There is a lot of funny money on Facebook, but it is getting really bad. Startups are trying to raise money based on virtual valuations. Earlier this week, I wrote about a fishy Facebook organization in the making called the UADA. It is listed on Facebook-stat site Adonomics as the biggest Facebook app company, even though it doesn’t seem to exist yet. Altura Ventures, a Facebook-focused VC firm which owns and operates Adonomics, is also behind the UADA and is conveniently using Adonomics to promote the mystery company before its launch on February 29.
But the UADA isn’t even funded yet. It turns out that Altura is trying to raise a seed round of $250,000 for the UADA, and another $250,000 for Adonomics, which will be spun off from its parent company, KallOut. (Stay with me, Altura and KallOut are two entities that are joined at the hip). From a letter to prospective investors (which I’ve printed in full in comments), the UADA is described as a “virtual roll-up of the facebook developers’ ad real estate that will likely represent 200 to 400 million installs, 40 to 50 million unique and 6 to 10 million daily active users.”
Notice the term “virtual roll-up.” A real roll-up would be a company aiming to buy up the best Facebook apps. That would actually make sense since there are more than 16,000 Facebook apps and consolidation is inevitable. But the UADA is not actually buying anything. Instead, it is trying to sign up Facebook app developers to its “cooperative” which will cross-promote their applications and run advertising across the network of apps. The reason this is only a”virtual” roll-up is because the UADA will only collect 20 percent of any revenues generated across the network. So it is really just a marketing agreement.
Lee Lorenzen, the CEO of Altura Ventures and interim CEO of the UADA, has bigger dreams. And they are dreams. The guy has not even raised his $250,000 seed round yet, and he is already counting on closing a $3 to $6 million series A round by May 24. Not only that, he’s also got his IPO all planned out, at which point all the developers who sign up for the UADA will miraculously agree to reverse the revenue split 80/20 in the UADA’s favor in return for cash and stock. Sounds good, except that the letter to potential investors makes clear that no “definitive agreements with TheUADA members” have even been signed.
Here’s the part I love. Lorenzen is apparently clairvoyant:
This company will be profitable from day one based on its 20% share of ad revenue on 1 to 5 billion page views per month under management. . . . Upon IPO, this company will have $30+ million in revenue and $20+ million in earnings and long term rights to all the ad real estate of the majority of top apps on Facebook. From this platform, TheUADA will buy or build a suite of category killer apps (e.g., dating, gifting, shopping, calendar, etc.) for the mainstream social operating system (this is equivalent to the position the Microsoft Office Suite enjoys on Windows).
This is the next Microsoft, folks! And you can own one percent of it now for only $25,000!
Oh, and did I forget to mention that the $500,000 Lorenzen is hoping to raise for both the UADA and Adonomics will go towards “transferring some of KallOut’s IP into these businesses to fund KallOut’s operations.” That’s right, KallOut’s operations, not the UADA’s or Adonomics. So how will the UADA function? Lorenzen and KallOut employees will provide “engineering and management services” to both the UADA and Adonomics for a mere $100,000 a month (this is on top of the $500,000). Talk about cashing out the shareholders before you’ve actually done anything.
If you receive this invitation in your Facebook inbox to invest in the UADA, my advice to you is to just delete it and unfriend whoever sent it to you.