Podtech takes on more debt — but must decide whether fish or fowl

updated

Plenty is being written about the woes of podcast company Podtech.

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Now the company tells us it is taking on more debt, and will be making an announcement soon. This follows a recent $2 million round of fresh capital reported last week.

Podtech, a San Mateo, Calif. launched more than a year ago to create content that could be streamed to viewers, and planned to find advertising to insert inside of the content.

It was never clear what the business model was. The whole point about the new Web is that it is so cheap. You don’t need millions to produce content, or to distribute it — and yet Podtech initially raised $5 million to do so. we’re not surprised the company is now struggling.

Podtech, of course, is far from alone. Another company, Podshow, has raised close to $24 million. A wave of video content creation companies have subsequently launched this year. You’ve seen us become increasingly skeptical about the latest video companies, which continue to get millions of dollars of venture capital in backing.

Without a clear way to make money, Podtech is just the first of what will be many finding themselves backed into a corner. Perhaps that’s why Podtech’s public behavior has become odd. Techcrunch recently wrote a post, noting a change in strategy by Podtech to aggregate videos produced by others and to seek to find advertising for it all — using its own video player technology for distribution. Techcrunch was first to note the company had raised an extra $2 million from its existing investors U.S. Venture Partners and Venrock.

Yet several weeks ago, we’d actually heard about this funding from a source, and contacted the company for comment. Podtech’s PR person Valerie Cunningham said an announcement was pending, and suggested we talk with CEO John Furrier. However, Furrier proceeded to contradict Cunningham and said no money was being raised. He said a new round was being raised in fall. (See our resulting story, where we also wrote about Podtech’s new distribution strategy and its relationship with National Banana and RockinCat.)

Imagine our surprise when it it was later revealed that the internal funding had indeed happened. Furrier apologized last week for his evasiveness, explaining that he’d been in the process of raising a round (what he should have done was simply say “no comment”). Now he tells us the company is in the process of raising new debt, too, and will soon issue a press release about that.

There’s no point heaping more criticism on Furrier and Podtech at this point, because they’re under pressure and knowing the people working there, they mean well.

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However, the company continues with a cloudy notion of where it is headed. Furrier’s post Friday describing the company’s “focus,” is anything but focused. Here is what he said:

7. focus of the company: 1) editorial content, 2) develop media franchises through signing (aggregation) of professional producers and in house development (our studio), 3) continue to be the leader in social media for our clients, 4) innovate on the social media ad models that we are developing, and 5) media technology platform

Unlike Techcrunch, we see little hope for Podtech going forward. It is neither focused on unbiased content creation, nor on developing an advertising platform to distribute video. If it is to survive, it must pick one or the other.

Another company, Odeo realized something similar, and actually gave its money back to its investors and took a different tack (we pointed to founder Evan Williams’ public confession about the matter here).

Podtech’s original model would have worked had it not taken venture capital. There’s plenty of business to be made producing marketing pitches for large companies, which it appears to have done with clients like Seagate and Intel. This is work that advertising/marketing agencies do, but there are plenty of these agencies, and you don’t need to be venture backed to do this. Podtech could have filled a niche in that industry, but now has taken too much capital to settle for this.

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Meanwhile, how does it justify pumping $500,000 into special shows only to lose their anchors?

We should note that the whole relationship between Podtech, U.S Venture Partners and other portfolio companies is convoluted. In National Banana, US Venture Partners’ Steve Krausz invested in a company run by the husband of his sister. That company is now apparently distributing content through Podtech. Krausz told us his only experience investing in a media company prior to this was Palladium, a video game company that produced parodies on popular games (such as Pyst, in a parody of Myst) back during the late 1990s. The company struggled for some time. Krausz told us the company was sold for a small profit, but another source suggests it was sold at a loss. We’re checking public filings to verify. [Update: Here’s what we’ve found. At time of sale, the deal was essentially breakeven to tiny profit, technically justifying Krausz’ use of the term “profit.” However, by the time U.S. Venture Partner’s investors got the stock, many of them realized losses on it.]

But National Banana, with backing of $1 million, is run by Anthony Bettencourt, a former Entrepreneur in Residence at USVP who also has no media experience. Krausz says the project is an experiment, and worth doing given the huge changes going on in the media world. That’s fair enough. But if you want to do that, you should have a clear strategy about how to do so.