Explain This To Me

That’s how the emails generally start. “Fred, explain this to me”.

I got a bunch of them yesterday pointing to the reported $100mm valuation being placed on Geni.com in it’s recent financing.

Things like this are not explainable to be honest. This may turn out to be an incredible investment for the venture firms that made it. Or maybe it won’t. Only time will tell.

Today Geni.com is a really neat idea expressed in a service that has only recently launched. It is a social network for genealogy. And it may well be a way to create a social network for everyone in the world because everyone is related to everyone else if you go back far enough (or maybe not). But you get the idea. I am half tempted to fill out my family tree on Geni.com. And I am sure that many millions of people will ultimately join one or more of these genealogy services (yes there are a bunch more coming).

But as many of the people sending me emails pointed out, this blog has more traffic and unique users than Geni.com according to Alexa and Compete.

Does this matter? Yes and no. It will surely matter in time. Geni had better pass this blog in short order. But if you paid $100mm for Google before it had 20,000 unique visitors per month, you’d have made a fortune. Maybe the same will play out with Geni.

Does a $100mm valuation on a website with less traffic than this blog mean we are in a bubble? Of course we are in a bubble in the web technology venture business. We have been in one for several years now. Hot sectors always attract money. And we are awash in money.

But that doesn’t mean you can’t make money investing in a bubble. And I am not talking about the “buy high, sell higher” mentality which always ends badly. Let’s look at Google again. The venture investments in Google were made during the last bubble. And they paid off beyond anyone’s bubble driven aspirations at the time they were made.

You can make money in the venture capital business in any market if you pick the right companies. Valuation matters too. But this is not a sale transaction. Geni's shareholders didn't get $100mm, they simply did a deal where they raised $10mm for 10% of the company.

Only time will tell if the investors in Geni.com have picked a winner and paid the right price. And that is exactly as it should be.

Comments (19) | Posted March 7, 2007

Comments

Interesting. What about a "Geni" for mapping out real connections versus just family? I have 60 people in my address book that I talk to regularly. When it all boils down to it, it's the relationships that matter -- not the set of features (obviously Geni understands this). If you have a database of relations, you can apply it to many different things (a trust algorithm, intelligent e-mail, etc).

Posted by: Robert Dewey | Mar 7, 2007 1:39:08 PM

That is my point when I compared Geni.com to Sampa.com:

http://marcelo.sampasite.com/brave-tech-world/e/Geni-is-valued-at-100-MM-Sampa-w.htm

Look at the Alexaholic graphic below:
http://www.alexaholic.com/sampa.com+geni.com

Posted by: Marcelo Calbucci | Mar 7, 2007 2:10:40 PM

Fred,

Take a look at www.AttentionMeter.com when you get a chance.

I was tired of jumping around trying to triangulate date from Compete, Alexa, etc..

AttentionMeter is my attempt to enable triangulation of the various traffic date sources all in one place. Alexa and Quantcast are up and running, and Compete charts should be added by 2-April.

Maybe you'll find it to be of use.
jay _at_ attentionmeter.com

Posted by: Jay | Mar 7, 2007 3:58:11 PM

I think your last point is the most important one. This company was not sold for $100 million. The valuation is as much about how much money they need, what they were willing to give away, and how badly the funders wanted to have a piece of a deal they think can be huge. It can be huge. And if their offering blows everyone away and they will get the early traction, then the investors might be saying, we just don't want to be kicking ourselves later for not getting in. It really isn't off-the-wall. I remember Bikini.com from the bubble days... that was off-the-wall.

Posted by: Michael Hoffman | Mar 7, 2007 5:43:17 PM

As crazy as the Geni valuation seems, it is just $10 million worth of investment capital.

This other announcement from this week -- $160 million in cash being put into an SEO marketer that calls itself a publisher -- seems more absurd, at least to me. Check out Geosign and tell me how they got this much money.

http://www.dmnews.com/cms/dm-news/search-marketing/40305.html

Posted by: Gordon | Mar 7, 2007 6:40:25 PM

Geni is pretty cool. $100 mil cool? I don't know. But if the VCs want in that bad, what is a founder to do?

BTW, If I didn't have a mother that didn't already do all that work, I'd be all over that site.

Posted by: Rick | Mar 7, 2007 6:59:11 PM

I still have a sock puppet.

Posted by: Charlie Crystle | Mar 7, 2007 8:42:06 PM

Using Alexa to track traffic is extremely unreliable and misguided, Fred.

Posted by: Marc | Mar 7, 2007 8:49:09 PM

I´m always amazed by the attention genealogy gets in the US. In Europe no one cares much about it maybe because, well, we can see the remains of our ancestors´culture from 2000 years ago when we walk around in the street :)

Posted by: Giordano | Mar 7, 2007 9:06:19 PM

The difference is their about page: "Geni was founded by former executives and early employees of PayPal, Yahoo! Groups, Ebay, and Tribe. It is backed by venture capital firm Founders Fund."

