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Take Five with Stephan Paternot​: Lessons of a ‘dotcom whiz kid’

Stephan Paternot has been described as a social media pioneer, but his tale of instant riches and rushing to take his company public is a cautionary one.

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IB: If you had resisted the pressure to go public, it would have saved you a lot of headaches and heartaches, but how would have developed if it remained a privately held company?

“Facebook isn’t really innovating anymore. Mark Zuckerberg has become very distracted and unfocused.” — Stephan Paternot

Paternot: It would have developed more slowly, but the late 1990s internet era was a land grab where it was very much an attitude of winner takes all. It was more about grabbing turf. Once you have a product that gains traction, it was grow, grow, grow because your competitors are coming for you. So, the name of the game became whoever has the most capital can acquire the most users and build the most and outlast everyone else. So, in that environment, where everyone says profits are irrelevant and it’s about growth at all costs, you don’t have a choice. In that era, we didn’t have a choice because private companies weren’t raising hundreds of millions of dollars privately. To raise that type of money, you had to go public.

Nowadays, it’s very different. It’s still a winner-take-all model, but just like you’ve seen with Uber, for instance, most of these internet companies have done A rounds, B rounds, C rounds, D rounds, and E rounds, and they have raised $10 or $15 billion in private money. They have taken it as far as they can go and raised more money than most companies do in an IPO in order to stay private and keep growing. So, the market has now changed to actually help companies get much bigger and stay private longer. It’s just better. You stay more competitive. You’re scrutinized less.

IB: You were attracting advertisers and growing revenue every quarter, yet your stock price was being tanked. You were being knifed from behind the scenes by your own investment bank.

Paternot: That’s right.

IB: It had to be just an incredibly frustrating exercise to go through.

Paternot: Absolutely. One of our board members, Bob Halperin, had been part of several major companies, including Intel and Raychem, and he gave us advice early on. He said, ‘Guys, don’t focus on your stock price. Just focus on the business. If you take care of the business, the stock price will take care of itself.’ So, Todd and I, as hard as it was when you’re public and everyone is talking about your stock … we did our best to just grow the business. Raise the revenue, monetize the users better, make some acquisitions. We kept growing our traffic and growing our revenues. But despite that, because the stock had gone up 1,000 percent the first day, it spent most of the time sliding back down. Temporarily, on good results that we announced, it would move back up a bit, but ultimately, we were overvalued relative to when we went public, and so the people who bought the stock eventually dumped it despite the good business results. So, there was this cognitive dissonance where Todd and I kept improving the top line of the business, the bottom line of the business, and we were being rewarded with a falling stock price. That’s what was most frustrating for us.

IB: Do you consider yourself a pioneer who ended up taking the arrows for others? Or is that too lazy a way to describe your business legacy with

Paternot: I feel that our legacy is defined by how others see us. I don’t know that I can state what my whole legacy is. I told my story in the book. I never describe myself as a social media pioneer, but that seems to be the label that others have subscribed to us in the Facebook era.

So, our business model was validated. Since Facebook became a wild success, of course the internet made a giant comeback. People then started saying, ‘Oh, those kids were, I guess, a couple of dotcom whiz kids. They were social media pioneers.’ I have to accept it whether I like it or not. At first, to be honest with you, I was envious and resentful and had a lot of emotional baggage tied to being compared to Mark Zuckerberg because it was like, ‘Great, he gets the real credit for being the real inventor of social networking and proving an online community has real value.’ I was a little resentful at first, but eventually I accepted that if that’s what people are going to say when they compare us — OK. I could think of worse comparisons, and Zuckerberg became a wild success, and we live in a Facebook world, but of course wait another 10, 15, or 20 years and Facebook could be a bad word.

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