A lot of readers were incredulous over last week’s news that Ning raised another $15 million in venture capital from Lightspeed Venture Partners at a $750 million valuation. That comes despite the fact that Ning traffic appears to be flatlining, and revenue to date is likely very small.
A typical comment to that post: “What an ASTOUNDING way to waste money.” Others pointed out that venture capitalists typically invest hoping to at least have a chance at a 10x return – and in Ning’s case, it seems unlikely that the company will be worth the necessary $7.5 billion any time soon. So, why’d they invest?
Marketing.
Lightspeed doesn’t have an investment in a big name social networking startup right now. In fact, their entire Internet portfolio looks a little sleepy and dated. Competitors like Greylock can show investments in Facebook and LinkedIn, two of the hottest pre-IPO startups in Silicon Valley (as well as Pandora and SGN, both of which are getting lots of press attention and fast user growth).
Lightspeed needs to get itself back in the game. And Ning was willing to take the money. A match made in heaven.
Do they expect to see a big return on the investment? Almost certainly not. But they also haven’t put their money at extreme risk. They likely have a liquidation preference that lets them get their $15 million out of the company before others can take part of the pie. So effectively they just bougtht themselves a bunch of marketing with their limited partners’ money.
Of course, the LPs don’t really mind, since they look at returns on the fund, not individual investments. And it may work out well for them. When Greylock invested $25 million in Facebook in 2006 at then-absurd valuation many of the same criticisms were leveled at them, too. But they had a stake in the hottest startup around at the time, and increased their profile in Silicon Valley. Likewise, Microsoft’s investment in Facebook at a $15 billion valuation, was done not in the hope of making money on the investment, but to lock up a search marketing deal.
So at the end of the day Ning gets some much needed additional capital in exchange for a tiny amount of equity, and Lightspeed gets its name associated with the Ning and Marc Andreessen brands. And while they won’t expect to make much of a return on that investment, they will almost certainly get that money back, at least. Everybody wins.
Interesting take, I’ve always loved the Ning model, and if it means that both companies can benefit – all the best to them!
I have to say this is the dumbest bit of ‘analysis’ I have ever seen.
‘Dumbness’ is at least defensible, but ‘Marketing’? Puh-leeze. If in fact this is the reason, I certainly hope the LPs are on the phone with counsel working on a clawback.
I will have to agree with Mike. As an entrepreneur talking with several VCs about our startup I could tell you that I often check their portfolios to learn more about their competence as investors and strategic thinking. I think a VC’s portfolio is definitely a factor besides the term-sheet. At least to me. I think Benchmark did the same thing when they invested in twitter at such high valuation. To keep their “top-firm” status and fame.
Point #1: Networking is old. People don’t care about individual networks anymore
Point #2: I like my friend’s list to be one or two places only, not 20 places
Point #3: Creating a new network with limited functionality is plain stupid when you have Facebook.
Point #4: Ning: What an ASTOUNDING way to waste money ….and time:)
#2: I like my club to be separate from everyone’s network just as I like to go to a bar with my friend without random people sitting at the table.
#3: Ning’s functionality is far superior to Facebook. And it’s customizable.
Regarding #3 I agree totally. Facebook is a kludge.
Is this just an educated guess, though?
Just curious. Is the reason the investors are throwing money in is because of the Marc Andreessen’s brand name and less about how awesomeness of the product?
It is an observation that I have made since I see lots of second timers covered here at TC who can get funding easily from VCs. Katarina gets funded, Marc gets funded and many others. Kudos to the entrepreneurs for their ability to extract funds from the VC, but I wondered sometimes if it is the product that the VCs or the person? Perhaps both I guess.
it seems to me that Facebook Pages compete pretty directly with Ning. Over time, IMO, Facebook either needs to acquire Ning or get Marc off the board of directors.
Acquiring Ning will not bring any value to Facebook. It will only add a lot of junk to Facebook from Ning. A lot crappy networks on Ning.
