There is a lot of funny money on Facebook, but it is getting really bad. Startups are trying to raise money based on virtual valuations. Earlier this week, I wrote about a fishy Facebook organization in the making called the UADA. It is listed on Facebook-stat site Adonomics as the biggest Facebook app company, even though it doesn’t seem to exist yet. Altura Ventures, a Facebook-focused VC firm which owns and operates Adonomics, is also behind the UADA and is conveniently using Adonomics to promote the mystery company before its launch on February 29.
But the UADA isn’t even funded yet. It turns out that Altura is trying to raise a seed round of $250,000 for the UADA, and another $250,000 for Adonomics, which will be spun off from its parent company, KallOut. (Stay with me, Altura and KallOut are two entities that are joined at the hip). From a letter to prospective investors (which I’ve printed in full in comments), the UADA is described as a “virtual roll-up of the facebook developers’ ad real estate that will likely represent 200 to 400 million installs, 40 to 50 million unique and 6 to 10 million daily active users.”
Notice the term “virtual roll-up.” A real roll-up would be a company aiming to buy up the best Facebook apps. That would actually make sense since there are more than 16,000 Facebook apps and consolidation is inevitable. But the UADA is not actually buying anything. Instead, it is trying to sign up Facebook app developers to its “cooperative” which will cross-promote their applications and run advertising across the network of apps. The reason this is only a”virtual” roll-up is because the UADA will only collect 20 percent of any revenues generated across the network. So it is really just a marketing agreement.
Lee Lorenzen, the CEO of Altura Ventures and interim CEO of the UADA, has bigger dreams. And they are dreams. The guy has not even raised his $250,000 seed round yet, and he is already counting on closing a $3 to $6 million series A round by May 24. Not only that, he’s also got his IPO all planned out, at which point all the developers who sign up for the UADA will miraculously agree to reverse the revenue split 80/20 in the UADA’s favor in return for cash and stock. Sounds good, except that the letter to potential investors makes clear that no “definitive agreements with TheUADA members” have even been signed.
Here’s the part I love. Lorenzen is apparently clairvoyant:
This company will be profitable from day one based on its 20% share of ad revenue on 1 to 5 billion page views per month under management. . . . Upon IPO, this company will have $30+ million in revenue and $20+ million in earnings and long term rights to all the ad real estate of the majority of top apps on Facebook. From this platform, TheUADA will buy or build a suite of category killer apps (e.g., dating, gifting, shopping, calendar, etc.) for the mainstream social operating system (this is equivalent to the position the Microsoft Office Suite enjoys on Windows).
This is the next Microsoft, folks! And you can own one percent of it now for only $25,000!
Oh, and did I forget to mention that the $500,000 Lorenzen is hoping to raise for both the UADA and Adonomics will go towards “transferring some of KallOut’s IP into these businesses to fund KallOut’s operations.” That’s right, KallOut’s operations, not the UADA’s or Adonomics. So how will the UADA function? Lorenzen and KallOut employees will provide “engineering and management services” to both the UADA and Adonomics for a mere $100,000 a month (this is on top of the $500,000). Talk about cashing out the shareholders before you’ve actually done anything.
If you receive this invitation in your Facebook inbox to invest in the UADA, my advice to you is to just delete it and unfriend whoever sent it to you.
sounds like he’s got it all figured out.
yokay.
talk about counting your chickens – sheesh.
Erick,
Do you know any of this for sure? Altura insists that the UADA is more than “just” an ad network.
I mean, Adonomics offers advertising services right now. Can’t Adonomics/Altura/KallOut/whoever can sign up customers with an 80/20 split *today*? Why would they need the UADA to roll them up?
You’re right that something is fishy, though. Keep digging.
Wow, just wow…
Erick,
Nice research.
The e-mail that you apparently reference in your story is primarily being sent to those developers, ad networks, ad agencies, etc. who I believe should have a chance to own a significant stake in what I believe will be, once formed, the biggest Facebook App Company.
