PaidContent.org’s Staci Kramer put it best:
“For the dramatic interpretation, read this from SAI while listening to Celine Dion”.
Not quite sure if NYT is a modern day Titanic… but the more we dive into the Gray Lady’s balance sheet and income statement, the greater we doubt that she can go on.
The implication is pretty clear: NYT won’t be buying any assets any time soon, it will be a seller. The problem is, for the past decade, the Old Media Malaise led traditional media firms to acquire new media and technology startups; right now, that malaise has become a full blown meltdown, and while the need to digitize their businesses is greater than ever, their leverage (in the literal sense) is at an all-time low: stock prices down, cash dwindling, greater difficulty in raising debt.
Another reality which makes M&A tougher for startups, frankly, is that the past few years has seen a wave of consolidation: when CBS bought CNET for example, two would-be buyers became one. Initially, the idea then was that CNET would use its web expertise and leverage CBS’ balance sheet to acquire companies, but with CBS being now worth a third (!) of what it was last year, that won’t really be happening, especially with the backdrop of this economic meltdown.
This means one thing and one thing only: if you are a startup, you have to have a clear path to profitability, let alone revenues. In fact, I definitely think that in the months and quarters to come (at this rate: maybe weeks), VCs will start to shut down companies that lack revenue models and give companies with revenue streams a limited time to become profitable. Don’t take it from me, take it from the dean of VC investing, Alan Patricof:
We have 24 companies in our portfolio, and when we were considering investing in any of them, we didn’t say, ‘We’re going to take this public in two years or three years and try to extrapolate a public valuation.’
We approach the market on a very realistic basis, and I think most people in the business do. For the most part, our companies are either going to make it on their own as freestanding enterprises that generate their own profitability and cash flow, or they’re going to be sold to another company.
It’s pretty cut and dry these days: show me the money, or die. Which leads us to a counter argument to my hypothesis. Maybe traditional media companies will have much more leverage in a figurative sense:
- They are still sitting on large piles of cash,
- The sellers lack leverage because they know that the pressure is on from their VCs, so their asking price will be more reasonable…
We shall see what happens, but the unintended consequence of this meltdown is that web companies are being asked to grow up very fast and become actual businesses. They are no longer being afforded a pass on having sound economic fundamentals.