Posted on December 19, 2007
Filed Under Web 2.0 Kool Aid |
I was intrigued when I read a December 10 article on TechCrunch about a Canadian social networking startup named Capazoo. The article mentioned that the company had raised no less than $25 million - all from private investors and not VCs. Quite an accomplishment. The name Capazoo sounded familiar, however, and sure enough, there was a reason - Capazoo had launched a year earlier as a Flash social network that didn’t go anywhere.
Further intrigued, I tried to find out more about Capazoo and the people behind it, especially after reading a TechCrunch comment that made some serious allegations:
Unfortunately this is a ponzi scheme on a number of levels.
The company (from my private sources who have seen the deal) raised $8 million on a pre-money $76 million from private angel investors who knew nothing about tech. This primarily came from famous sports personalities who knew nothing about investing in startups and were chasing the exhaust & hype of the MySpace acquisition going back to 2005.
They then raised another $7-8 million in cash from another group of similar angels at a valuation that was over $125 million.
They used the hype of famous people investing to get other famous people investing while spending their cash at pre-bubble levels.
A bunch of unsophisticated investors have thrown close to $15 million of real cash that my sources say has been spent. There money is ALL GONE.
The company is on the verge of missing payrolls, since they staffed up last year to more then a hundred employees and a burn rate of over $1.3 million a month they have spent almost all the real cash they raised.
No VCs will touch them due to the crazy valuations and a cap table that includes hundreds of small angel investors throwing in $100-$200k chunks.
They now run around raising more funds on a month to month basis to keep the doors open, all the while they have less then 10,000 members on the site and continue to burn huge amounts of cash.
This is without assessing the merits of the idea which combines as pointed out by Duncan basic social networking features with an AllAdvantage multi-level marketing scheme.
Their place in the deadpool is coming a lot quicker then you may have realized.
My bet for the deadpool insertion is by April 2008 they will be gone.
Other posts (like this one) make similar claims and indicating that the president of Capazoo is a former professional athlete seem to give credence to the possibility that “famous sports personalities” did make up some of Capazoo’s investors.
Regardless of these claims, however, the fact that Capazoo has raised such a large amount of money from unknown sources seemed odd, especially given the fact that the company apparently failed miserably in its first attempt and currently appears to have a registered userbase in the 5 figure range, hardly making it a bonafide player in the social networking space. Odder was the fact that Capazoo signed a large deal with infrastructure provider SAVVIS to “sustain the company’s rapid growth” which just didn’t seem to exist. And oddest of all was that the names of the people who appear to make up Capazoo’s management team don’t seem to have any past associations of note in the technology or consumer Internet markets.
At worst, I thought, Capazoo is playing a “pump-and-dump-style” PR game hoping to create the impression that it’s a more viable player in the social networking space than it currently is. At best, I thought, Capazoo’s founders have big dreams, at least $25 million worth of good connections and are going to go balls out trying to compete in the oversaturated social networking space regardless of the slim odds. And then I noticed Capazoo’s press release from October 26, 2007:
CAPAZOO.COM OFFERS LINDSAY LOHAN POST-REHAB RECOVERY DEAL
Offer Would Cover Housing, Rehab, Compensation for Lohan’s Migration to Capazoo.com
New York, October 26 – Capazoo (www.capazoo.com) today announced their full and unequivocal support for embattled starlet Lindsay Lohan by offering her a new online home (and income) via their unique social networking and online entertainment site.
Details of the proposed agreement include one year’s rent for a luxury apartment in Manhattan or – should matters take another turn for the worst – funds for a fourth rehab stint.
Ms. Lohan would also benefit from Capazoo’s social networking model, which allows members to monetize their online popularity through the practices of Tipping and referral bonuses. Capazoo executives estimate that, should Ms. Lohan abandon her much ballyhooed MySpace page and move to Capazoo, she could garner over $1,000,000 or more within a few months of operation.
One of Capazoo’s primary missions is the support of charitable organizations and causes. Given Ms. Lohan’s much-publicized need for financial and moral support, Capazoo executives extended this offer of support in return for her joining their online community.
“We believe Ms. Lohan is talented, beautiful and deserves support as she reassembles her life,” stated Luc Verville, CEO of Capazoo. “Capazoo.com is the perfect platform for Ms. Lohan to monetize the re-launch of her career.”
As a means of expressing their desire to work with Ms. Lohan, Capazoo recently launched the “Help Lindsay” page (www.capazoo.com/helplindsay) on their site, allowing Members and Lindsay’s fans to post to the site, Tip generously to generate immediate income for Ms. Lohan, and beseech her to join their burgeoning Web 2.0 community.
Huh? Perhaps Capazoo’s recent tie-up with National Lampoon is very appropriate because after reading this press release I could only think one thing: Capazoo is a joke.
Not only does the press release itself remind me of something I might write as parody, but it’s almost mind-boggling that Capazoo executives would seriously “estimate” that Lohan could make “$1,000,000 or more within a few months of operation” on their “burgeoning Web 2.0 community” which, at the time, had only launched four days earlier.
But I digress. If Capazoo is making its way to the deadpool, at least it seems it’s going happen in an entertaining fashion - something suit and tie VCs would never allow! I can only hope that some of the company’s burn goes to future press releases of an equally-humorous nature.
Speaking of which: Amy Winehouse was just arrested. I think there might be an opportunity here for Capazoo. Since her drunken performance at a concert cut her tour short, she’s out some money. What better place to relaunch her career and recoup some of that lost money than at the social network that seems to know all about relaunches: Capazoo.Print This Post