There is no question that Flipboard has an early lead in iPad news consumption. The company just raised a massive $50 million B round to cement that lead. This comes in between iPhone photo app Color raising a $41 million A round, and LivingSocial raising $400 million so that its founders and early investors could take half of that off the table. There is obviously a lot of venture money sloshing around, especially for high-quality companies and teams.
When investors offer startups a huge pile of cash at favorable terms, it is usually a good idea to take the money. And that’s exactly what Flipboard did. But does an iPad app company really need $50 million? And does taking too much money ever backfire? Flipboard is no lean startup.
Even if Flipboard wants to expand to other devices such as the iPhone, Android and so on, that doesn’t require that much cash. Maybe he needs all that money to build out an ad sales force (those are expensive). All of which begs a question which I asked Flipboard CEO Mike McCue last night on Twitter:
@shervin @mmccue what do you need $50M for that you couldn't do with $20M?—
Erick Schonfeld (@erickschonfeld) April 15, 2011
That sparked a debate between us. McCue fired back a series of answers:
@erickschonfeld @shervin considered that scenario seriously. I want to have plenty of runway left before we get to cf+ or new financing—
Mike McCue (@mmccue) April 15, 2011
@erickschonfeld @shervin also, this raise reduces risk of any unnatural forcing functions to generate cash which cld throw us off vision—
Mike McCue (@mmccue) April 15, 2011
@erickschonfeld @shervin finally, we will be insanely careful abt how we spend so we'll preserve options like doing small acquisitions,etc—
Mike McCue (@mmccue) April 15, 2011
McCue’s desire to avoid “unnatural functions to generate cash” strikes me as strange. That’s certainly a popular way to build startups: get consumers to fall in love with your product, then figure out how to charge for it later. But generating cash is one of the defining characteristics of every business. There is nothing unnatural about it.
@mmccue @shervin there's nothing "unnatural" about companies that generate revenue.—
Erick Schonfeld (@erickschonfeld) April 15, 2011
McCue realizes this, and he had a good response. The $50 million gives him time to find teh best revenue model.
@erickschonfeld @shervin of course not. The key is to try to give company enough runway to pull off big vision vs. retreat to survive.—
Mike McCue (@mmccue) April 15, 2011
@erickschonfeld @shervin in other words: not all revenue is created equal. Best to go after most valuable revenue vs easiest. Takes time.—
Mike McCue (@mmccue) April 15, 2011
And then Shervin Pishevar, who somehow got pulled into the debate, ended it by Erickrolling me:
@erickschonfeld @mmccue I'll just leave this here: http://t.co/bgrRIZM
—
Shervin Pishevar (@shervin) April 15, 2011
Longtime Silicon Valley entrepreneur Mike McCue founded Flipboard in early 2010, with former Apple iPhone engineer Evan Doll. Together they set out to build a global service that would let people make all of their news, photos, and videos from across social networks accessible from a single place. In July 2010, they launched Flipboard for iPad: a social magazine that brings people the most informative, entertaining and amazing stories from around the world and from their daily life. With each flip,...
Flipboard is a digital social magazine that aggregates web links from your social circle, i.e. Twitter and Facebook, and displays the content in magazine form on an iPad.
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