Posted on January 10, 2008
Filed Under Bubble Watch |
In my new column, Bubble Watch, I will highlight what I see as signs of the growing bubble commonly called Web 2.0.
Washington-based LiveMocha has raised $6 million in a first round of funding led by Maveron Equity Partners. by PaidContent:
The site offers lessons that users can sign up for, as well as the ability to converse with other users for practice. Members can also offer tutoring services using the site. The site, which launched in September, is hoping to offer an alternative to traditional at-home language learning packages that come on CDs or CD-ROMs.
$6 million for a “social network for learning languages” seemed a bit much when I read this, so I decided to explore further. I went to LiveMocha’s website and luckily enough, the company’s “About” page is written like an executive summary:
LiveMocha is an exciting Web 2.0 startup founded by a group of experienced and successful entrepreneurs based in the Seattle area. We started LiveMocha to ride one of the greatest macro economic trends of our time - globalization.
According to Goldman Sachs, by 2025, the BRIC economies will account for more than half the GDP of the G6 economies and by 2050, they will be larger than the G6 economies. Along with globalization, we have seen a tremendous boom in immigration and travel between various countries. In 2000, over 95 million people immigrated to other countries. International arrivals are projected to grow from 694 million to 1.6 billion by 2020 with East Asia and the Pacific expected to record the highest growth rates
Like many other Web 2.0 companies, we believe we can significantly disrupt the market and deliver significant new value by leveraging the latest trends in social networking to connect people in new and exciting ways and leverage their collective intelligence. Our business model involves advertising, but is based on the foundation of a real subscription model that will generate substantial revenue. Over time, we will build the scale necessary to serve up a highly profitable advertising model
At this time, LiveMocha is brewed with a substantial amount of java beans from its founders, as well prominent angel investors. Our founders have a significant track record in raising funds - over $50 million for past ventures! Adding to their credibility, they have sold their previous companies to well known corporations like Research in Motion.
We are excited to announce that we have been selected to unveil our groundbreaking technology at DEMOfall 07: the premier event with an unparalleled reputation of showcasing the best technologies that will shape our future and enrich our lives.
After reading LiveMocha’s description of itself, I couldn’t help but ask myself: “What exactly does this company do?” In other words, the company’s description rattles off little more than buzz words and marketing hyperbole. If I was reading this as an investor reads an executive summary, I would have to ask myself:
- How does the company plan to ride one of the greatest macro economic trends of our time (globalization)? We’re not really told.
- Just what relevance do the Goldman Sachs statistics have to the real market that LiveMocha is attempting to target? LiveMocha is clearly not going to tap into all facets of “globalization.” It’s trying to tap into the market for technology-based language instructional products and services. That’s not as sexy, however.
- The company states that it believes it can “significantly disrupt the market and deliver significant new value” but still hasn’t really stated what market it’s disrupting and who new value is being delivered to. “Leveraging the latest trends in social networking to connect people in new and exciting ways and leverage their collective intelligence” sounds like something generated by bullshitr.
- How does the founders’ track record in raising funds from investors build any confidence that this opportunity (which still hasn’t been made clear) is a good one? I find these types of statements to be little more than the entrepreneurial equivalent of the appeal to authority logical fallacy: I have previously raised a lot of money from investors for other companies, therefore my current company must be a good one. According to LiveMocha, its founders have raised over $50 million for past ventures. The company’s CEO, Shirish Nadkarni, founded TeamOn Systems, which was sold to RIM in the second quarter of 2002. According to RIM, it acquired three companies in that quarter for a total of $20 million in cash. Obviously, this means that the TeamOn acquisition was less than $20 million. Unless the LiveMocha management team has some blockbuster acquisitions in its past that aren’t being publicized, it appears unlikely that the $50 million investors have given them has generated a fantastic return, especially when you consider that the $50 million raised probably didn’t buy investors 100% of the companies they invested in.
If LiveMocha’s “About” page was a real executive summary, I would have tossed the entire business plan in the garbage. But fortunately, the company posted a video from its DEMO 2007 presentation and I took the time to watch it. It better described and demonstrated what the company is doing, but I was still not impressed:
- Shirish Nadkarni believes that CD-ROM-based language instruction is so 1990 and that his company’s Web 2.0-based solution is the 21st century answer. I find this less-than-exciting and less-than-revolutionary. At best, it’s evolutionary. The company is taking what was previously distributed on a CD-ROM to the Internet and adding “community.”
- Nadkarni notes that “the best way to learn a language is through immersion and real-life interaction with native language speakers.” Maybe I’m an idiot, but I don’t think that the Internet is equivalent to true immersion and real-life interaction. This is akin to saying “the best way to see a country is to visit it” and then promoting the solution as a website that allows you to watch videos posted by people who actually went.
- The conversational tools hardly seem effective or efficient. I do not think that being asked to write a paragraph in Spanish, for instance, and having to wait for the Spanish-speakers in “community” to respond with comments about my writing is the ideal way to learn Spanish. Learning a language effectively is about hands-on interaction during which immediate feedback can be received. Even the audio-video chat client offered by LiveMocha seems like an awkward way to interact with somebody who is teaching you something.
- An online “motivational framework” that relies on the “community” to help you “stay engaged and on task”? Please.
As a native English-speaker who learned Spanish through real-life schooling starting in eighth grade and, most importantly, by spending many of my teenage years around my South American friend and his family, I personally don’t see LiveMocha as an ideal tool to learn a new language, just as I think that most people find instructional CD-ROMS to be less-than-ideal.
Of course, there is a market for these types of tools regardless of how ineffective they probably are for most learners. The viability of businesses that sell instructional CD-ROMS is evidence of this. However, last time I checked, those companies actually generated cash flow from the sale of a tangible product and therefore weren’t raising millions of dollars from venture capitalists because they didn’t need to.
From an investor’s perspective, I just don’t see LiveMocha as being the type of opportunity that warrants outside investment (and certainly not $6 million). I don’t believe that there has to be a technology-based (or Web 2.0-based) product for every single market and in this case, I do not believe that the company is providing a compelling solution to a problem for which there are no effective existing solutions. As such, I suspect investors will be saying “hasta la vista” to their money on this one. But at least at their next startup, the LiveMocha team will be able to boast that they’ve raised more than $56 million for previous ventures.
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