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September 4, 2007

Desperation Time? Synthasite Gives Stock Away To Users

Michael Arrington

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Is this a brilliant PR move, or a sign of desperation? Web site builder Synthasite, which we took an early look at in November 2006, is giving 1 million shares of stock away to users.

Users earn shares by creating templates. Each template accepted by the company earns 1,000 shares for the creator. “We’re only selecting the best templates,” the company says.

The company won’t say what percentage of the company they are giving away, but do say that the shares are valued at $250,000. Since Synthasite has not raised significant outside capital, that valuation doesn’t mean much.

“If SynthaSite was ever acquired or became a listed entity, these shares would be worth exponentially more than what they are today,” the company says. That’s a bold statement, and one that would almost certainly get them in trouble if they were located in the U.S. Since Synthasite is located in South Africa, U.S. securities regulations don’t apply to them. So if you’re a designer willing to take a little risk, go get those shares.

Synthasite has a sophisticated site creation tool that competes with a host other startups and Google’s own page creator. Other competitors include Weebly and Jimdo. Webjam, Sampa, and Freewebs are creating communities around easily editable personal websites.

  • Sphere It

This entry was posted on Tuesday, September 4th, 2007 at 11:55 am and is filed under Company & Product Profiles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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  1. Desperation Time? Synthasite Gives Stock Away To Users  »TechAddress

    September 4th, 2007 at 1:30 pm

  2. $5 Million For Synthasite

    March 12th, 2008 at 12:48 pm

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  1. Vinny Lingham

    September 4th, 2007 at 12:16 pm

    Thanks Michael for the write up.

    From our side, this is merely an attempt to get the Synthasite community more involved in our growth and contribute to the November 5th Beta that we’ve announced, will which be a much more full featured version than the current Alpha release that is open to the public.

    We wanted to launch the Beta with a host of new & unique templates that will excite Synthasite users. There is certainly no desperation from our end to get templates in, as we could have easily imported open source CSS templates, instead, we decided to open it up to the community instead and give them an opportunity to participate in the growth of our startup and build a unique and valuable offering, and in doing so, personally benefit from such efforts.

    As with anything, valuations are always subjective. We anticipate that we will close a round of funding soon that will validate the values we have placed on these shares. And you are correct, as we are based in South Africa, we are governed by South African law with respect to forward looking statements on our share expectations.

    I trust that the web community will embrace the spirit of our share offering and work with us to achieve our vision for Synthasite.

  2. Bluevoter

    September 4th, 2007 at 12:16 pm

    I don’t think that it’s a sign of desperation, more like a new kind of effort to build buzz and community.

    Travelzoo gave away shares in its early days. You didn’t have to do anything — just sign up. They went public, so the shares have some value, though it’s not always easy or cheap to sell 10 shares of anything, depending on your broker.

  3. James Thomas

    September 4th, 2007 at 12:24 pm

    It makes sense to me… if they’re expecting the users to build the community that makes the site a success, why not profit share?

  4. Velioncho

    September 4th, 2007 at 12:25 pm

    A totally unrelated event - I recall ,just before the .com bubble popped out, few startups started giving stock options to companies that they buy services from like hardware vendors, cleaning crews etc., And then few months later bubble popped out.

  5. Chris Przybycien

    September 4th, 2007 at 12:25 pm

    If you like this offer I’ve got some great land in southern Florida I’d like to sell you…

  6. Dan

    September 4th, 2007 at 12:27 pm

    can’t be any less worthless than most of the stock I have been given at the places where I have worked.

    Maybe i’ll dole out percentages of the ad revenue I get from my blog for people that send me trafic or link…

    adwordseditor.blogspot.com

    hmmm

  7. Mario Ruiz

    September 4th, 2007 at 12:35 pm

    Michael,

    If what we repeat is true, that the web 2.0 is all about the content, it is all about the users, this act is the extreme paying off for the people who contributes to the site.

    We can say anything but, these guys are cowards or committed.

    Mario Ruiz
    @ http://www.oursheet.com

  8. ChrisR

    September 4th, 2007 at 12:51 pm

    I hope you guys are aware that an investor with even 1 share in a private corporation can often times call for the company to be liquidated in most countries in court.
    We bought back shares from an investor last year because of risk capital problems from having investors outside of Canada, mainly the USA. The BDC ran the company around and finally we had to make more money ourselves, but it goes to show that can cause huge problems.

    I hope it all works out well for you. Theoretically it would be a good idea.

  9. Vinny Lingham

    September 4th, 2007 at 12:57 pm

    Hey Chris

    We have T&C’s on the blog post. The shares will be allocated but not issued, until the company is public, or paid out if acquired. We did this for exactly the risks as you have correctly defined.

    Vinny

  10. RBA

    September 4th, 2007 at 12:59 pm

    Interesting…

    With coRank we originally planned to do the same thing. However we backed off for three reasons:

    1 - Without a proven history behind (or even with one), such move may make your site look like a scheme or gimmick, and it makes it look less trustworthy because you have to “buy” people.

    2 - The goal of any service should be to offer something so good people want to pay you, not you pay them.

