Startup Genes I: A Tale of Three IPOs

Collegeclub.com went out of business last week along with 43 other internet startups.. We visited Collegeclub at the prime of its pre-the-IPO-that-never-was glory in April. They had completed their mezzanine round, taking in about $40 million at a pre-money valuation in excess of $200 million. They were worth a quarter of a billion dollars. On paper. They had filed their S1. The IPO date had been set. They were close to 400 people strong. Their offices in San Diego Downtown were exploding with expensive furniture and expensive looking (and largely idle) people.

I remember thinking the founder/CEO must have been worth at least $35 million. At IPO he would be about $70 million The VPs that we talked to would all soon open their own incubators and venture funds, all the rage amongst the new techno-rich.

Less than four months later, the IPO had been called off, the CEO had been fired, the entire executive team had been banished, the headcount had shrunk to less than 100. Shortly thereafter Collegeclub filed for bankruptcy and was sold off to Student Advantage last week for $28 million.

“$28 million”.

We could have bought them, I said to Rizwan, who had observed the excesses first hand with me on our trip down to San Diego in April. The brand new “designer cubicles”, the hyper expensive real estate, the uncontrolled headcount increase.

Twentieth century Dotcoms perverted the concept of the startup. The rules of the garage be damned, the exploding egos of Sand hill road invaded and overpowered the soul of entrepreneurship. It was a time to celebrate without any tangible cause for celebration. Spend your way to recognition and so on to success ,was the flimsy extrapolation that passed for a business model.

If Collegeclub was guilty of forgetting it was a startup, Snowball.com which had its IPO-that-never-should-have-been in March, took dotcom-style spending to a different plane altogether. Every chair at their state of the art offices was about a thousand bucks apiece. Every light fixture was unnecessarily hip. Earlier this year they invited all their partners, potential partners, and customers to a three-day long extravaganza in Monterey. Golf at Poppy Hills, massage and sauna at The Inn at Spanish Bay, sumptuous meals, free three nights stay at The Inn - hospitality that Wasiq, Rizwan and I enjoyed with an unnecessary tinge of melancholy. This was the week before they went public This was the week the markets crashed. The same week the public finally wizened to the fact that it is the job of the VCs to take risk on early stage, non-profit generating companies; it is not the public’s job to shoulder that risk and give VCs a free ride to the bank.

Snowball.com came out on the street at $12.00. Today the stock price hovers around $1.00. Luckily for me I did not purchase the 500 friends-and-family IPO shares that I had been given. Except for a few investors and execs, most of the over 200 employees and all public investors must feel they were violated by a Rhino. The company is on life support.

Avantgo comes out in a few weeks. The S1’s done. The Red Herring is in. Its valuation this April was identical to Collegeclub’s and Snowball’s but Avantgo’s operations were a stark contrast to Collegeclub and Snowball. Staid, unglamorous, understated. No expensive chairs publicizing $40 million in the bank. A culture based on sense not excess. A sense of purpose, a sense of the long way to go; constant work on the business model; avowed faith in the only meaningful three letter acronym: P2P (Path to Profitability).

In a few weeks Avantgo will go out as one of the most hotly anticipated IPOs of the year.

It is not a vastly different business model alone that explains the contrast in fates over 4 months of these three startups. Two of the three startups forgot what they were. One hasn’t.