Here is some of what you didn’t quote:
<>
The “Virtual Roll-Up” concept will be explained in detail on Feb. 29, 2008.
At this point, I will simply say that it is easy to tear down a straw man that you yourself erect. If you wait stay tuned and check out TheUADA.com web site and the blog.adonomics.com site, you will soon see what I really have in mind. At that point, feel free to tear it down. I certainly want all of our stakeholders to be fully informed of the risk factors before anyone invests a dime.
Thanks,
Lee Lorenzen
CEO, Altura Ventures – the First Facebook-Only VC
e-mail: LeeL@altura.com
The part that wasn’t quoted:
====================
I’m a big believer in that old story about those who help plant the wheat should be able to eat the bread. From an VC’s perspective, planting the wheat is providing the seed funding to interesting start-ups and then nurturing them along the way.
…..
In one way or another, each of you have been helpful to Altura Ventures and/or to me personally as we have been investing in the Facebook eco-system. Although none of you have asked for it or expected it, I now want to return the favor.
…….
The Seed Round will go quickly (in fact my existing angels would likely take the whole thing if I let them), however I want these companies to avoid the problem that eBay had where by the time they were going public and wanted to reward their power sellers and others with pre-IPO stock, there was no way to do so — or at least no way that their investment bankers would allow them to do.
Lastly, please remember Lorenzen’s First Rule for Start-up Investing:
Invest only what you can afford to lose and have us remain friends.
==================
Lee,
You even sound like a shark in you comment with that last line about staying friends even if you lose the investment.
Keep digging techcrunch!!
Antony
Lee Lorenzen is a huge joke. I’m glad you understand. I loved this post.
Lee, you do realize that you have destroyed all credibility to http://www.adonomics.com right? You can’t simply list your company as the #1 app developer with absolutely no proof.
Lee, you are free to respond to my post or clarify anything you think is wrong. I suspect the only reason you are keeping things a mystery is to drum up buzz, which you hope will lure in investors.
There is nothing stopping you from explaining what the UADA is. If, in fact, it is not as I have characterized it.
For anyone who wants to read the full text of the letter Lorenzen sent to people through Facebook, and judge for themselves, I have pasted it in full below (minus Lorenzen’s cell phone and email). It came in two parts:
Sent: Thursday, February 21, 2008 9:43 AM
To: ‘Lee Lorenzen’
Subject: FW: The Semi-Stealth, Semi-Public Countdown to the Launch of TheUADA
To the folks who’ve signed the NDA for TheUADA and/or those who are currently testing the Ad Management Service of Adonomics,
Here is the term sheet that we are working with TheUADA (the facebook roll-up) and Adonomics (the Facebook developer services site).
As I mentioned, the bottom line WRT these investments is that $25K is the price for 1% of TheUADA. The comparable valuation here is that 1% of Slide’s facebook business is valued at $2.5 million and TheUADA already has a bigger and more profitable business Facebook business than Slide does. If you want to invest less than $25K that is fine down to a minimum of $2.5K. While no one can predict the future and I don’t want anyone to invest money they can’t afford to lose and have us stay friends, this will be the only time that Founding Shares of TheUADA and Adonomics will be sold.
I have only $125K of TheUADA left to sell and $250K of Adonomics left to sell. The VCs will almost certainly want these shares but it is my preference that our founding shareholders will be our initial developer companies and our initial partner companies in the ad network, ad agency and hosting businesses. My goal is to close the round by Friday of next week, prior to the unveiling of TheUADA.
Please let me know if you are interested by Monday of next week and how much cash you would like to invest in each entity. If you decide to invest none, that is fine. On the other hand, given the limited shares available, I may not have enough shares to go around. In this scenario, I will come up with a formula to divide the available shares amongst those qualified investors based on the total amount that each of you were prepared to invest but giving preference to the developer companies (since they are the ones that are essential for the success of TheUADA).
If you have any questions, please give me a call.
