Scott Rafer Declined an Interview With SecondShares – says “No Insult Intended”

I had a conversation with Scott Rafer on Skype Sunday night, where I requested a video interview of him on SecondShares so he could express his views on the secondary sale of private company stock in companies like Facebook, Twitter and Zynga, as well as the recent angel investment “bubble”. Scott declined to be interviewed by SecondShares, expressing his concern that we are “legitimizing” the private secondary shares market, which he feels strongly against.

Apparently there appears to be a growing sentiment among a select few within the startup community that the secondary markets should be avoided like the plague.  This post is in response to a post written by Scott attacking us (but not naming us) and the secondary market for private company stocks, and is intended to clarify our mission and the value of the secondary market for private company stock, since its apparently not yet clear to some rather influential and smart individuals within the startup community like Scott.

Interestingly, after our ten minute conversation on Skype, Scott responded by writing a blog post that started with “There’s No Insult Intended…”, yet in his blog post he said:

“…as is clear, Google is forever. I’m not going to voluntarily have my name indexed alongside his domain.”

SecondShares hopes to provide a platform for all parties to articulate their views on the secondary market for private company stock, and we had hoped Scott would accept our invitation to participate and provide his views.

In Scott’s post he incorrectly described SecondShares as:

“His blog covers solely the market for private stock sales. He only succeeds if it becomes a legitimate market. I am very concerned that we’re just seeing the start of a giant wave of these crappy deals and that they will total many billions of dollars in the coming years. His domain, his logo, and 90% of the articles on the site are legitimizers of this poorly considered macro reaction to the over-regulated mess we call the IPO process.”

Scott is either misinformed or unaware, but to clarify, SecondShares provides news, commentary, and Wall Street style analysis on private internet companies.  We do not solely exist to report on private stock sales of internet companies.  In fact, we don’t even know when the second market transactions occur.

Scott states that his concern is to not “legitimize” the secondary market, however, he addresses it on his blog. The reality of this emerging market is that Scott and many others ought to act to legitimize this market whether it be on our SecondShares site or not.

The public market’s decade long bear market burn of value in the US public equity market needs a new way to channel value creation because a chart of the S&P over the last decade demonstrates that the US public equity market is broken!

History has demonstrated that the birth of many markets has been marked by a chorus of discrediting and undermining commentary by many including the entrenched players at risk.  The case in point today is the secondary sale of private company stock, also known as the second market.  Some, like Scott, within the startup community are articulating their concerns.

“I’m concerned about the inevitable ripoff artists who will start shell companies solely to sell their shares on SecondMarket (or wherever). They’ll have documented some silly plan about rolling up small social game publishers, Groupon clones, or whatnot.”

Before one casts further dispersions on other legitimate business approaches and strategies such as rollups of synergistic businesses one ought to consult with one of the many wildly successful business managers greats such as Jack Welch formerly of General Electric that was noted for building one of the greatest companies in the world with such a roll up strategy, or the highly successful internet entrepreneur Richard Rosenblatt of Demand Media or even Mark Pincus of Zynga (which has rolled up quite a few application companies.) The list goes on and on.

Given the precarious state of the world’s public equity markets it is quite concerning to us that so many within the startup community are seeking to cast dispersion on a market that is so strategically critical in today’s financial environment and possibly for many years to come.

Though Scott’s contrary logic still evades us, we are the preeminent blog for thoughtful commentary and analysis surrounding private internet companies by acknowledged, seasoned and successful Wall Street professionals.

More ironic is the idea that Scott apparently believes that there can be any legitimate market that can steadfastly avoid the “crappy deals” and “inevitable ripoff artists” that he speaks of in such a way as to believe that they only exist in the realm of a market like the secondary market.

One might consider recent events such as Bernie Madoff’s escapades, pink sheet shell company scams as well as countless public stock manipulations before relegating such activities to the realm of a new market such as the one SecondShares expounds upon. Importantly, it is worthy to note that insult is added to injury in that the public market’s crimes count as its victims those that are not accredited investors, while the inevitable incidents that may occur in the secondary sale of private company stocks do not! Scott’s concerns would be much better placed on a public market of tens of trillions of dollars, rather than the emerging legitimate and the strategically critical secondary market.

While Scott may scoff at the notion of this market being a strategically critical market, the ultimate irony is that the private market that Scott fears to “legitimize” has been his personal choice of venue establishing the value of his companies!  While Scott may say he raised capital and sold equity to “professional investors” (angel investors and venture capitalists) the fact of the matter is that markets have a history of broadening out and the accredited investor qualification of the secondary sale of private equity offers a protection that the public equity markets do not offer. In the end, as we all know, the world is getting flatter and to pretend there isn’t more business intelligence more firmly planted more broadly than it ever was before is to believe the realities of why the second market has the credibility and traction that it does. This is why SecondShares was established to create a reasoned voice of commentary and analysis in a market that is destined to grow in its importance and consequence. Again, we would say that Scott’s concerns would be better placed on a much larger market with less protections around the unsophisticated investors involved in investing in the US public equity markets.