    3 - …

  11. Bill Hartzer

    September 4th, 2007 at 1:01 pm

    This is definitely a great PR move. The users are what make a community, if you pay them in any form then they’ll continue to “work” for you.

    I hope more companies consider doing this in the future.

  12. RBA

    September 4th, 2007 at 1:01 pm

    Forgot to mention the headackes with securities law, people not getting
    their shares, people wanting to transfer shares, people wanting to put them
    in trust funds, whatever.

  13. Matthew

    September 4th, 2007 at 1:11 pm

    I used to be part of Exit23b.com, which did a stock giveaway and the SEC stepped in an decided that it was illegal. We did this back in 1999 so it’s not to brilliant since Exit23b, Travelzoo and many others did this 8-9 years ago. Good luck with the SEC in giving away the stock.

  14. johnderby

    September 4th, 2007 at 1:27 pm

    Hey, did anyone bother checking with the securities lawyers as to which particular securities exemption would be relied upon to issue stock? Didn’t think so…

    A wholesale distribution of stock like this might require the company to file a Form 10…and good luck with that!

  15. doug m

    September 4th, 2007 at 1:30 pm

    looks like a brilliant bit or PR to me. doing wacky out of the box things seems to spark a lot of peoples interest these days

  16. james

    September 4th, 2007 at 1:46 pm

    I hope the folks getting the shares realize that they will owe taxes on the value on the shares, regardless if they ever have any redeemable value or not.

  17. IdeaTagger

    September 4th, 2007 at 1:47 pm

    This offer by SynthaSite and perhaps more so some of the comments to this post suggest that we are closer than I thought to the “Future of Competition on the Internet” that I posted about recently at: http://www.ideatagging.com/the.....-internet/

  18. Word Hugger

    September 4th, 2007 at 1:58 pm

    I think its a great idea. Revenue sharing made the buzz around Digitalpoint explode, and now digitalpoint is famous for its revenue sharing model. Giving stocks away will ‘probably’ bring the same buzz for their company.

    I say, power to them!

  19. sc

    September 4th, 2007 at 2:10 pm

    If these shares are valued at $.25/share and get compensated in stock.. there may be a tax liability — and you may end up paying taxes on this

  20. Vinny Lingham

    September 4th, 2007 at 2:15 pm

    To clarify for everyone, who have not read the fine print:

    The offer is that the shares are “Allocated” not “Issued”, until there is liquidity in the shares. The liability will only occur once there is a transfer of value, and a subsequent gain. Being allocated shares, and being issued shares are two separate events.

    The idea here is not for people to make millions of dollars in shares, the idea is that people feel a sense of ownership and belonging, without the legal headaches, as there is no transfer of value, until there is liquidity in the shares.

  21. Casey Edwinson

    September 4th, 2007 at 3:19 pm

    Sort of a played out Web 1.0 type of product eh? A lot like Homestead.com, Tripod and Geocities.

    Casey

  22. johnderby

    September 4th, 2007 at 3:23 pm

    Vinny,

    The distinction between being “allocated” and being “issued” is too fine. If people trust Synthasite, it might make sense that people will be ok with “further assurances that if and when something ever happens we will take care of you so don’t worry about the paper work.”

    On the other hand, if this is part of a program, you will need opinions on the securities and taxation implications for every jurisdiction that has a person to whom stock has been “allocated.” Nothing will destroy your brand faster than an unwelcome letter to one of your participants from the SEC or IRS. (or the UK, French, Canadian, yada yada yada equivalents) in respect of this program.

    I sincerely wish you guys well. But this is a hairy area and to be blunt, it sounds like there is more homework required.

  23. G

    September 4th, 2007 at 3:33 pm

    @Velioncho - You are right - these novel approaches were first approved by the SEC at the peak of the bubble 1999/2000. Nothing but lawsuits and SEC sanctions remain of these approaches. As enticing as these models can be - the devil is in the details. I hope the guys from Synthasite have the regulatory approvals from the jurisdictions they operate. Even if they are have approvals from their domicle jusrisdictions (in South Africa)- the SEC is not too accomodative of such approaches when these shares are distributed (or allocated as they would like to call them) in the US. They blessed a few of these in the dot.com boom - and since have made known publicly their regrets with approving such offerings). And don’t count out the state by state approvals. Shoot they could spend a 250K in attorney fees just trying to get the the filings done. I still have a copy of the WSJ reporting the first of these approvals by the SEC… I wish these guys the best - entreprenurial efforts needs all the help they can get - and luck too!

  24. Vinny Lingham

    September 4th, 2007 at 3:44 pm

    Thanks for all the comments everyone, we will consult with our attorney’s and ensure everything is compliant, in best interests of everyone.

  25. Chris R.

    September 4th, 2007 at 4:29 pm

    “We have T&C’s on the blog post. The shares will be allocated but not issued, until the company is public, or paid out if acquired. We did this for exactly the risks as you have correctly defined.”

    So basically you are giving them a promise or an IOU for the shares.
    But not actually issuing them any shares to give them any power or voting rights in the company.

