StarMedia
In a highly publicized moment of inspiration that was recounted in numerous articles and television segments, Espuelas envisioned a "virtual plaza to connect the peoples of Latin America" while hiking atop a mountain in Nepal. Soon after, Espuelas founded Starmedia with his Chinese-American childhood friend, Jack Chen.
As Starmedia's Chairman and CEO, collaborating with co-founder and Starmedia President Jack Chen, Espuelas created the first Internet media company for Spanish- and Portuguese-speaking audiences worldwide. Using a combination of their 12 credit cards, family savings, and loans from friends, the pair managed to piece together the first $100,000 used to launch the Latin portal in September 1996.
"Shares of StarMedia Networks, the most highly anticipated of last week's offerings, closed 74 percent above its initial offering price of $15 per share on Wednesday, its first day of trading," reported The New York Times at the time of StarMedia's IPO. Gail Bronson, an analyst at IPO Monitor, said on CNN, "StarMedia is the behemoth south of the border."
Eventually Starmedia raised over $500 million USD in equity in a series of private and public offerings. Starmedia's market capitalization reached over $3.8 billion.
Starmedia's success served as an important catalyst in the development of the Latin Internet market by encouraging both entrepreneurs and financiers to back the development of the sector. According to ComputerWorld, "StarMedia's success is credited with igniting the vibrant enthusiasm that the Latin America Internet market currently enjoys, and which has led a number of companies to follow in StarMedia's footsteps, including big guns like Spain's Telefonica SA, America Online Inc. (AOL), Yahoo, Lycos, Brazil's UOL Inc. and Microsoft Corp., as well as cocky startups like Patagon.com International Ltd., Zona Financiera Inc. and Yupi Internet Inc." As of 2011, there are were an estimated 212+ million Internet users in Latin America.
According to Institutional Investor, "the $110 million IPO in May for StarMedia Networks, the Internet company founded three years earlier, marked a watershed in the history of Latin America's financial markets. For the first time, a pan-regional company built from scratch and headquartered in New York has sold shares on the Nasdaq Stock Market to mainly United States investors to finance its expansion in Latin America." "Today, New York City-based StarMedia is widely seen as a market pioneer and, so far, as the player to beat in the Latin America portal market. The company has about 700 employees, operations in 9 countries and partnerships with companies such as AT&T, Visa International Inc. and Hewlett-Packard Co," added ComputerWorld. Speaking to the New York Times, New York Mayor Rudolph W. Giuliani said "I applaud the company for contributing to the continued growth of the city's high-tech community."
At the time of the IPO, Espuelas told CNET: "I think we present a unique story, where maybe the other companies were versions of companies that already existed. We also have market leadership, we have a big brand, we're the first mover into a really big market with a lot of growth potential, and I think the market recognized that and sort of differentiated us from just another Internet IPO."
"The strategy is simple: Build on being the first Internet service to cater to Latin American PC owners on a regional basis rather than country by country, and try to keep a step ahead of the inevitable competition. So far, the positioning has allowed StarMedia to make deals with Fox Latin America for sports and children's programming, with Dow Jones for financial news, and with Viacom Spelling Entertainment Group for TV show Melrose Place and other nighttime soap operas", explained Business Week in the article "Welcoming Spanish Speakers to the Web: Fast-growing StarMedia is Racing to Fill the Niche First"
Espuelas added: "We are literally creating an industry, we have built, but will continue to construct, the biggest brand in Latin America."
In a 1999 New York Times story, "C.E.O. Round Table- Online Pioneers: The Buzz Never Stops", Espuelas explained his approach: "I spent a lot of time learning how Winston Churchill ran the Second World War. I bring that up as a metaphor—not having information, not having clarity, the stakes being very high. Of course, the stakes he had to deal with were somewhat higher than what we have to do. But that was part of the encouragement—to think that something so important could be managed, and all the mistakes that were made and the chaos of the moment. And the other thing, which he said, which I love as a philosophy, is: You don't have to get it right all the time. You just have to get it right 51 percent of the time, and that will carry you through. And that's a very, very liberating philosophy."
