Photo: Photo by Journal Du Net
We just got off Skype with Fred Destin, the Boston-based French VC (and SAI contributor) who was one of the earliest investors in Dailymotion, the second-biggest video sharing site which is in the news today because its deal with huge French telco Orange.He gave us the real info about the deal, the exact terms of which are swirling with rumours, and sought to correct our earlier, sourced story about the deal. (Edit: Destin also wrote a blog post on this.)
Here’s what we learned:
- Orange CEO Stéphane Richard directly drove the deal because US investor was going to buy into Dailymotion. Orange was in talks with a potential strategic investor in the US (Destin wouldn’t say who. Do you know? Let us know, anonymity guaranteed.) and Richard wanted to win the deal. Orange, a utility, has a clear strategy to get into content, and was already a Dailymotion partner on content delivery infrastructure. So Destin says that this isn’t a “shotgun wedding” at all, as a source familiar with Dailymotion’s situation told us. And Destin says that the French government didn’t play a role in the deal. He says they took an investment from FSI, the French sovereign wealth fund, simply because they offered the highest valuation, not because of government connections. Of course, as a Dailymotion board member, that’s what he would say, but his story makes sense as well.
- Orange won’t control the company. The existing board stays in place, and Dailymotion can bring in other strategic investors. (Though we have a hard time seeing that happening with a big strategic owning 50% with an option to buy the rest.)
- Orange is not buying out existing investors. Orange gets half of the company, but everyone who is already an investor stays an investor, with half of their share going to Orange. So investors (and founders) get to cash out some of their position, but they are staying involved with the company.
- Orange has an option to buy the rest of Dailymotion at a valuation between $120 and $280 million. The eventual valuation will probably be higher, not lower. The valuation is based on the same earnings multiples as today’s and depends on how much Dailymotion grows its earnings between now and 2013, when the deal expires.
- Dailymotion expects to reach more than $50 million in revenues two years from now, up from $25 million last year.
- Dailymotion is a success story. It’s the world’s biggest video sharing site after YouTube, which is both a blessing and a curse, Destin told us. On the one hand, it managed to survive and keep growing even though most other video startups like Veoh and MetaCafe crashed and burned. On the other hand, it’s very hard to build a huge business in the shadow of YouTube, “the biggest online success story after Facebook.” Dailymotion remains one of the world’s 35 biggest sites and the biggest digital media property in Europe, and Destin reminded us that the site actually got started before YouTube.
- Dailymotion has a sound business model. Dailymotion has gotten its ad sales and technical infrastructure to the point where unit economics works: each incremental dollar it spends brings in more than a dollar in revenue. What’s more, time is in Dailymotion’s favour, given the ever shrinking costs of storing and delivering content online.
- Investors are happy with the outcome. Destin told us his LPs are happy with the deal, which is a good multiple and contributes meaningfully to the fund in dollar terms. Destin was a Series A investor, however, and we doubt that’s the same for later stage investors.
So there you go. The full story behind the Dailymotion-Orange deal.
Given Orange’s strategy of going into content, this seems like a good deal for them, at least if that’s what they want to do. Whether the overall strategy is right for Orange is another question. And for Dailymotion, investors and founders are getting a good price for a company that had a few near death experiences and managed to build an actual, profitable, growing business in online video, which can’t be said of many.