Thanks,
Lee Lorenzen
CEO, Altura Ventures — the first Facebook-only VC
From: Lee Lorenzen
Sent: Tuesday, February 19, 2008 9:41 AM
To: ‘Lee Lorenzen’
Subject: RE: The Semi-Stealth, Semi-Public Countdown to the Launch of TheUADA
To prospective angel investors, VCs and strategic investors,
Our launch of TheUADA is proceeding nicely (see http://www.tech...marketing-scam/, http://www.allf...app-developers/, http://facerevi...-app-companies/ ).
We will have a launch event on Feb. 29, 2008 for developers and press that will be co-hosted by the SNAP Chat folks who have put on a series of social networking conferences. The venue is still being worked out. Prior to this date, we want to have our seed round financing complete.
I’m attaching the term sheet that we are using for TheUADA’s seed round with our existing angel investors.
We are raising $250K at a $2.5 million post money valuation. Our current angels may take either $125K or $250K depending upon whether an angel/VC/strategic partner is prepared to invest $125K prior to our Feb. 29th launch. A term sheet with a similar structure and valuation is also being put in place for spinning out the Adonomics business.
As you will note in the documents, TheUADA is being formed by spinning out certain IP from KallOut. KallOut is the search utility company that our existing angel investors (Jim Jordan and Jack Van Valkenburgh) put approximately $1.25 million into last May at a $10 million post money valuation. KallOut is preparing to ship its product (which will work both on the web in general and on Facebook). It is important to the angel investors of KallOut that our launch is not overly impacted by the distractions of running TheUADA and Adonomics as part-time activities.
Therefore, KallOut’s board (i.e., Lee Lorenzen, Craig Johnson, Jim Jordan and Matt Lorenzen) has determined that it would be best to spin out both the UADA and Adonomics as LLCs. The main reasons for this are that they as independent businesses that will function best as sister companies to KallOut. Their target markets, customers and staffing requirements are very different from KallOut’s. There is also the need to have Adonomics remain independent of TheUADA because Adonomics acts as a neutral provider of Facebook stats (such as the Adonomics 100™ List which currently lists TheUADA in the number 1 spot). In addition, KallOut will use the $250k from TheUADA financing and the $250K from the Adonomics financing for transferring some of KallOut’s IP into these businesses to fund KallOut’s operations.
After these seed funding rounds, KallOut will continue to provide engineering and management services to TheUADA and Adonomics while a CEO and team is being recruited for each entity. I will act as Interim CEO of each entity until the permanent CEOs have been hired. Jesse Farmer and certain other employees of KallOut will provide design and engineering services to the UADA and Adonomics.
KallOut will be compensated for providing these services via an at-cost service arrangement that works out to around $100K per month. While the launch of TheUADA is proceeding, a new round will be opened at a $15 to $30 million post money valuation for TheUADA. In this Series A Round, the company will seek to raise $3 to $6 million. This fundraising will be timed to coincide with the signing of the definitive agreements with TheUADA members and with the completion of a pro forma P&L for the entity. It is anticipated that this signing and closing of TheUADA’s Series A Round will occur slightly before May 24, 2008 (to coincide with the Facebook platform’s one year anniversary). The revenue for TheUADA on that date of closing is expected to be $5+ million with $1+ million in profits and the valuation will be 3 to 6 times sales or 15 to 30 times earnings.
After this Series A Round, TheUADA will distribute options to the founding developer company members who agree that upon the receipt of certain amounts of cash and stock to flip the revenue share rate with TheUADA from 80/20 in their favor to 80/20 in TheUADA’s favor. This will occur at the IPO of TheUADA. At that point in time, we expect TheUADA to have $30 million in revenue and $20 million in profits. This very high profit margin is a function of the fact that we will have very little headcount in TheUADA due to strategic partnerships with Adonomics, ad networks, hosting services, ad agencies, etc. that will provide most of their services in exchange for ownership in TheUADA.
At this point in time, we have $125K remaining for a seed round investment in TheUADA (although this will likely be spoken for shortly). We also have $250K remaining for a seed round investment in Adonomics. These seed rounds may only be suitable for angels and strategic investors given the short time remaining before the Feb. 29th launch. The $3 to $6 million in TheUADA’s Series A round is completely available and may be a better fit for VCs.
