JPG Magazine, Hubris & Fear

I am sharing my thoughts about the recent events at JPG because it would appear we will not be selected as the new caretaker of JPG.  I received an email from Ron Palmeri from Minor Ventures (they own 52% of JPG) indicating that discussions with potential acquirers such as myself had ceased.  He indicated that there are over 20 interested in parties who have made offers that include significant cash components.  Minor intends to accept bids until close of business Pacific time on Wednesday.  Of course, this is a big turnaround from the email we received on January 1st indicating JPG would be closing down.  My question was ‘how did we go from shutting down, to a bidding war?’  The answer?  HUBRIS & FEAR!

Once considered the greatest sin in ancient Greece, hubris is one of the leading cause of the failure of venture backed companies.  Raising money is a tricky endevour.  On one hand you need to show that you need money, while at the same time somehow suggest that you don’t really need the money.  Raising money is like walking a tight rope.  If you act desperate suggesting, “If we don’t get something closed before New Years Day we will have to close.” you may get your money, but at a VERY unattractive price.  On the other hand if you don’t admit that the doors are closing interested investors may not act fast enough.

More importantly, CEOs of companies on the brink of collapse often hide their troubles from their customers, partners and potential acquirers.  Ironically, since many potential acquirers are competitors too, it may seem counter intuitive to reveal the extent of your troubles to them - this is a mistake.  When all else has failed you can almost always find someone willing and able to take over your company.  When you are about to die it is a VERY small risk to take - reveal your situation to every potential partner/acquirer.  Give them a chance to help save your business, if not your job.

In JPG Magazine’s case the company had ZERO debt and no vendor liabilities - basically a clean slate.  This was the easiest deal in the world for anyone like Smugmug or Flickr to do - but they had no idea JPG was in trouble.  They only learned of the opportunity AFTER JPG’s CEO announced he was closing the business.  The truth was, Mitchell Fox and his team couldn’t find anyone interested in funding their business model - it wasn’t because no one wanted JPG.  JPG at some price, with a different business model, with a different management team would be a GREAT investment.  Ironcially, even during our conversations on Friday, Mitchell was still under the impression that the business was sound and all he needed was money.  He felt he was best positioned to make JPG succeed and any plan that didn’t include him or his team wasn’t even a possibility he had considered.  Since Mitchell had already announced to the world he was shutting the company down - fear was no longer the issue - the only issue that remained was hubris.

Once it becomes clear your business is insolvent (i.e. you are about to run out of money) it is time to start thinking outside of the box.  Quit thinking about your job and start thinking about the shareholders (hopefully you are one too).  It doesn’t take a rocket scientist that there are a hundred potential acquirers of JPG - if you are willing to let your business go to ZERO I can only think hubris is to blame.  Flickr would love to own JPG at some price - of course they wouldn’t need Mitchell or Devin.  SmugMug would love to own JPG at some price - they wouldn’t need Rex or Kristine.

This post might sound a little like sour grapes, but in reality I am VERY much guilty of the EXACT same behavior.  I lost $20MM of venture capital because I wasn’t willing to admit to my competitors that I was in trouble - I was too interested in saving face and my job.  Of course I always thought we would be able to raise the money or sell the business - I drank my own KoolAid.  Had I called 5-10 competitors I could have likely found a competitive buyer for the company - instead I focused on raising more capital that would keep me in charge or a strategic buyer whow would keep me and my team around.  I acted out of fear and hubris.  In my defense we had a HUGE built in burnrate - i.e. JPG has no debt or liabilities.

Stay tuned, if I learn any more about the transaction I will keep you posted.

Written by Alexander Muse |