A Real-Time, Multimedia Social Network You Might Not Know: Paltalk CEO Jason Katz (Part 7)

SM: Why did you buy your shares back from Softbank, and why did Softbank allow you to do that?

JK: When VCs invest in a business, the have an expectation of a profitable exit. By 2009, Softbank had been invested for five years and we were profitable, but they had not received a return on their money. I approached them and told them I knew five years was a long time for a VC to be invested, and I expressed our interest in purchasing back their shares. They felt it was an interesting proposition, but it was apparent they did not normally exit that way.

Most companies do not operate in a way that would allow them to repurchase shares from their VCs at a profit. Softbank made a nice return on their money. I did not need their money anymore, so I was more than willing to let them have a nice return to regain control of those shares.

SM: Did the money you repurchased the shares with come from your profits?

JK: Absolutely.

SM: That could not have been a very large return based on what they invested.

JK: I guess the value of the profit they made is in the eye of the beholder.

SM: What is your current growth rate?

JK: We register about 500,000 new users every month. It is a matter of conversion and retention. Current initiatives involve internationalizing our client base. Right now we are only in English, and that was tunnel vision on our part. I missed the international phone rate opportunities. With different language packs our software will display properly, but we have not tailored anything yet. I expect that will be a substantial benefit.

SM: What are you trying to do with the company today from a structural point of view? Softbank may be out, but you still have some external investors in the company.

JK: I do still have the early investors. At some point they may seek an exit. Somebody once told me that Internet companies are bought, not sold. You have to become important to other companies and earn and exit that way. I operate the company and try to grow, adapt, and adjust as I go along. We make acquisitions ourselves to gain new technology. If we keep growing profitably the rest will take care of itself.

SM: I know Paltalk has filed lawsuits recently to protect its IP. Can you talk some about that?

JK: In 2006, we sued Microsoft for $90 million for patent infringement. It went to trial last year and was settled out of court when Microsoft agreed to license the two patents. Accordingly, IP remains very important to us. Server group messaging is very important to us. We also initiated a suit against Sony in 2009 on the same server group IP. Our core technology and our IP are very valuable assets to us.

SM: So, you are now able to generate IP based on your licensing revenue?

JK: We have. As a small company it is not always easy to do that. If you have a patent that is a property right, and we do try very hard to protect our property.

SM: Are you licensing your platform in any ways where you allow other people to build their own businesses on your platform?

JK: That is something we are considering, and probably something that we should have already done. Having an app store and letting others program to it certainly validates your platform. We have been very concerned about security over the years. We like having our server in the middle and proxying the traffic. When we first started we were P2P, but we moved to our current model to give our users more security.

SM: I really enjoyed listening to your story. This is an interesting story and is an interesting perspective on social networking. Best of luck going forward.

This segment is part 7 in the series : A Real-Time, Multimedia Social Network You Might Not Know: Paltalk CEO Jason Katz
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