Why die when you can live ?
It has come to my attention that many companies are shutting down their operations because they run out of money. It is easy to understand; a company raised $100M from VCs, then suddenly realize they need more money. The VCs say NO. They try to sell the company to a strategic buyer, and they also say NO. So guess what they do: shut down. Sad :(.
OK, I think you know what I am going to say. Why shut down when you can raise money from the crowd ?
Mode Media goes bust
Take a new one that happened this week. Mode Media, a content platform for lifestyles and brands announced today they are shutting down. This company was a Unicorn, raising $224.6M in venture capital. The company was co-founded by Samir Arora, formerly the CEO, who left the company last April. Mode Media at one point had over 25 million monthly visitors. This brand not only has an incredible amount of customer loyalty but also over 200M monthly impressions. On top of this, they have over 10,000 creators who contribute content. This is big. So what exactly happened ?
I have never met the founders or the management of the company. I have not spoken to insiders. What I suspect is that the existing VCs decided not to invest more money into the company. This is a kiss of death for any company who takes money from VCs. You take their money and hope they continue to invest their pro-rata (which means adding more money to keep their position) or you are dead. Some VCs call this phenomenon “negative signaling”, a sophisticated way to say “we do not believe in this anymore, it’s a dog”. Keep in mind, these are the same VCs who say they invest only in companies run by white men because of “unconscious bias”, which really means what ? You fill in the blank.
Time to go to the crowd
There is hope in this story because I am going to outline something they may not have thought about. First you need to ditch the VCs because they decided they are out. Mode Media needs to file for bankruptcy and then the founders should purchase the assets for $100,000 (I did this with Acclaim Entertainment). Then start a new company called Mode Media Again and put those assets in it. Finally, this new company owned by the founders (they own common shares) raises capital from the fans and bloggers who loved the old Mode Media. It is simple: start a campaign on one of the Online Public Offering portals, say StartEngine (my company) or SeedInvest, and send an email to the millions of emails they now own. It turns out the conversion rate is around 6%. I know that because we did it with Elio Motors and raised close to $17,000,000 from 6,300 fans of the car. Special note to the founders of Mode Media: You get to set the terms of this offering and the type of security you want to sell (freedom sometimes comes with no price and no board member to tell you what to do). Mode Media could raise $20,000,000 if 10,000 fans in 1 day!
So why not do it ? My guess is that people are reluctant to create a rebirth of a great brand. I did it with Activision and Acclaim and I have no regrets. Activision is worth close to $40B and Acclaim was sold to the Walt Disney Company. Bringing back the dead is good for the new owners and great for the fans. My advice to the co-founders Ernie Cicogna, Fernando Ruarte, Vic Zauderer, Dianna Mullins, Raj Narayan, Rebecca Bogle Arora, Susan Kare, Emmanuel Job and Samir Arora: go do it.
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The views and opinions expressed in this article are those of author Howard Marks. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:https://www.startengine.com/assets/Disclaimer.pdf
