Julie Meyer: Auctions can disguise many business problems

06/01/2009 

THE thing I’ve never understood about the private equity industry is why any fund would want to compete on price if they didn’t have to? Surely, it’s a version of the greater fool theory? You pay the most; the asset is yours.

But human dynamics are such that driving up the price of a firm in an auction can hide lots of things, including systematic problems in the industry in which the company operates.

Take the acquisition of EMI by Terra Firma. Boss Guy Hands paid the most and now he’s dealing with debt payments and the fact that the most exciting deals in the music ecosystem are happening outside of the major record labels. Innovation happens at the periphery and is led by the mavericks.

To survive, an established industry must embrace the creative destruction that the web is bringing while moving faster than entrepreneurs.

But I sure wouldn’t put my money on their ability to do that. So when the founders of Enrich Social Productions came to me in June 2007 to say that they would create web versions of leading TV formats, I listened.

TV was already going “participatory”. An acquaintance had suggested to me in 2000 that I take my previous company First Tuesday, a social network for entrepreneurs to meet investors, into TV land, and I didn’t listen, only to see Dragon’s Den emerge.

KEY INSIGHT

The key insight of Enrich Social Productions is that you can’t predict a hit, but you can follow it if you have the means to move the audience to the emerging hit online.

There are millions of people who would love to audition each year for X Factor and other shows but who never get close. What if all of that could go online? The web reaches much further than TV. Today we think of someone who is on TV as a big deal. In less than two years, that fame quotient will shift to the web.

Enrich Social Productions (ESP) has been backed by Ariadne Investors and introduced to their Series A funders by Ariadne. When we started working with ESP, some investors still couldn’t see how brutal the shift would be from the TV to the web.

The breakthrough came when I took the founders to breakfast with Harvey Goldsmith at the Charlotte Street Hotel in spring 2008.

DOING THE DEAL

Harvey had invested in lastminute.com in 1998, and remembered me from that deal. He got it immediately, and said that he invested through a venture capital trust which ended up doing the deal. It doesn’t surprise me that it took an entrepreneur like Harvey to see the opportunity.

This year will be the year that the power of TV shifts to the web – only bigger.

Julie Meyer is chief executive of Ariadne Capital, and is a shareholder in Enrich Social Productions.