Those investing in TheUADA will have a stake in the virtual roll-up of the facebook developers’ ad real estate that will likely represent 200 to 400 million installs, 40 to 50 million unique and 6 to 10 million daily active users. This company will be profitable from day one based on its 20% share of ad revenue on 1 to 5 billion page views per month under management. This entity will have an at-cost partnership agreement with its sister company Adonomics which will provide access to its Ad Management technology, service and algorithms. Upon IPO, this company will have $30+ million in revenue and $20+ million in earnings and long term rights to all the ad real estate of the majority of top apps on Facebook. From this platform, TheUADA will buy or build a suite of category killer apps (e.g., dating, gifting, shopping, calendar, etc.) for the mainstream social operating system (this is equivalent to the position the Microsoft Office Suite enjoys on Windows).
Those investing in Adonomics will have a stake in the leading Facebook analytics and developer services company in the social networking space. Adonomics analytics are seen throughout the site and the services are described on this page (http://adonomics.com/services). The IP transferred from KallOut includes:
1. The Adonomics.com web site, traffic and good will
2. The Adonomics 100™ list of Top App Companies – this includes the leader board, IP for accessing this data, developer relationships who provide it directly, App Valuations, etc.
3. The web site’s Become a Sponsor business – see price list at http://adonomic...com/sponsor.php
4. The GEM System Service business – see price list in the Grow Your App section of the http://Adonomics.com/services web page
5. The Ad Management Service business – see price list in the Monetize Your App section of the http://Adonomics.com/services web page
6. The App Brokerage Service business — see price list in the Sell Your App section of the http://Adonomics.com/services web page
7. The App Sponsorship Service business – see the Buy/Sponsor an App section of the http://Adonomics.com/services web page
8. The Adonomics Marketplace — http://adonomic...om/marketplace/
Please e-mail me if you have any additional questions. Time is of the essence and those prepared for a quick closing will be preferred.
Thanks,
Lee Lorenzen
CEO, Altura Ventures — the first Facebook-only VC
also is it just me that finds the name incredibly redundant? I don’t see how you can be “united” if you’re not an “alliance”. It should simply be the “united application developers” or “application developers alliance”… my 2 cents from seeing many startups is that the more words in an acronym, the more BS it is.
Lee is FULL OF SH*T and is one creepy dude….
He is the first Facebook VC that has NEVER made an investment. LOL. I’m sure its been a steady pipeline of good ideas to try to steal though.
That sounds like a whole lot of funny accounting going on, with promises of big payouts to the people doing the hard work (the developers) that probably won’t happen.
Let me get this straight – Altura Ventures is a VC (the first Facebook-only VC!) that is raising money from Angels and other VCs to fund a company that they founded. Got it!
Don’t you expect this stuff now adays?
I do. I’m not shocked at all.
Lee, get an apron and get a job.
This is my business model (Glam)
“There’s a sucker born every minute.”
It’s the “chicken before the egg” hypothesis. The only reason why there’s the “countdown” in the first place, is that Lee can’t get developers without hype. The reason why the UADA is listed on Adonomics, is that you can’t get hype without developers.
So all you need to do, is claim you have developers. Then you get hype (from TechCrunch posts like this… note Lee even references the TechCrunch post about the UADA being a scam in his letter… no press is bad press). Then with the hype, you try to get actual developers.
AKA, the deed has been done. Lee has gotten TechCrunched twice in a week, and we all fell for it.
Glam? Lee stole the whole idea from AdBoy.com which at this very moment is about a hundred times the size and valuation of TheUADA.com complete with a parked page… Notice our HUGE advertising partners like Shopzilla.com and Shopping.com
I’m not an attorney, but aren’t some of the representations Lee is making borderline illegal? Even though this is a private placement, I think some of the things he’s claiming are impossible to represent.
