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October 04, 2007

The Ebay Skype write down is bad news for venture capital

Since ebay admitted that, really, they messed up with Skype, there is an amusing opportunity for the vcs who passed on investing into Skype 3 years ago due its lack of revenue model to say "I told you so".  It would not be the first time that the vc community thinks its a lot smarter than the listed markets.

But why does the Skype write down worry me? Surely, I hear people say, the vcs shouldn't care. They got in and out and made some good money.

This is quite wrong.

The point is that we will all need to sell a number companies into listed web companies.

We want their acquisitions to make them money so they come back to us for more.

The FT does a good job of comparing the terrible Skype acquisition with the wonderful myspace acquisition which has made lots of money from Newscorp.

A pity they can't all be like Newscorp.

I also think Nic is missing the point.  it's not what you can auction them up to in the short term, it what value these businesses create over the longer term.

I REALLY REALLY hope that CBS eventually turns a terrific profit line from Last.FM .  And I really hope, not that Facebook sells for $10bn but that Facebook creates real value. Real revenues and real profits for an acquiror or for retail investors at IPO.  Without real value being created, over the longer term VCs will be on shaky ground.


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Totally agree. If we are serious about building an industry over the long term then the ONLY way to do that is to build companies with real profits and cash flows.

I think it's easy to forget what an immature industry we are. As a revenue stream, online advertising has so far to go in terms of evolving and developing it's model that it's difficult to see how a lot of these companies can be valued with any degree of accuracy.

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