The Worst Investment Ever Made

Tuesday, 15 March 2011 16:54 by The Lunatic

The height of the “dot com” boom was a pretty crazy time for investors; venture capitalists were investing huge sums of cash with any entrepreneur who could type the word “internet” without using a spell checker. People made some really BAD investments and only a few of the startups from that period are still operating today.

But there’s one deal that really takes the cake. This acquisition was so absurd in its reasoning and so insidious in scale that I’m surprised the story hasn’t been made into a Hollywood feature film.

Let’s back up a few years, to 1996. This was the year that yours truly joined a small internet startup called VXtreme, an early pioneer in streaming video on the web. VXtreme had actually developed a viable technology and we created what was arguably the best streaming video platform (codecs, encoder, player, server) in the world at the time.

Remember that in 1996, people were connected to the internet with 28.8Kbps modems – or if you could afford it, you might have one of the spanking new 56K modems.  Whoo-Hooo! Blazing fast internet it was, indeed. Delivering real time streaming video over such a connection was problematic at best – but it was SO exciting to see a media player embedded in a web page, rendering real time video with a resolution of 160x120 pixels at a whopping 15 frames per second refresh rate! We were truly on the bleeding edge.

In just over ten months, we built the company, produced the product, engaged a bunch of high profile customers, and sold the whole thing to Microsoft for about $74 Million (and to set the record straight, I was not one of the founders or shareholders – just a “late hire” marketing manager, with options that were only worth about 1/10th of 1% of the company).

It was a fair valuation for VXtreme.  Our technology was merged in with the “NetShow” product that Microsoft had been struggling with, and the platform was eventually renamed “Windows Media”. Even today, the Windows Media Player, Windows Media Audio/Windows Media Video file formats, Silverlight, and the More...

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