“The revenue for TheUADA on that date of closing is expected to be $5+ million with $1+ million in profits and the valuation will be 3 to 6 times sales or 15 to 30 times earnings.”
“This company will be profitable from day one based on its 20% share of ad revenue on 1 to 5 billion page views per month under management.”
“Upon IPO, this company will have $30+ million in revenue and $20+ million in earnings and long term rights to all the ad real estate of the majority of top apps on Facebook.”
Even if hell freezes over and The UADA succeeds according to Lee’s plan, buyer beware on this one. Nobody reputable would be making these sorts of statements.
Dear Facebook Developers,
You are in total control of the advertising on your app now. You can use adsense, cubics, socialmedia, advertising.com, whatever. It’s an open, very competitive market; and that’s great for developers trying to make $$$. If socialmedia does some nonsense like allowing javascript redirects to spammy CPA ofers for weeks at a time, you can just take them off.
Beware about signing an advertising contract, especially with someone like Altura.
What if something similar happens to their ad network, and you LEGALLY can’t take the ads off even though there are popups or interstitials, etc.
Contracts are made for ripping people off. Just be cautious and talk to a lawyer or at least a smart friend before signing anything (even an NDA).
Just my 2 cents.
So much money can be generated off of fools and hype. This monster was created by the media (Techcrunch included) and their hysterical love affair with Facebook.
I’m a nigerian prince with lots of spare money. Do I get a bigger share if I invite 1000s of my email contacts to invest?
Wait, wait wait…hold everything. Isn’t Altura ventures the first FB only venture fund?!??! Why in the world would the world’s first FB only venture fund raise a piddly $250K for one of it’s subsidiary’s, subsidiary’s [x n] subsidiaries? Kind of calls out the emperor has no clothes on the whole venture fund enterprise over there in Palo, wait Menlo…oh wait Monterey?!?! Wait, they have VCs in Monterey?
Another thing, I noticed that Steve Ballmer is listed as one of Lee’s “top friends” … hit him up dude…he’s already a fan of Facebook, as you know! That should be one easy deal to close. He dropped a couple hundred million into FB at $15B valuation. Your deal is a no brainer man.
Glam seems to be Lee’s role model. If it worked for Glam, it could work for Lee as well. Of course, as in the case of Glam, it’ll be the members of the “cooperative” that get screwed.
Good try.
@Not an Attorney.
That’s actually a really good point. There are some restrictions for private placement of securities from non-accredited investors, which is from whom Lee is trying to raise money. I don’t know all the details, but there is some restrictions around the complexity of the securities being offered how the securities are marketed to the public. Hedge funds generally raise money exclusively from accredited investors for these reasons and actually cannot advertise.
I don’t know what’s worse; TheUADA/Adonomics/KallOut or the fact they are getting TechCrunch coverage.
Remember marchFIRST? That was a real roll-up. So you can imagine how disastrous a VIRTUAL roll-up might be…
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Additionally to the inherent danger of the representation, having private, non-accredited investors on board at the time of a VC round can be a BIG problem – and even more so at an IPO. An interesting post from Brad Feld at Ask The VC on the subject.
Interesting to note that Lee Lorenzen was one of original developers of “Ventura Publisher” which was the most popular desktop publishing software way back in the days before MS Windows. They ended up selling the company to Corel for a couple hundred million in the late 80s or early 90s.
Did anyone else find it odd that in Lee’s letter, he linked to a very negative TechCrunch article with the term “scam” in the headline?
Should be fun to watch their launch and see if it survives the negative blowback it is being subjected to here and elsewhere.
Facebook = out of mind, out if sight in 2 years.
Facebook = deadpool in 4.
Mark Zuckerberg = Mark Cuban.
Live long and prosper.
‘The First Facebook VC” is a tag line being used to ONLY find developers (and leverage the FB wave today) and maybe get their stuff for peanuts – they are definitely NOT a VC.
Wondering what the CEO and board of Shop.com has to say about their credibility?
yeah they are not a vc, definitly.
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Can’t wait to see where this train wreck is heading….lol