According to a Harvard Business School case, written by professors Thomas Eisenmann and John K. Rust, "by the fall of 1999, StarMedia had sprinted to a sizable lead in the race to acquire Latin American Internet users. Its pan-regional, horizontal portal was the first to target Spanish- and Portuguese-language speakers on the Internet, registering 1.2 billion page views in the third quarter of 1999. Thirty-three-year-old StarMedia co-founder Fernando Espuelas was the toast of "Silicon Alley" and a recognized hero throughout Latin America. A picture of him on the cover of Internet World magazine--ripping his shirt open to show the StarMedia logo, like Superman, summed up the spirit of the company."
Espuelas created a communications culture to connect StarMedia's 18 offices in 12 countries. "... will set a goal at one meeting, and by the time the next one rolls around, we've made tremendous progress.... Each meeting has a clear goal—to deliver quarterly results, to announce a major initiative or partnership, to clarify our strategic vision. Whenever possible, Fernando and other executives make their comments trilingually. That sometimes generates good-natured teasing about accents, but our employees really appreciate the effort. To make certain that nothing is lost in the translations, someone from each office recaps the entire announcement in that country's native tongue. Then we follow up with an online chat, during which the management team fields questions from employees", said Gally Bar-on, chief of staff, StarMedia Network Inc. and president, StarMedia Foundation.
"Our overriding goal is to communicate clearly across language barriers and geographic boundaries. By connecting with all of our offices -- and by addressing everyone in three languages -- we're able to unite our employees around one company vision...The one thing that we hear consistently from our employees is, 'We want more Fernando.' They want to know what he's thinking. This meeting allows him to communicate his vision", added Bar-on.
In a ComputerWorld interview Espuelas said, "What we have to do is remain absolutely focused on giving our users the best possible experience, and giving our partners and advertisers a mutually profitable relationship. We're really looking forward, not backwards. All of this competition has stimulated the market in a very dramatic fashion, in terms of marketing, in terms of growing the market, in terms of the attention of advertisers, partners and Wall Street. So we see it very positively. We just need to make sure we're never satisfied with ourselves, and we're not. We can always be better and faster and more efficient."
In the Business Week cover story "La Vida Loca of a Latin Web Star" Espuelas is described as: "If ever there were a poster boy for the bilingual, bicultural executive of the Internet age, it's Fernando J. Espuelas, the 33-year-old chairman and chief executive of New York-based StarMedia Networks Inc. The Spanish- and Portuguese-language portal offers everything from chat rooms to shopping. Born in Uruguay, Espuelas moved to the U.S. at age 10. He has worked much of his adult life in Latin America, but when wooing investors, he's all Wall Street."
The company's high profile, as manifested in its thousands of press articles across the world, ensured that the whole Latin Internet sector benefited from a constant source of positive attention and relevance. Billions of dollars were subsequently invested in Latin America by foreign and local companies, international venture capitalists and buy-out firms seeking to capitalize in the fast growth of this new segment.
Myriad companies were created and funded, telecommunications companies made significant investments in infrastructure to meet the demand, and governments and other key sectors of the society, specifically the news media, adopted Web tools to modernize. Espuelas sought to "...redefine history – and I think that, in fact, is what happened...The StarMedia idea of Pan Latin Americanism, an idea with deep historical roots, was a profound turning point for Latinos across the world."
Espuelas, a skilled marketer armed with cash from his successful IPO, was the mastermind of massive marketing campaigns promoting the StarMedia brand.
"We want to be the Coca-Cola of the Internet in Latin America," Espuelas said.
In the process, Espuelas became iconic as the "poster boy" of the Latin Internet, appearing on the cover of magazines, in television shows and even in CNN's own promotions: a brief image of Espuelas was included, amongst other renowned politicians and celebrities, within the 15 second top-of-hour CNN on-air network ID.
