Besides Peerflix, the company started by jilted MySpacer Brad Greenspan has also purchased struggling companies PageFlakes and Revver in the last year, and Greenspan made a personal investment in Flurl, but was turned away by JumpTV.

All that wheeling and dealing while not paying attention to basic operations like payroll? Flashy products and technology that may or may not actually exist? "Out of touch" sounds about right.

Greenspan and friends will probably just blame the market as management shorts employees, since that's all the rage these days. But this looks a lot like a textbook case of "excess and lack of self-discipline" to me. Who may end up the winner in all this? The Hollywood Hills Cat Burglar, who seems to have gotten away from Greenspan's mess just in time. (Photo by Getty/Alberto E. Rodriguez)

Peerflix has a simple business model: Charge users a nominal fee to trade DVDs or CDs, pocket a buck per trade, and build volume. So how much should it cost to pull such a site into profitability? Maybe two million bucks? Not for Peerflix.

[CEO] Mr. McNair said the company in late 2004 raised about $2 million from the venture firms 3I and BV Capital.... That cash would have been more than enough to last until mid-2006, Mr. McNair said, but Peerflix raised another $8 million in October 2005.... More money is on the way.

Now how could this company spend more than $10 million in three years? Is this site that far from running on its own revenue? Of course not — the math below shows why Peerflix should already turn a profit, making it a bad idea to take VC money.

Boring arithmetic begins
Run the numbers: The Times says Peerflix makes two bucks (one per user) per trade, and users are making 5 trades a month. Peerflix boasts 250,000 members. Using the industry rule of thumb for free-registration sites — 1 active user for every 10 registered accounts — that means 25,000 users are making a total of 125,000 trades a month. Even if Peerflix is padding their numbers (they are), they should be pulling in at least a respectable $200k a month — $300k if you count the part spent on shipping costs.
Boring arithmetic ends

$3.6 million a year is fantastic for a little startup with $2 million invested. But for a company that took $10 million, it's nothing special. The CEO shouldn't be bragging — he just gave away more control of his company for no good reason. If Peerflix expands (into CD and book trading, for example) after getting this money, the venture capitalists own a hefty chunk of the new business.

Why did Peerflix take the money? Maybe they plan to expand but don't have the guts to bootstrap; maybe they got greedy; maybe the smooth-talking VCs tricked them into it. But now Peerflix is just another in a long line of startups diluted by wasteful VC money, ruining a perfectly profitable idea.

I'll Trade You My 'Titanic' for Your 'Spider-Man' [NY Times]