yes.
This combined with the new techniques (Dojo, Rialto, Rico … an embarassment of riches!) has to have an effect. And it is, already.
Tell a fool he’s a fool and he’ll respond by calling you a fool. “More money than sense” is not mere hyberbole. I won’t strain the thread with something pithy from Dogen Zenji or Marcus Aurelius. But one thing for sure: I’m becoming increasingly sober with time … and there’s not a lotta fun in that. Which leaves me a sucker for such as Mosaic, if not IBlocks.
;-)
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