On May 25, 1999, StarMedia completed the first public offering on Nasdaq for a Latin Internet company, selling 7 million shares at $15. The company went on to raise hundreds of millions more capital over the next two years. By 2000, at age 34, Espuelas was acknowledged as one of the main players in Silicon Alley and the Latino Internet industry. Uruguay's leading newspaper, El País, dubbed him "The Emperor of the Internet" on its front page.
CNN filmed a documentary on Espuelas’ life that was broadcast across the world. The media referred to Espuelas as "The Hispanic Bill Gates" and the "Simón Bolívar of the Internet", terms that would be often recapitulated in thousands of articles and interviews referencing Starmedia.
In February 2000, Starmedia created Latin America's first free, ad-supported regional internet service provider with a $200 million investment from CMGI Inc., Flatiron Partners, Chase Capital Partners and 1stUp.com.
On August 5, 2001, after a disagreement with the Board regarding the strategic direction of the company, Espuelas resigned as CEO of StarMedia but agreed to stay on as Chairman until November 15, 2001 to effect an orderly management transition. At that time, he was replaced by Susan Segal as head of he company; Segal was a venture capitalist, representing Chase Manhattan Bank's Chase Capital Partners, which had given Starmedia its first round of institutional financing in 1997. Segal then led the company's new strategy to divest itself of its market leading portal assets, including the StarMedia brand and network of websites, and focus the company on its mobile unit, StarMedia Mobile. The resulting new company, Cyclelogic, was led by Segal until it filed for bankruptcy in 2003.
As part of Segal's new strategy, in July 2002, StarMedia was sold for $8 million to EresMas, a Spanish ISP. EresMas was then sold to a unit of France Telecom, Internet subsidiary Wanadoo, 10 days later for $255 million euros. EresMas' new leadership of the Latin Internet (through the purchase of StarMedia the previous week) was cited by France Telecom as the reason for the acquisition.
Espuelas writes in Life in Action: "Because I believed in our company and our mission, I had never sold a single StarMedia share or stock option. I personally lost close to $500 million."
In 2006, the U.S. Securities and Exchange Commission sued Espuelas and the rest of StarMedia's senior executive team alleging in a civil lawsuit that the accounting treatment of a certain transaction relating to StarMedia's Mexican subsidiaries did not meet GAAP accounting standards. The civil lawsuit relates to accounting decisions made by StarMedia and its outside accounting firm Ernst & Young, and approved by the Starmedia Board of Director's Audit Committee in 1999 and 2000. In 2011, Espuelas settled the suit "without admitting or denying the allegations in the amended complaint".
At the time of the filing, Espuelas, who cooperated with the SEC investigation over five years, told Adweek magazine: "I know that I did nothing wrong.…It is related to accounting issues at the company. I personally was not involved in accounting at the company. I'm very confident that the company did things right. We had a rather elaborate control function, both internal and external, and to my knowledge that was undertaken correctly."
In company announcements made in 2006, StarMedia, now part of France Telecom's Orange subsidiary, the company claimed to be the global leader in Spanish language Internet services. In 2006, the company stated, Starmedia was serving over 22 million unique users a month and continued to expand by launching new services, such as finance and entertainment channels, and opening offices across Latin America.
In the Hispanic Business article "The Kings of Comebacks", Espuelas said, "...we wanted to redefine history - and I think that... is what happened", Mr. Espuelas writes in his 2004 book Life in Action. "The StarMedia idea of Pan Latin Americanism, an idea with deep historical roots, was a profound turning point for Latinos across the world." But in the spring of 2000, StarMedia suffered what the book calls "the near-complete collapse of the Internet economy." By his own calculation, Mr. Espuelas' StarMedia holdings at one point had a value of nearly $500 million, but he never sold a single share. "I lived a full cycle", he tells Hispanic Business. "It was the best business and personal experience I could have had at this point in my life. "
"What Fernando has been credited with is a vision that may be ahead of his time", says Adele Morrissette, a former angel investor in Starmedia and now a managing director at investment bank BMO Capital Markets Corp. of Toronto. "People who invested with Fernando early did well if they sold their stock when it went public. It was a good investment for me", reported The Deal.
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