Does anything else matter anymore?

Posted by: Doug Karr | Mar 7, 2007 9:59:20 PM

Fred -

I couldn't agree more with you about the valuation inflation we're seeing. With first round valuations like this, it creates an unbelievably high hurdle for a "successful" exit.

In thinking about the Geni funding (and the recently reported investment in Facebook at a valuation of over $25M), I think I've figured out the investor's rationale. It's all about optionality and downside protection through the liquidation preference. Specifically, you can assume that there is less than $15M total invested in Geni, part of the investment decision has to be "what are the odds that the company will ultimately be less than $15M" -- as long as the company sells for more, I'm whole. Now, if you believe that there will only be a limited number (10 to 20) of companies created in the next 5 years that are worth over a billion dollars, AND that this is one of them, it would lead you to take a "free" option.

I don't personally subscribe to that theory -- and have passed on more than my fair share of deals due to valuation. But I think that's the psychology that's guiding these investments...

Posted by: Josh Kopelman | Mar 7, 2007 10:31:56 PM

Hi, Fred,

I'm going to run a little experiment with Geni. I just dumped about 80 people into a tree, split about evenly between my own and my wife's families. I then invited half a dozen early adopters (age and background cross-section) from both sides. Here's what I want to see:

1. How enticing is it (measure: how many invitees will accept and add/modify at least 1 record)
2. How sticky is it (measure: I'll pester then for periodic reports on usage - too bad Geni doesn't give me activity numbers, at least that I know of)
3. Ho viral is it (measure: I've told the initial invitees not to invite anyone else yet. After they've had a chance to use it a little, I'll release the hounds, and measure what happens - who do they invite? why? etc)

If you're interested, please feel free to ping me now and again, and I'll be happy to let you know how it goes.

Posted by: Ben Reytblat | Mar 7, 2007 10:57:42 PM

Doug Kerr is absolutely right. It's the geneology of the founders that made this funding happen. Forget the valuation. They did score $10m - that'd be a nifty achievement for a bootstrap startup from Rhode Island. (I'm thinking Towerstream) But if you know just a little about the families of the principals, you'd know that $10M is chump change. Not such a different deal than YouTube.

Posted by: phoneranger | Mar 8, 2007 7:40:28 AM

Ben;

Like I said before, the value might not necessarily be "returning users" or the feature set. It's what can eventually be done with the network that really matters. If Geni has 10 million people mapped out, it would be a lot easier to dive into other services using that "social map" as an efficient method for users to interact.

For example, they could create an entirely different service that allows classifieds between family connections, as defined in the Geni database. That's real trust right there, and offers it significant value. There are other algorithms that could also be derived directly from the database, such as trust or intelligent data sharing.

I think the problem is whether or not people are interested in *just* family? If my theory above is correct, I certainly wouldn't want it to be limited; I might be several degrees out from friends whom I'm not related to.

I'm more interested in a similar situation, but with all of my connections (not just family). I'm also interested in using data mining techniques to create the ultimate "relation grid" (i.e. you trust your neighbors more than someone 200 miles away); or perhaps you trust the author of this blog more than some random guy on the street.

Posted by: Robert Dewey | Mar 8, 2007 10:24:36 AM

Just think about about it ..... "a social network for genealogy" -- most of the people in your family tree are dead, so by definition, they're not very social. I love the interface as a viral marketing play but if I was in the genealogy business, I'd be laughing my head off.

Posted by: David G | Mar 9, 2007 11:07:12 AM

josh--I'm guessing the deal has something about significant ratchet on a down round or down exit--anything lower than 100 million is split differently. I don't think it's 10% of the exit if the exit is lower than 100 mil.

Posted by: Charlie Crystle | Mar 9, 2007 2:19:07 PM

Geni.com is such a great idea! I just did a blog post about Geni.com over on Highbrid Nation if you want to check it out. I look forward to building my tree and maybe meeting some new family members along the way. I think the site has a great future.

Posted by: Evorgleb | Mar 14, 2007 1:06:14 AM

Kincafe much like geni

It was a great experience for me to have something like geni. I found it extremely useful for making a family tree.

But i would like to add something which is much like a geni, its Kincafe.

I would like you to particpate in beta release of Kincafe and provide feedback at andy@kincafe.com

Thanks

Posted by: amy | Mar 22, 2007 6:56:11 AM

Forget Geni.com, instead, check out http://www.SubliminalMessages.Com, it'll keep you very busy for a very long time. I promise.

Posted by: Subliminal Sam I Am | Jul 4, 2007 10:04:46 PM

A VC

Musings of a VC in NYC