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— Analysis —
Fernando Espuelas, known as the "Latin Bill Gates" during the dot-com bubble a decade ago, personifies these ups and downs. And his struggle over the past five years to turn his Voy LLC into a media conglomerate targeting U.S. Hispanics highlights the difficulty that even experienced tech entrepreneurs face turning an idea into a successful enterprise. Espuelas couldn't have picked a more challenging era in which to launch a media company. The Internet has transformed everything from distribution to consumer behavior.
Ironically, Espuelas erred in underestimating the one medium he should have understood best, the Internet. It took a middle-of-the-night epiphany to remind him of what he should have known all along: It's the Internet, stupid. To that end, Voy shed its old-media skin to focus on offering online music and social networking services to the burgeoning online Hispanic community. The startup has sought -- and failed -- to raise venture capital. Now, with potential buyers at the door, the company and its investors face a choice that often confronts young startups: selling for a modest, but certain, sum or continuing to operate on its own in hopes of a bigger payday. Espuelas formed Voy in 2003 as a cable TV and film production company specializing in content for the domestic Latin community, modeling it on diversified media firms such as Martha Stewart Living Omnimedia Inc. The 41-year-old had a track record in targeting such consumers. After spearheading AT&T Corp.'s online service for Latin America, in 1996 Espuelas and a childhood friend gathered some $100,000 in savings, racked up some credit card debt and launched StarMedia Network Inc., an Internet service provider that targeted Latin America. Fueled by the Internet boom, the company grew fast, eventually raising roughly $500 million from investors including Chase Capital Partners, eBay Inc. venture capital firm Flatiron Partners, GE Capital Services Inc., Intel Corp. and NBC Universal Inc. The Internet company went public in 1999, and there was a time it sported a market valuation of $3.8 billion. Then the party ended. Like many dot-coms at the time, StarMedia's sales plunged. Espuelas drew fire from investors and employees, who blamed him for hyping the company and burning through cash. The entrepreneur attributes StarMedia's demise to macroeconomic conditions beyond his control. He also clashed with StarMedia's board of directors about how "to ride out the storm," as he puts it. After Espuelas was pushed out of the company late in 2001, StarMedia was split up. Its wireless division went bankrupt, and its ISP business was sold to a Spanish rival for $8 million, which resold it shortly thereafter for $250 million to France Télécom SA. "What Fernando has been credited with is a vision that may be ahead of his time," says Adele Morrissette, a former angel investor in StarMedia and now a managing director at investment bank BMO Capital Markets Corp. of Toronto. "People who invested with Fernando early did well if they sold their stock when it went public. It was a good investment for me." Voy, which means "I go" in Spanish, amounts to a second crack at the Latin market for Espuelas, a native of Uruguay who emigrated to the U.S. with his mother in 1976 at age 9. The company is funded by angel money and $5 million from Espuelas. But venture capitalists passed on investing in the company in recent years, telling him that the company's strategic focus was too grand. Morrissette once advised a client against investing in Voy, although that was before the company's strategic overhaul. "The plan for Voy was very broad and a very big media company idea," she says. "There was too much to take on with a big idea like that with one team and one person. Martha Stewart Omnimedia didn't start with 10 channels. It began as books, then a magazine and then it went from there, building a brand step by step." Espuelas last year jettisoned the plans for the cable TV channel and dismantled the film and TV studio to focus Voy on the Internet. Today Voy offers access to free Web radio stations that play salsa and other Latin music. Its chat rooms and other social networking features bring together Spanish speakers from around the world. "Espuelas has the right idea," says Juan Guillermo Tornoe, editor of the blog Hispanic Trending, which follows Hispanic marketing trends. "The stations are playing mostly music in Spanish and 'Spanglish,' but the DJs talk in English." Yet if Espuelas had once hoped to catapult Voy into a multibillion-dollar public company, his current goals are more modest. The streamlined startup may be of greatest value to a media company eager to reach the company's audience of young, English-speaking Hispanics. Competition to reach that market is fierce, Tornoe says, with established sites such as AOL Latino, Batanga, MSN Latino, Terra Networks, Univision.com and Yahoo! Telemundo also appealing to young, U.S.-based Hispanics. "And every day there are more and more sites catering to Latinos, and it's going to be very interesting to see who gets advertisers," he says.
Espuelas says the startup has received acquisition offers from at least a half dozen potential bidders. These range from major media companies looking to acquire Voy outright to strategic buyers wishing to take a stake in the company, with an option to purchase it later, to players proposing to roll up Voy and related Web companies and go public in a reverse merger. Espuelas says Voy's greatest value is its increasing traction among its target users -- critical in the fast-moving Internet arena -- and the company's experience marketing to Latinos, noting that several Voy execs also were at StarMedia. "Build versus buy therefore becomes a much more critical consideration," he says. "Taking out the execution risk of building a platform that may not click with Latinos or may require a massive investment in branding to get traction, not to mention the general scarcity of Latin management to run it, also adds value. Our team is the only one in the U.S. to have ever built a multibillion-dollar Internet platform for Latinos." Espuelas compares the media company interest in Voy with Viacom Inc.'s
$2.3 billion purchase of BET Holdings Inc., which owned Black
Entertainment Television, in 2000. "Why did Viacom spend 100 times
Ebitda to buy BET?" he asks. "They did it because they were buying the
real thing -- an icon in the African-American Still, none of the offers he's contemplating for Voy will likely result in the big payoff investors might have counted on from an entrepreneur of Espuelas' pedigree. The company had 2007 revenue of only $500,000. Traffic is increasing on Voymusic.com, the company's primary site, and reached 2.2 million in May, up from roughly 1.5 million in January. Yet that represents only a modest audience for a niche social network, and it is considerably less than the traffic generated by other radio sites, such as Last.fm, which boasted 15 million users when CBS bought it for $280 million in May 2007. More challenging is that, as Google Inc. has found with News Corp.'s MySpace, for which it sells advertising, monetizing social networks is hard work. That, in turn, has made valuing social networks difficult.
"Multiples are all over the board," says Brenon Daly, an analyst with San Francisco research firm 451 Group. Espuelas says Voy is drawing major advertisers, such as AT&T Inc., and notes that it has run campaigns for major national brands including Nissan, Toyota, Sprint and Jeep. And while Voy's sales remain low, they are double the revenue of Quepasa Corp., a publicly traded competitor in Scottsdale, Ariz., with a market capitalization of about $30 million that reportedly draws only a quarter of Voy's monthly unique visitors. But if Voy is on the right track now, why does Espuelas want to sell? "I'm a startup junkie," Espuelas says. "If there's an opportunity here to do something that will create a lot of value for shareholders, I don't have to build a billion-dollar company to be satisfied. I can go build another one." | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The history of technology is defined by famous inventors and pioneering breakthroughs. But the story of entrepreneurship is much more often one of diminishing expectations and of dreams going by the wayside.
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