All Facebook needs to do is open up their pages a lot more and they are all set. With the number of employees Facebook has, they can do it within a week.
No need to worry about Ning, Ning will slowly die off like Hi5, Friendster and Orkut.
With investments on forward moving sites like Twitter and Facebook, I am pretty sure Marc has lost interest in Ning and possibly trying to push to sell it before it dies off.
@arrington I disagree. Facebook Connect allows anyone to leverage the social graph goodies of Facebook (like Invite Friends, Share stuff etc) outside the Facebook domain. So in other words Facebook is both competing with everyone but also partnering with everyone (like Facebook Events competes with meetup).
Facebook is not a walled garden, they know that was the strategy that played out well and took them well ahead of MySpace. So they must have a more mature and stable stand as the holder of this big social graph.
where is our point of disagreement?
Which means, IMO, Facebook doesn’t really need to make an acquisition or take someone off its current board. Social networks and social groupwares (aka DIY social networks) complement each other.
long term facebook vs ning, i would put my money on ning, folks should really start worrying about having the russian mafia owning their most important private information …
i think ning is a great model and expect it will grow further, good luck to them
I think Ning’s time has already passed. An expensive experiment wherein we learned that people don’t give a damn about setting up their own network… With the glaring exception of LOCATOR services.
Other than that, why would anyone want to acquire or invest more into an over-hyped yet fundamentally weak and limited service that’s fading away?
One last thing. Ning was a loser of a name from the get go.
What about the timing just before the Brainstorm conference? Was this stage marketing for both companies? Did it succeed?
Ning has a great foundational product with no strategic focus or vision. They need to change course and design a master distribution network of strategic “social channel offerings.” Or find the most promising ning startup that may be right under their noses and invest.
Why have we not had a true break out ning site out of the thousands launched? Is Ning wasting time while other major social sites are becoming more entrenched and embedded in users lives and open social platforms. Best thing they could ever do is change their name. MySocial or something like that. Right now there like owning a nice sailboat with no sail. Whats a nice sail boat with no sail?……….. a nice bouy!
You’re such an ill-informed retard.
You connect the dots good.
Is it true taht when Lightspeed has 51%, they will install Jordan Capri as CTO?
they should have put that money into twitter if they wanted marketing
“And while they won’t expect to make much of a return on that investment, they will almost certainly get that money back, at least. Everybody wins.”
Hmm, except for the pension funds looking to make an actual return on their investments so that they can support their retirees. Oh, and maybe the opportunity cost to society since that money could have funded real innovation.
I am starting to think that these Silicon Valley VC’s are setting precedents which will serve to put them in precarious positions later on. They are pre-emptively precluding themselves from being able to capture 10x ROI’s upon exit in ventures yet to be dreamed of.
I say that because, there will be a crop of companies that are started lean and mean, who will demonstrate the ability to generate revenues “out the gate.” There will be companies with self sustaining revenue models who will be profitable within 12 months. They’ll just need money to be more aggressive (double down) – add capacity, and increase marketing.
If I am a guy lucky enough to be in such a situation, who is entertaining offers from VC’s, I am going to look at these precedents and put the screws to them.
If you’re running a start-up and you NEED to get VC money, you don’t have the capacity to “put the screws” to the people with money to invest. Put it this way, if you had a start-up, successful by whatever measure you like and you were seeking my investment, the moment you come out with, “But you gave Ning $15m and they can’t even generate revenue” is the moment I come back with, “Get Marc Andreessen on your board and as an investor and we’ll talk.”
Andreessen is a winner. Netscape and Loudcloud are classic examples. Lightspeed probably won’t even see a dime for the $15m, but if they partner gets in on the ground floor of Marc’s next few investments, he could overall see massive returns.
The other thing is, VCs are professional deal makers. Showing arrogance to them will expose your own weaknesses. The best way to get what you want is to have a realistic valuation, know what you’re willing to give up and stick to it. If its truly realistic and you have something worth investing in, you should be in good shape.