To keep things very simple, in a bear market the gravitational pull of the market is such that it is directed at pulling down the value of publicly traded stocks. Importantly, we believe there is a growing trend to consider that the use of stock to attract and retain key employees as well as the use of a stock based currency to acquire strategically critical assets is mission critical and best not left to chance valuation in a bear market.

The only irony greater than where Scott chooses to blog his views on the secondary market is that he would suggest to others that they leave the critical strategic imperative of how a stock gets valued to be relegated to the whim of a public bear market rather than to an orderly, governmentally blessed and legitimate second market. It’s not likely an accident that there is more value today than ever before being captured in the companies that make up the secondary market.

Perhaps it’s not a mere oversight on the part of all these non-public companies with values in aggregate well north of one hundred billion dollars. We just doubt that that they simply forget how to file an S-4 with the SEC to go public. Ask any of the countless investment bankers chasing Facebook and the many other companies that would be gladly be shown the rubber chicken laced road shows required to go public. They are clearly choosing not to go public. There is a lesson in this for many that think that the road of running a successful company must go through the IPO door.

The strategic imperative of thoughtfully considering how a Board and a management team chooses to have their company valued may in fact best be left to a market that they can believe in; rather than a public equity market noted of late by the SEC for the largest insider trading scandal ever in history and is looking more and more like Japan’s death defying bear market of the past twenty years.

We guess the punchline is …

We were insulted!  ;)

This post was edited in collaboration between Jay Gould & Bill Auslander.

All Metrics Point to Growth in Facebook’s Dominance of U.S. Internet Usage

It’s almost tiresome to report on the various metrics showing Facebook’s ever-increasing dominance of time spent, page views, and ads.  Since trees don’t grow to the sky, at some point Facebook’s growth will slow, but it doesn’t look to be any time in the near future.

This week’s jaw dropping statistic was provided by Hitwise, which reported that Facebook accounted for almost 25% of U.S. page views last week.

Hitwise’s data is consistent with an earlier report by comScore that Facebook accounted for over 23% of all display ads served in the third quarter.

However, since Facebook is only one property, and other large entities own various properties (e.g., Google owns YouTube), when comScore aggregates total U.S. audience reached by parent companies, Facebook only ranks 4th (but with a bullet).

Facebook Wants to Be Your Home Page

While Facebook has become a major part of many people’s everyday Internet experience, one role it has never aggressively pursued is to be the homepage for its members, until now.  As first reported by VentureBeat, Facebook is testing various marketing messages for a button on a user’s Facebook homepage that lets the user set Facebook as his or her Internet homepage when a new browsing session is launched.

comScore estimates that Facebook is already the homepage for about 6% of U.S. Internet users, far behind market leader Google.  As the jumping off point for an Internet session, the homepage is obviously a critical position to hold.  As Facebook works to unseat Google  as the homepage king, we believe one weapon Google has at its disposal is the growing penetration of its Chrome browsers. While Chrome only accounts for about 8.5% of the browser market today, it is the only major browser other than Apple’s Safari to show market share gains this year.  Given Chrome’s current growth trajectory, it should surpass 15% share in 2011, making it a formidable tool in the homepage battle brewing with Facebook.

So the question that will be answered over time is do users want to open their browsers and search, or open their browsers and socialize?

VCs Showing the Love for Start-Ups Leveraging the Facebook Platform

Given Facebook’s meteoric growth, which drives our view of Facebook as the second Internet, more powerful than the first because we’re all interconnected, it’s not surprising that VCs are continuing to heavily invest in companies leveraging the Facebook platform.

Among the crop of companies that received funding this week is Yardsellr, which received $5 million in funding lead by Accel Partners to help develop the eBay of Facebook (people selling to people), but without the auctions.  Below is a short list of companies leveraging the Facebook platform that have received VC funding within just the last two months.

Google’s, a New Way to Shop and Populate the Social Graph

In its blog describing the introduction of, Google wrote that “The way we shop for fashion is different from how we buy cameras—especially online.”   So 18 months ago, Google set about developing a new experience.  The result is, a personalized shopping experience that empowers shoppers to create their own curated boutique or leverage the boutiques curated by celebrities, stylists, designers and fashion bloggers. Other companies (notably Netflix and Amazon) have developed recommendation systems given past purchases or rentals, but Google is taking this one step further.  Google is gathering data about what users like or hate across 6 fashion related features (e.g., the pattern, the color…) and then leveraging computer vision and machine learning technology to visually analyze user tastes and match it to items Google believes the user would like.  In the example below Mary-Kate Olsen (the third most followed Boutiques curator with 1,127 followers) has curated a $325 dress from Elizabeth & James.  If you click on the dress, you can buy it at  But what we found most fascinating is the social graph data Google is positioned to collect.  It goes far beyond the traditional Facebook “Like” button data.

In addition to giving users the ability to Love or Hate certain features of a given piece of fashion, Boutiques also offers advanced search filters, enabling users to filter by genre, silhouette, pattern, color families and sizes.

Other features Boutiques offers include inspiration photos, which show matching outfit ideas to the right of search results (e.g., if you search for yellow pumps).   Boutiques also offers visual search, which analyzes the photograph of an item a user likes for its color, shape and pattern and try to help you find visually similar items. Boutiques is in beta, and online available for U.S. woman.