    It sounds shaky on both ends, but again, I wish you all the best.
    I wish it was really that easy. I would sell shares of BeerCo Software on eBay, and “be my own investment banker” for my own IPO offering just like Google. If only it were that easy. Damn the SEC. DAMN THE SEC!!! :P

  26. Chris R.

    September 4th, 2007 at 4:39 pm

    Come to think of it, eBay would be the *ultimate* investment banker, because it could most accurately determine initial market value. In real time for going IPO.

    The laws of the SEC in the USA and the Department of Finance in Canada were written like 80 years ago and have no bearing on the world we live in today. eBay would replace the NYSE if we could change the DAMN LAWS!
    This is the only hope I have for our corp to go IPO, so let me dream.

  27. RBA

    September 4th, 2007 at 4:47 pm

    I think that a startup really should focus on the product, building community, growing, acquiring clients by the means of the services offered and keeping existing ones. If you move forward with this, you’re risking spending too much time on this instead on all the other *really important* stuff. It’s not a bad idea, it’s just not practical for a startup with limited resources. You’re also creating a diversion - some PR expert may think otherwise but see? Nobody here is talking about what you do. In fact, I bet some of the people who have left a comment here don’t even know what your site does or if asked by surprise may not even remember your company name.

    There are many guerrilla marketing techniques you can use, and if you want to give back, the tried and true rev-share model might work.

    Anyway, I wish you luck and hey, if you can pull it off, great. As others also mentioned, it would be nice to see more companies doing this, but there are reasons why they don’t, and it has nothing to do with their willingness to ‘give back’ or provide a sense of ownership.

  28. Fabian Schonholz

    September 4th, 2007 at 4:48 pm

    I was an early beta tester of JVMs on RedHat and before it went public they offer me 300 shares. The time I did not have the $$$ to do it, and boy … would I have liked to do it.

    This is, I think, just a way to get people more engaged and earlier adoption to happen by vesting people. Great move!!

  29. Chris

    September 4th, 2007 at 5:22 pm

    Somebody should take this idea of “reserving shares” and make a trading website out of it, in the face of the SEC and Canadian finance ministry. Until they get shut down. It would be wildly popular, and if enough people that used it complained, maybe we could get the laws changed.

    The fact that we can’t do what Synthasite is doing is part of the reason some of us can’t grow our companies into mega portals. The laws help the big companies and make it next to impossible for smaller companies to compete.

    If a startup took this idea and did it for real in the face of the SEC and Canada finance, I would consider joining. If they put in the time to do the legal research and make sure that putting the shares “aside” did not give the “shareholders to be” any lien on the company.

    @RBA
    “Nobody here is talking about what you do.”

    I *still* have no idea what this website does. I stopped reading where it said they were trading outside the norms.

  30. crowdsourcer

    September 4th, 2007 at 6:51 pm

    When Cambrian House did it, it was a sign of desperation: http://www.cambrianhouse.com/p.....ty_expo_2/

  31. cheesygirl

    September 4th, 2007 at 10:14 pm

    re:CambrianHouse, Yeah you are right about it being a sign of desperation, and one that didn’t work out for them. To date they still haven’t done anything!

    I think it’s a silly idea to give part of your company away just to attract people. If your product is good enough you shouldn’t have to give your company away. Next thing you know your stock will be printed on toilet paper for people to wipe with.

  32. Dominic

    September 4th, 2007 at 10:57 pm

    Outdated SEC rules and regs, SOX, and a variety of other reasons are driving small companies to list shares overseas, ie: AIM in London. Here in the U.S. about the only hope a small company has is for it to be heavily funded by greedy VCs. I agree, a private, membership website could handle small start up funding auctions. Who says it is illegal for members of an organization to do busines with members of that same organization. I don’t mean investment clubs.

  33. Steve Ballmer

    September 4th, 2007 at 11:24 pm

    There is nop such thing as free.
    WAKE UP PEOPLE!!!!

    http://fakesteveballmer.blogspot.com

  34. Jean Moniatte

    September 5th, 2007 at 10:09 am

    What about the application itself? Have you guys tried it? I am the developer of a small business website builder and CMS, but failed at creating a website using their service. It is simply unusable. I do not get it.

  35. Vinny Lingham

    September 5th, 2007 at 3:12 pm

    Hi Jean

    Our service is currently in Alpha, for stability testing purposes. The Synthasite Beta is only launching on the 5th of November. We won’t however have a CMS available in the Beta, but shortly thereafter.

    You will be able to easily build and easily publish a website using Synthasite in the Beta.

    Vinny

    http://www.vinnylingham.com/20.....s-day.html

  36. Jean Moniatte

    September 5th, 2007 at 10:09 pm

    By unusable, I meant that the interface is way too cluttered and complicated to be used by the masses. And I do not think that a CMS can be an after thought element of a website builder. It needs be the centerpiece. Whatever. My 2 cents. Great PR though :-)

  37. clyde

    September 6th, 2007 at 12:01 am

    vinny - you say ‘you will be able to easily build and publish a website’ etc. not if the app is unusable. end of story.

    oh yeah: is there a difference between a website builder and a cms? or what am i missing here?

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