Ning is like the flea market for social networks,cheap and small scale……..sums up Ning perfectly..
Like ebay
Truly fascinating: adding something to an investment portfolio simply as a marketing tactic.
However, if the investors aren’t really expecting typical returns, doesn’t that call into question the steep valuations that some of these socnets have received?
never underestimate Marc Andreessen, wasn’t he the one that made Netscape wildly valuable until MSFT came in and had to use illegal tactics to destroy it?
#!: Have any of you ever heard Gina B pitch Ning? I mean, in person? I have, on several occasions. She sounds like my little sister pitching her candidacy for 8th grade class president. That alone should give pause for Ning’s viability at all.
#2: Yup, Marc used to nail her. Things that make you go hmmm. Didn’t know if that was such a secret anymore..
#3: I forget what #3 was for
You kinda sound bitter, like she told you she wasn’t that into you.
Great observation Mike. Can’t wait to partially justify valuation with the “portfolio marketing” card
Lightspeed likely invested with very high liquidation preferences. So if they invested 15 Mil and have a 3x liquidation preference with seniority, they get the first 45 Million of any liquidity.
So assuming Ning doesn’t exit for less than 45M it’s a guaranteed 3x. Now in the unlikely event that Ning has a blockbuster exit, they may see higher returns.
It’s a single for Lightspeed, with a small chance of a home run. Sequoia follows the same playbook btw, see Zappos.
Ning also pays some price in this deal — their existing investors will be hurt if the exit is in the 100-250M range, since you’ll be paying Lightspeed the first 45M.
As they say in the VC business, you take the valuation, I take the terms. In sum, it’s not as terrible as it sounds for Lightspeed and not as good as it sounds for Ning.
to say “they will almost certainly get that money back, at least” is a rather bold statement, not one I would agree with.
The only publicly listed company with this ‘create your own social network’ model is SocialGO (UK market, BGT)
The SocialGO valuation puts their $/network value at less than $100 right now, a full 6-fold less than ning’s
Now, that is quite some difference, especially when you see that their model is all about attracting premium users, rather than the non-cash-generating ning model. The next set of figures may well show them to have been converting [converting free networks to premium, paying customers] at a 4x greater rate than ning have so far managed
So, think about it: which valuation is wrong?
Ning hugely overvalued?
Or SocialGO hugely undervalued?
Or both?
SocialGo’s valuation can’t be considered in the same way, since 4 years ago they were trying to flog Tiger Woods interactive DVDs (they failed at that).
Unfortunately for them, their traffic has been falling since the start of the year. They have made a number of poor decisions, but the nail in their coffin is that they have no natural virality; they’ve been spending huge amounts on Google Adwords, and don’t have any sustainable traffic to show for it.
Is another bubble coming soon ?
ning has incredible potential to become the leader of online community enterprise solutions… the market for online collaboration software, or insight, co-creation/innovation platforms is growing quickly… ning’s online community platform could very rapidly become one of the leaders in the social media and brand advocacy and awareness market.
the valuation’s a few hundred million too high, but Ning has a bright future.
What if FB buys Ning with a combined equity/cash deal? Lightspeed will have a position in FB. Pretty good for Lightspeed as the multiplier will be higher on these shares
Marketing? If so, then they made a really bad decision, and it has nothing to do with Ning’s valuation or liquidation preferences.
It has to do with positioning.
Entrepreneurs will look at this deal and say: “ok, so Lightspeed isn’t taking risks early on – they need to see 50 million unique visits to make an investment.”
From now on, entrepreneurs should assume Lightspeed isn’t playing in early stages – they are more like PE firm. If that’s what Lightspeed wish to be then that’s fine, but then any comparison to Greylock is embarrassing. Greylock are making a lot of bets early on and have substantial portfolio to prove it. So if you have a company that is 0-3 years old, you got some traction and/or killer idea with great team then don’t bother with Lightspeed.
