I have been an early-stage tech guy my whole career since graduating from Columbia Business School during height of the dotcom boom. At heart, I am little bit of a contrarian and very much a value investor. For that reason, I was looking for a shortcut when starting my last company—I think I found one, and it’s one you can use, too.
After leaving my dotcom era startup, AdOne (later PowerOne Media—we exited to major media companies including Hearst and Advance/Newhouse), after nine years, I did a series of turnarounds of early-stage companies. In general, what this entailed was partnering with the venture/angel investors in early-stage companies to redefine the strategy, raise new capital and overall get the company on the right trajectory for success and a exit.
The last early-stage turnaround I worked on was called 1000Museums.com, an art e-commerce pioneer that licensed art from museum collections and made high quality reproductions that it sold online. Having no prior background in the art or museum space, I was a sponge. I identified some very interesting trends:
- There is massive consumer appetite globally for art and culture; nearly 900 million physical visits to museums in North America alone last year, which is twice as many as all major league sports and theme parks combined.
- The most rapidly growing categories of art sales are: e-commerce, art priced at less than $5,000 and high-quality contemporary art from emerging, unknown artists (often very difficult to find and value).
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- Art fairs have stolen huge marketshare from traditional galleries.
- Art enthusiasts and collectors love events and often buy in the moment—we call this experiential marketing.
- Last, more consumers than ever want to “curate” their own lives and the items in it, from meals to art, experience is paramount and personal.
I wanted to move fast and create a company that would capitalize on these trends—but I did not want to start a company from scratch.
Instead, I decided on a shortcut that would look a lot like my work with early-stage startup turnarounds. After leaving 1000Museums.com and armed with trend information and working knowledge of the industry, I formed a holding company (set up sort of like a search fund), put my value investing cap on and started looking for a company to acquire.
Finding The Right Building Block(s) For A Startup
In this case, the answer actually involved two complementary businesses with similar suppliers and consumers with a combined subscriber base of over 1.1 million.
After some networking and detective work (plus a few requisite false starts), I found a former Techstars company called Boomboomprints.com (BBP). BBP had raised nearly $1 million, built a nice website and attracted 10,000 graphic designers and artists to the platform. They ran low on cash and needed an exit. We were able to buy it for a fraction of the original money invested.
Next, I found See.me. See.me was really a much higher profile proposition. It had raised $4.5 million and had very high profile investors. They built a large audience (over 200,000 artists and over 800,000 art enthusiasts and collectors) and had great branding. Yet, they had the wrong business model and probably were too early for the market, so they ran low on cash. We were able to buy this one, too, at an attractive price.
Building A New Company That Is Greater Than The Sum Of Its Parts
The next challenge was building the business but with a new strategy and approach. This past spring, we relaunched See.me with a focused approach: We are a two-sided marketplace for artists and art enthusiasts, sort of like “LinkedIn meets Spotify” for art and culture.
We run multiple art competitions per year; each one culminates in a live event (like Art Basel Miami, coming up this December). Along the way we promote over all digital channels (SeeMe Community on Facebook, Instagram and Twitter), identify the competition winner, connect with art enthusiasts, gain license rights and make high quality products based on art. The competitive aspect generates buzz and drives high quality, juried content while creating natural scarcity and demand.
Our initial revenue streams are subscriptions (from artists) and art sales (from enthusiasts and collectors). Relaunched in March 2018, we already have well over 1,000 new artist members this year and expect over 2,000 by year-end. We have spent very little on marketing thus far (although that will change). Overall, we have nearly 10,000 artist applications from over 30 countries around the world. We have discovered a clear need and our value proposition delivers against that.
How were we able to do this? Simply, value investing 101. Venture investors use “venture math” —90 percent of their returns come from less than five percent of their investments. Therefore, if something does not look like it will be a home run, the rational path for the investor is to stop investing time and money, thus creating an “orphan company”. But is the company worthless? Not to me. Look at See.Me: Over five years of brand building, over 400,000 Facebook followers and over 1,100,000 email subscribers. What would it cost to build that organically? At least five years, $4.5 million and probably a lot of luck as well.
A Replicable Strategy For Turning Orphan Companies Into Successful Businesses
Between 2006 and 2016 there was at least $20 billion invested in 8,000 startups. The vast majority failed to deliver on investor expectations. Was all that money wasted? I doubt it. Today there are credible alternatives to building companies and raising capital.
If you like our story please visit our website, follow us on Facebook, Instagram and Twitter at SeeMe Community and keep an eye out for future developments including our crowdfunded equity campaign here. Why crowdfunding rather than traditional VC? Now that’s the subject of a future article.