YouTube Seed-Stage Investment Memo – Key Vocabulary

These vocabulary flashcards capture the essential terms, technologies, metrics, competitors, risks, and strategic concepts detailed in the 2005 YouTube investment memorandum discussed during the lecture.

YouTube

A 2005 seed-stage startup aiming to be the primary outlet for user-generated online video, allowing anyone to upload, share, and browse clips.

User-Generated Content (UGC)

Media—such as videos, photos, blogs—created and uploaded by consumers rather than professional studios or publishers.

Seed-Stage Investment

The earliest round of venture funding used to prove a concept and build initial traction; in this memo, a proposed $1 million.

Series A Financing

The first significant round of venture capital following seed funding; proposed here at $4 million once milestones are hit.

Post-Money Ownership

The investor’s equity stake after new funding; Sequoia targeted ~30 % post-Series A ownership of YouTube.

CPM (Cost Per Thousand)

Advertising metric indicating the price of 1,000 ad impressions; estimated YouTube video CPMs ranged from $5 to $30.

Monetization Rate

Percentage of total video inventory on which ads are successfully sold and shown.

Content Distribution Network (CDN)

A system of servers that deliver media across the internet; YouTube extends its reach via embedded players on external sites.

Embedded Video Player

YouTube-supplied code snippet letting other websites display YouTube videos directly, expanding audience beyond YouTube.com.

Flash Video

Highly compressed, streaming video format playable in 98 % of browsers in 2005, enabling instant playback without full file download.

QuickTime

Apple’s multimedia framework; used by rivals Dailymotion and Vimeo but with lower browser penetration than Flash in 2005.

Video Clustering

YouTube’s low-cost infrastructure of multiple machines per cluster providing redundancy, conversion, storage, and high throughput.

Video Converter Service

Backend process that analyzes uploaded clips (frame rate, aspect ratio, codec) and encodes them into Flash Video.

Replication Service

System that copies processed videos to every machine within a cluster, marking status from “Awaiting Replication” to “Processed.”

Average Video Size

Assumed 7 MB per clip for cost calculations of storage and bandwidth.

Cost Per Video Served

Estimated at $0.00083 using $239 servers with 2 TB monthly bandwidth in 2005.

Cost Per Video Stored

Roughly $0.01 to store a video redundantly on a two-machine cluster.

Scalability

The capability to grow from 100,000 to tens of millions of daily streams while keeping infrastructure cost-efficient.

Digital Video Proliferation

Wide availability of inexpensive devices—cameras, phones—capable of recording video, fueling YouTube’s supply of content.

Broadband Adoption

Critical mass of high-speed internet in homes, making online video viewing practical.

Community Features

Social tools such as tagging, comments, groups, favorites, and friends that connect users to videos and to one another.

Related Videos

Algorithmic links between clips based on tags or viewing patterns to keep viewers engaged on the platform.

Developer XML APIs

Open interfaces allowing third-party developers to interact programmatically with YouTube data and functionality.

Vertical Market Videos

Specialized segments—e.g., eBay auctions, real estate tours—targeted for tailored video solutions.

Advertising Demand

Verified interest from Yahoo! and AdBrite indicating strong market appetite for online video ads.

Viral Videos

Rapidly shared, entertaining clips often driving early traffic spikes but sometimes raising copyright or content concerns.

PayPal Alumni

YouTube founders Steve Chen, Chad Hurley, and Jawed Karim, who previously worked at PayPal and bring startup experience.

CEO & VP Business Development

Key executive hires identified as immediate needs to guide strategy and revenue generation.

Competitive Moat

Defensibility created through superior user experience, community depth, and low-cost scalable tech.

Dailymotion

French video-sharing startup using QuickTime; a direct competitor but with slower growth than YouTube.

Vimeo

New York-based video site (Connected Ventures) focused on sharing clips; limited search and usability in 2005.

Flickr

Photo-sharing community that inspired YouTube’s social features; acquired by Yahoo! for ~ $30 million.

Webshots

CNET-owned photo community acquired for ~$70 million; cited as a partial benchmark for exits.

Ofoto / Shutterfly / Snapfish

Online photo print services considered potential but unlikely video competitors due to focus on still images.

Google Video Search

Early Google product enabling video discovery but lacking easy consumer upload and community elements.

Yahoo Video Search

Yahoo’s service playing native video formats without a seamless upload-share workflow like YouTube’s.

Big-Boys & Ebaumsworld

Entertainment sites hosting shocking or humorous clips, less able to transition to personal video hosting.

IFILM

High-traffic entertainment portal streaming professional clips; potential competitor but not user-generated centric.

File Storage Services

Sites such as Putfile and Ourmedia.org offering generic file hosting with minimal community focus.

IPTV Companies

Open Media Network and Brightcove delivering mainstream video over the internet, viewed as indirect competition.

Exit Valuation

Potential acquisition or IPO price outcomes; historical photo-site deals suggest modest precedents (<$100 million).

Blogger Acquisition

Google’s 2002 purchase of Blogger, cited as a precedent for user-generated content exits.

Tripadvisor

User-generated travel content site bought by IAC for >$100 million, showing UGC monetization potential.

Revenue Scenario Modeling

Formula: daily video streams × % monetized × CPM × 365 to project annual ad revenue across multiple growth cases.

Milestone-Based Financing

Structured investment releasing Series A funds after goals—business plan, ad product, 1 M views/day capacity—are met.

Alexa Pageviews

Traffic measurement used to compare YouTube’s rapid rise against Dailymotion and Vimeo.

High-Confidence Memo (SC000161+)

Internal Sequoia Capital documents summarizing risks, competition, and investment recommendation for YouTube.