Swinging for the Fences

“The problem isn’t raising the money,” says 44-year-old entrepreneur Mike McCue, referring to startup funding. “The problem is spending the money.”

As he speaks, McCue is talking into a headset while bicycling from his home to his newest startup, Flipboard, which makes an iPad application that transforms social media feeds into an elegant, print-like magazine.

The 21-month-old company has yet to develop a business model; McCue is contemplating running full-page ads and allowing publishers to charge subscriptions to their Flipboard-rendered content. Yet Palo Alto, Calif.-based Flipboard has already raised $60 million in venture funding from Kleiner Perkins Caufield & Byers, Index Ventures, SV Angels and numerous high-profile individuals, including Jack Dorsey, the co-founder of Twitter and Square.

Is it too much? McCue acknowledges that we are “definitely in an up cycle,” in terms of the “sheer amount of venture capital in the market.”

He declines to call the current atmosphere bubbly in which a pre-revenue company raises tens of millions of dollars. And he expresses zero regret about putting Flipboard in the position of having to swing for the fences. That’s how it should be, he suggests.

“You can own 100 percent of a $100 million company, or you can own 20 to 30 percent of a $10 billion company. It takes the same life force, trade-offs, and commitments,” he says.

Certainly, industry watchers still remember McCue’s last big hat trick: TellMe Networks.

TellMe’s launch benefited from impeccable timing. McCue had sold his first startup, Paper Software, to Netscape in 1996. Sensing another opportunity, after serving as Netscape’s vice president of technology and sensing opportunity for several years, McCue and Netscape colleague Angus David struck out on their own in early 1999 with an idea for a voice recognition startup.

Investors lined up to stuff their pockets, too. Within 14 months, TellMe collected what seemed like an absurd amount of funding, even by bubble standards: $263 million when all was said and done.

The company could easily have become yet another cautionary tale of excess. Instead, TellMe sold to Microsoft in 2007 for $800 million in a successful and hard-earned outcome for all concerned.

McCue admits that so much capital enabled TellMe to “try to do too many things at once,” including, specifically, building two businesses at the same time. But both businesses did get built out, ultimately. And McCue insists that “one of the reasons TellMe outlasted competitors and survived and thrived through the bubble’s burst and recession of 2000 was that we raised so much money.”

Plainly, McCue is taking the long view again with Flipboard. Despite the startup’s full coffers, it still employs just 40-odd people. It’s focused on “one model—one business opportunity,” McCue says. And although the company may not be making money, McCue says he refuses to chase revenue until the time and circumstances are right.

“We want to be able to build our business in a way that enables the right kind of revenue model as opposed to the wrong kind of revenue model, [one] that would be easier but not as good for our consumers and partners. We’re optimizing for our partners first and for us second, and we’ll only expand as revenue opportunities start to become clear.”

As with any startup, that won’t be easy, no matter how much money Flipboard is now sitting atop. The company needs roughly 150 million publishing partners to become the multi-billion dollar business it aims to become, for example. Thus far, it has lined up just 35 domestic publishers, and it was recently blocked in China.

That doesn’t concern McCue.

“We’re blocked in China, but we’re trying to figure out what the right approach is to the country and have some ideas there that I can’t disclose at the moment.” In the meantime, he says, “I do think we’ll find that in the latter part of the year, we’ll have more publishers who are international starting to enter the picture.”

McCue also declines to disclose how many people are using the Flipboard application on a daily basis. “We haven’t announced that number, but we’re very happy with it,” he insists, adding that the application has been downloaded 2.8 million times.

Still, McCue has more than a ton of dry powder and his successful track record working in Flipboard’s favor.

As he explains to entrepreneurs who seek his advice: “You’ve got to do something that you’re passionate about and love. This isn’t a get-rich-quick situation. Startups take years of development and years of very intense highs and lows. You can’t be in it because you want to make money. You have to do it because you want to make a dent in the universe.”

You’ve got to do something that you’re passionate about and love. This isn’t a get-rich-quick situation

Mike McCueCo-founderFlipboard

As McCue parks his bike and walks into a weekly staff meeting, he calls Flipboard application “a product that people love.” It’s plain in talking with McCue that he feels passionate about the company behind it, too.

Constance Loizos can be reached at connie.loizos@thomsonreuters and on Twitter at @cookie.

Mike McCue at a Glance

44

Born: Woodstock, N.Y.

Degree: None

Career: Founder, Paper Software; Vice President of Technology, Netscape; Co-founder, TellMe Networks; Co-founder, Flipboard

Did you know? McCue turned down the opportunity to attend the U.S. Air Force Academy to work instead at IBM. He stayed three years before striking out on his own to found a company whose software he intended to be “as simple as paper,” Paper Software. It sold to Netscape in 1996 for $20 million.

Investment activity: McCue says that he hasn’t made an angel investment since starting Flipboard.

Investments

OnLive

Mission: A cloud computing, gaming-on-demand platform that stores games on remote servers and delivers them over the Internet.

Located: Palo Alto, Calif.

Funding: $56.5 million, including from Maverick Capital, Time Warner, and Lauder Partners, among others

TreeRing

Creates yearbooks for the “Internet generation” using just-in-time printing and online social networks to customize each child’s school experience

Located: Redwood City, Calif.

Funding: Not disclosed