Max Levchin on Slide's $500 Million Valuation and Other Widgety Issues
With all the noise about Microsoft’s $41 billion offer to buy Yahoo, I dropped the ball on posting about a chat I had about a week ago with Slide’s Max Levchin (pictured here) about the recent $50 million investment that valued the widget maker at an astonishing $500 million.
To say I was dumbstruck by the market value, given that the profitless start-up has only about $10 million to $12 million in annual revenue and a still unproven business plan, would be wrong.
Thus, I queried the always voluble Levchin, who agreed to talk to me readily (no Jerry-Yang-cave-dwelling behavior for this 32-year-old Web 2.0 serial entrepreneur!) about the investment by two old-line institutional investors–Fidelity and T. Rowe Price–and its implications for Slide.
“We’re like a teen in our clock cycle,” said Levchin about what he thinks the money means to Slide. “Now, we have to figure out how do you get a job and work in the real world.”
It’s juicy quotes like this that make it easy to see why the young geek–whose last score was PayPal, which was sold to eBay for $1.54 billion–has become such a press darling, especially combined with his restlessly complex mind, curious intellect and a much longer view than your average dot-com entrepreneur.
And that’s why it sometimes feels effortless to start shaking your head in rapt agreement, even if you don’t agree at all, as he laid out the reasoning behind his contention that Slide and its giant bag of cash will now emerge from puberty fully mature.
This, despite the lack of profits in the here and now, which Levchin did not dispute. “We could start to turn toward profitability with not too much of a stretch,” he said, with a strong trace of his Ukrainian roots in his stilted speech patterns that make him sound a bit like a robot.
Instead, Levchin said he was more interested in the opportunities that he saw emerging for Slide–which has grown to almost 150 million monthly visitors and several billion monthly page views, by offering to consumers its range of software to make slide shows, engage in SuperPokes and do other often pointless widgety things.
“We were [operating] super-thin, but with a whole lot of ideas, so we had to prioritize what we had to do,” said Levchin, who said he did not plan to raise more money until recently. “We later brought up to the board that we were seeing all this growth in places.”
That was true on social-networking sites like MySpace and Facebook, where Slide was grabbing enormous growth, although Levchin has been trying to aim future increases off those platforms to other social networks like Bebo and Hi5, as well as internationally on its own.
To do that required money and lots of it, and from non-VC investors to give it more credibility beyond the bubbly go-go tone of Silicon Valley.
So using Allen and Co., a well-connected New York investment firm, Slide grabbed a pair of firms that reeked institutional, Fidelity and T.Rowe Price, which Slide still does not name.
“I thought it was best to raise money from people people who invest for a living and have some combination of risk-taking and knowledge,” said Levchin, who later noted that he would have thought the investment was frothy, if he could not convince anyone but VCs to hand over cash at the lofty $500 million valuation.
“I think it was flattering that these were not jokers,” said Levchin of his new investors.
He said he stopped potential laughing by unveiling a steady pipeline of revenue from sponsorships, impressions and clicks of all kinds.
More importantly, he noted, he began to outline a new way of reaching consumers more efficiently that was “not the bleak world of brand advertising.” Still, that does mean more consumer brand links, like the one Slide made this week with Kodak to make it easy for users to move around their photos.
But the heart of Slide’s promise, like a lot of socially oriented Web companies, lies in manipulating the information it is collecting from consumers. That essentially means using an intense version of e-metrics–data of when, how, where and why consumers click on things.
“It’s no surprise that we are mathematical … and we study data carefully,” said Levchin. “We’re building a predictive model that is close to perfect … where we can say what the revenue per user will be.”
Well, we’ll see about that–along with obvious privacy issues, the jury is still out on the effectiveness of social networking and its payoff, and also on how spammy such advertising can become. Last week, for example, Google blamed its weakness in its recent quarter on lack of progress in monetizing these platforms.
In an article in The Wall Street Journal today, for example, Kevin Delaney noted: “Since advertising on social-networking and video-sharing sites is still largely experimental for marketers, it could be more vulnerable in an ad-spending pullback.”
Thus, Levchin’s investors are betting Slide will surmount those challenges.
Happily, he discounted any revenues that Slide has made selling ads to other widget companies to improve their rank on sites like Facebook.
In fact, Levchin agreed that it was a bit of a “Ponzi scheme” and not a big part of Slide’s future. “It’s a little business that is going to go away,” he said.
Levchin hopes, of course, that does not describe Slide, which he has said he wants to get to a $2 billion valuation, somewhat based on his last experience at PayPal.
“I have said I have a chip on my shoulder and that it is PayPal-motivated … but I have no black line in the sand about it,” said Levchin. “But I do want to see that I can do it again…Call it obsession, call it megalomania, but I am definitely not crazy.”
Indeed, of all the players in this trip down the rabbit hole, Levchin is probably the most sane of all. After all, he’s got the money in the bank.