LeBron James Was Never Going to Stay In Cleveland, So His “What Should I Do” Nike Commercial Was Ripe for Parody

We have entered a new era in marketing, where social media opens up opportunities for brands to engage with their customers and potential customers in ways never imagined.   One downside of this new world is when a brand is disingenuous, they are opening up themselves to withering criticism by social media, which will then lead to derision by mass media.

This week’s example of a disingenuous ad is LeBron James’ “What Should I Do” Nike commercial.  It runs a whopping one minute and thirty seconds during which LeBron asks “what should I do” 9 times. (Answers he poses range from “Should I admit that I’ve made mistakes” to “Should I really believe I rule my legacy?”)  The problem is we all know that LeBron will do exactly what he wants to, without concern for his fans.  He’s entitled to do what he wants, but he shouldn’t star in a commercial that makes it seem like an open question.

The video was mocked best by Cleveland Cavalier fans who derisively tell LeBron what he “should do.” Others who parodied the video include Lee Fisher, a democratic candidate for the Ohio senate, ESPN’s Michelle Beadle who comically asked “Should I remind people how awesome I am?”, and South Park, which lambasted LeBron by equating him to disgraced BP CEO Tony Hayward.

Visible Measures, a provider of Internet video optimization solutions for publishers and advertisers, worked with The Wall Street Journal to tally the number of times the Nike commercial was played on YouTube (4mm and counting as of 11/15), with another 1.2mm played on a copied version of the original.  In total, the original was played 5.2mm times as of 11/15.  However the parodies have overtaken the original in views, with the Cleveland trashing of LeBron racking up more than 3.7mm, and poised to pass the original.  The lesson here is clear: the key word in social media advertising is “authentic.”

StumbleUpon Growth Accelerates Post eBay Spin Out,

eBay acquired discovery engine StumbleUpon for $75 million in May 2007 while the six-year old start-up was finally experiencing rapid growth, having tripled in size the over the prior six months to reach 1.4 million visitors according to comScore.  While the site doubled in size over the year after it was acquired, the site eventually stalled under eBay’s ownership.  In April 2009, with site traffic back to pre-eBay levels, and eBay unable to find a buyer, StumbleUpon was purchased by its original founders (Garret Camp and Geoff Smith) with the backing of Accel Partners.  A year and a half later, StumbleUpon is growing rapidly again and now counts 12.4 million members.

StumbleUpon generates over 700 million personalized recommendations per month and indexes more than 50,000 URLs a day. More than 40,000 advertisers are using StumbleUpon to promote their products.  A great example is, which has been leveraging the StumbleUpon platform with financial-related articles and videos since 2008.  Stumblepon now drives more than 180,000 people/month to  With a conversion rate of about 2.5%, StumbleUpon is generating customers at a cost well below what traditional PPC search would have cost.   We were also impressed by the early success of StumbleUpon’s recently introduced Android App, which has generated more than one million stumble on’s for other Android apps (a drop in the bucket compared to the 16 billlion Internet stumble on’s, but a compelling start none the less).   While Skype gets all the press relative to eBay spin-offs, StumbleUpon looks like it will also pay off nicely for its investors.

Here’s Why We Like Demand Media and Why We Think That Bo Peabody Got It Wrong

We last wrote about Demand Media in April, when we discussed how the company was killing it and was poised to be the first billion dollar Internet IPO since Google.  As a private company, we weren’t privy to their financials, but were impressed with the creativity of their business model, and more impressed by their traffic growth.

Now six months later, Demand’s growth has continued, the company has filed their S-1 to go public, and amended it, and we feel vindicated by our earlier assessment.  Demand is truly onto something big.  So we were surprised to read an article on Business Insider by Bo Peabody, a successful long-time VC, detailing why he was “down” on Demand.  Here’s why we continue to be a fan of Demand Media.

Demand Media has a media business and a domain registration business.  Bo used the chart below using data in the S-1 to break out the historical revenue between the two businesses.

In their S-1, Demand describes their media business by saying they “…create highly relevant and specific online text and video content that we believe will have commercial value over a long useful life.”  To produce that content, Demand Media engages a “robust community of over 13,000 highly-qualified freelance content creators.”  Bo and others refer to that process of scaled content production as a ”content farm.”  While meant to be a dismissive term, as we discuss below, the production process keeps costs low, and the content produced has a huge and growing audience.

We Find The Quality of the Content Consistent and Surprisingly Good

There is a belief by many that “content farms” can’t possible produce quality content.  We believe that’s a mistake.  One ehow article Bo discusses is “How to roast a chicken,” which is the top result on Google and Bo describes as “utterly useless.”  We are not sure what Bo’s cooking credentials are, but three of the four comments on the article were complimentary, and 49 readers liked the article enough to share it with their Facebook friends.  We’ve cut and pasted two of the comments below, which also gives a sense of the community ehow is building.

The bottom line is that ehow’s content is professionally made (people get paid for it), it meets strict standards set forth by Demand, and readers like it enough to comment and share in volume.