Viddy raises $2.86M amid executive departures and an attempted turnaround [Updated]

By Michael Carney , written on May 1, 2013

From The News Desk

Update: In an email response to our request for comment, President JJ Aguhob said, "We didn't raise any new capital. We did some share reissues that triggered the Form D. But the form doesn't show an offsetting redemption, hence it looks like a raise but it's not."

It’s been a tough spring for Viddy, which first ousted its co-founder and CEO Brett O’Brien from his operational duties and recently saw the voluntary departure of co-founder and VP of Business Development Chris Ovitz. The company appears to have gotten a bit of good news in the last week, having closed $2.86 million in new equity financing according to an SEC filing.

It’s a surprising turn of events given that Viddy raised an enormous, celebrity-fueled $30 million Series B round at a massive $370 million valuation exactly 12 months ago. While the road has been a rocky one, it would be difficult to spend all that capital in such a short period of time.

With new cash in the bank last Spring and a lot of excitement around the platform, the company did invest heavily in growth. According to a conversation I overheard a few months ago involving a Viddy exec and another founder, the company was burning nearly $1.5 million per month for the remainder of the year – which would pencil out to roughly $12 million of $30 million spent by year’s end.

The investment, combined with viral fuel from Facebook’s Open Graph helped swell monthly usage to approximately 30 million unique users by mid-summer, but this number fell as quickly as it rose and settled around 4 to 5 million in February of this year, according to Viddy board member and Battery Ventures general partner Brian O’Malley. This drop was coupled with a relatively underwhelming $60 million exit by Viddy’s closest competitor, category No. 1 Socialcam.

With a decline in usage and a massive valuation hanging over its head, the company dramatically cut burn to below $400,00 per month earlier this year according the same Viddy exec. At that rate, the company should still have more than $10 million in the bank – outside of any unforeseen major expenses.

In response to his exit earlier this month, Ovitz told TechCrunch, “[Viddy] really need[s] to focus internally on product and technology [currently], so there’s not a lot of business development for me to do there.” This corresponds with what we’ve heard from other sources, namely that the company is looking to pivot in search of a more sustainable product and business model.

With fresh new capital, and presumably a healthy sum left from the previous round, Viddy should have a substantial runway left to give this turnaround a solid effort. And the fact that it articulated a compelling enough vision to convince someone(s) to part with nearly $3 million at this stage is a relatively good sign. Whether the company can attract and maintain the talent needed to pull it off is another challenge.

Since O’Brien’s departure, President and co-founder JJ Aguhob has been the high ranking man on the totem pole. The board has been looking for a replacement CEO but has yet to make any announcements to that effect. Given the amount raised to date, whoever the company brings in will be facing a $39 million high watermark that they must cross in terms of exit valuation before management sees any material upside. That is a heavy burden to carry for a company that you did not found, and thus are less emotionally invested in than most startup CEOs.

Viddy is a classic case of getting out ahead of your skis. As one local VC put it recently, “The company raised money amid a hype-cycle [fueled by the Instagram sale and free growth steroids from Facebook’s Open Graph]. The hype cycle ran its natural course, as they always do. Now the company is now dealing with the aftereffects.”