“Of course, the LPs don’t really mind, since they look at returns on the fund, not individual investments”
What an assumption. I would love to hear that directly. By the way, aren’t the individual investments directly related to the returns on the fund?
A valuation of 750+ million for Ning??? What has that analyst been smoking to put that pricetag on that company?
I agree with you terminator. Very Obtuse evaluation. Although I do not believe pot, more like magic mushrooms.
totally agree with Michael Arrington on this. Ning and Facebook are direct competitors.
Ning is a scam!!! Google Ning Scam. I dont know why the author refuses to report the hundreds of complaints from Ning NC’s. Just go to their GetSatisfaction page. These aren’t tech-related how to questions. They are hardcore complaints of MEMBER THEFT, MISREPRESENTATION, CONSTANT SPAM, and my favorite, HOLDING YOUR WEBSITE HOSTAGE.
True
The alternative for those that want to run their site as a business is SocialGO – with them, you own all the content and can export it all at the press of a button. What you create is yours with SocialGO
In fact, even if you don’t want to run it as a business, socialGO is better! Who in their right mind wants to spend hundreds of hours building a community, creating content and reputation only to find you don’t own any of it???
If you use SocialGO, the risk is much larger that they’ll be out of business in a year and you won’t have a network left to own…
Marketing you say? If so then it is very bad exercise in brand positioning.
This is a PE play. This signals to all entrepreneurs that if you built a company in the past 0-3 years and you are fundable, then Lightspeed is not for you – you should go to Greylock. If you are past your series D and want to do a financial transaction for whatever sake then Lightspeed maybe your target – but then you have much better PE firms out there.
You all should look at where Ning made its initial money, and half of its user base for that matter, THE PORN industry…….their sites are cookie cutter, peasant looking, non engaging wastes of rack space. Good luck to any company who tries to monetize an implementation on their platform. Oh and by the way, NING ID is a ponzie scheme to control all of their clients users. FYI.
ning first was a build your own classified or social network…remember the craigslist clone it offered? that failed.
ning’s “networks” look more like a few people in each and how many are active?
arrington said “everybody wins” with the investment?
not likely.
lightspeed overpaid and andreessen was the guy behind netscape which lost the first and biggest war to microsoft — browser
marc andressen is to tech startup marketing as Jordon is to basketball shoe marketing, but Ning means nadda to most entreps. Also this is a hypothetical correlation, entreps are not consumers, there are no TV ads targeting tech entreps selecting VC’s. marketing is a pretty 1/2 backed explanation of a top VC firm investing is a overfunded startup and a heavily bloated valuation. ning is cool at all, no doubt but $750 million is totally crazy pre-ression web 2 hype machine valuation. makes the $15 valaation on fb look like the deal of the century.
my apologies for the poor spelling in the comment above (embarrassed): cirrected version below:
marc andressen is to tech startup marketing as Jordan is to basketball shoe marketing, but Ning means nadda to most entreps. Also this is a hypothetical correlation, entreps are not consumers, there are no TV ads targeting tech entreps selecting VC’s. marketing is a pretty 1/2 baked explanation of a top VC firm investing is a overfunded startup and a heavily bloated valuation. ning is cool and all, no doubt, but $750 million is totally crazy pre-resession web 2 hype machine valuation. makes the $15 valuation on fb look like the deal of the century.
They are paying for more than “Marketing”, they hope to get closer to Marc and see his deal flow from the new fund. They are hoping that he will let them into some of his deal at valuations that make more sense than this one. This is a high risk strategy, but I am sure that the Limitieds knew that Venture Investing involves risk of loss and that they shoudln’t be playing with money they can’t affor to lose (he said sarcastically)
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Bing should buy Ning if they want to become the King.
If Ning ever had any plans for an exit, this valuation probably kills it.
They aren’t one of the big boys, and never will be. FB, Twitter, and LinkedIn are the big leagues. They can probably exit in a way to justify the valuation.
Ning cannot.
Bad business move.