Exit Interview is a Signal vs. Noise series that talks to founders to see what happens after companies get acquired.
Webshots has been acquired multiple times. Webshots Founder Nick Wilder:
Webshots has quite a sordid history: we sold it to Excite@Home in 1999, they went bankrupt, we bought it back (97% off) in 2002, and sold it again to CNET in 2004. American Greetings bought it from CNET about two years ago.
After buying it back from Excite, we immediately figured out how to make it profitable and worked our asses off for a couple years. We had great growth, product development, and a huge profit margin, which made us an attractive acquisition.
CNET, despite being a company with great assets, was a disaster. They broke apart our team (engineering moved somewhere, ad sales went elsewhere, etc). They tried to move us to different server platforms. We accomplished absolutely nothing in the year I worked there. I quit on my 365th day, which was my part of the deal. The product seriously suffered, and users started dropping us for the newer photo sharing sites that were simply better.
Webshots has been in steep decline ever since, and it’s depressing to see your baby wither away. According to Alexa, it was once a top-20 ranked property (1999-2003 was the high); Now it’s around 1000.
It’s depressing to see your baby wither away.
TripUp was acquired by SideStep in July 2007. TripUp Founder Samuel Rogoway:
SideStep’s acquisition of TripUp was bittersweet. On the one hand, we realized a successful exit in a market that was becoming increasingly saturated with travel social networks. Sidestep also had exciting plans for integrating and expanding our community features, which our users would have loved. On the other hand, Kayak subsequently acquired Sidestep and phased out TripUp, which was sad.
I think Kayak missed a big opportunity to integrate interactive community features into their metasearch platform. Interacting with like-minded travelers and locals to plan and experience your trip offers value that traditional user generated content and editorial content cannot provide.
I think Kayak missed a big opportunity.
GrandCentral (now Google Voice) was acquired by Google in July 2007 (rumored price: $50 million). GrandCentral Founder (and currently Entrepreneur in Residence at Google Ventures) Craig Walker:
When you get acquired, you have a sense that there is some grand plan of exactly what you are expected to do at the new company and that everybody knows what this is. In reality, it was a lot more chaotic than that. There was nobody telling us what we had to do. We were empowered to figure out the best course for GrandCentral (aka Google Voice) within the company and we got a lot of support at every turn.
It’s difficult to say what would have happened had we not sold. We definitely would have raised a pretty substantial Series B and would have continued to innovate at a rapid pace. We likely would have been able to roll out more features more quickly (one of the side effects of being part of Google is that everything you do must be able to support millions and millions of users immediately, which does slow down the pace of innovation at a start up), but would have lost out on the ability to quickly reach tens of millions of users. At the end of the day, more users were definitely better off due to the acquisition as it got out to many more people.
At the end of the day, more users were definitely better off due to the acquisition.
The only thing I wish that Google would have done differently would have been to tie the product more closely to Gmail early on. We launched this feature last summer (2010) and its been a great hit. Had we done that in 2008, it would have been better.
I knew from the day I took investors in March of 2000 that I would sell the company, so I was not surprised by the sale.
I was worried that the company and the product might suffer in the hands of a new owner. No matter what the acquirer tells you in those first flirtatious meetings, he can easily reneg later. I had heard my share of horror stories about new owners not “getting it,” and destroying all the good will and value that an entrepreneur had spent years accruing.
I consider myself lucky. That was not the case with our new owner. Alan Meckler is very much an entrepreneur and he told me early on he learned the hard way to listen to the instincts of the founding entrepreneur after an acquisition. Meckler, an expert acquirer who has done literally hundreds of deals, mentioned that he had ruined one company before because he didn’t listen to what the founders were telling him. He said “if I ever do anything that you feel is squelching the spirit of the company, be vocal about it.” Luckily, I never had to.
I don’t miss it because I am still working with the company on a two-day a week schedule.
I would tell entrepreneurs these four things. 1) When considering selling your baby, take all cash. 2) Think of your earn out as gravy, because most people don’t earn theirs. 3) And don’t have high expectations of what the buyer is going to do with the company. Buyers typically ruin acquisitions. If you expect ruin and it doesn’t happen, you should be thrilled. 4) Finally, keep in mind that there’s always a second act. If the buyer does begin to ruin the company — and you feel you want to rescue it — by all means, raise the capital (it’ll be much easier this time, now that you’re a known quantity), swoop in and buy it back for a song. Happens all the time.
I consider myself lucky.
Buyers typically ruin acquisitions.
Alan Meckler of WebMediaBrands, Inc. on the mediabistro.com purchase:
It was a terrific purchase in 2007 and even better today. Definitely a financially successful deal.
From previous acquisitions, I learned to ask: What is the secret sauce behind a business that you purchase? If you cannot find it, do not buy the business. My mistakes over the years were due to listening too much to underlings who were set on integration and had no idea about how they could possibly destroy the special qualities of the acquisition.
You have to make sure that the spirit of the company you have acquired is not broken by them. Red tape and reports are killers. Obviously this is tough to balance because some degree of integration is necessary and rules and regulations are needed to kep the whole company running smoothly. My companies have never been so large that I should have lost sight of enthusiasm being crushed.
The same thing is true on buying companies. Underlings that you trust can deter a CEO or visionary from making a bold deal. Case in point: Back in 2004, I could have purchased iStockPhoto.com for $5 million when it was doing about $300,000 in revenues. I was talked out of it by an underling. Biggest mistake I ever made as iStock went on to revolutionize the stock photo business and probably has a value of over $500 million today or more.
I could have purchased iStockPhoto.com for $5 million. It probably has a value of over $500 million today.
Given that the economy took a significant downturn very soon after the agreement was finalized, most of us (on the receiving end) feel the timing couldn’t have been better.
The customers, initially, experienced fewer choices. SideStep was very focused on providing the consumer with the most complete results possible. But today the landscape has changed with the supplier mix and different business models. SideStep is no longer terribly relevant given the steady decline of users, and it is unclear as to how different the two products would actually be now. Kayak has done a great job at building a large, repeat user base. The product has evolved nicely and is intuitive, but sometimes does lack that niche content that SideStep was good at.
Many of the founders and employees really put our hearts and souls into SideStep for many years. We were inventing a category, creating new technology, and building new kinds of relationships with suppliers. It was exciting, exhausting, sometimes frustrating, and always very intense. At this point we can’t really point at a company or website and say, “See, that is what we spent so much time building together.” That is something a few of us wish we could still do, but a minor price to pay for an exit.
We can’t really point at a website and say, “See, that is what we spent so much time
The impact of the acquisition on the product and the customers was devastating. Shortly after the acquisition, the development of the product came to a halt.
Even worse, the new management decided to introduce pretty obtrusive ads and cut investments in infrastructure and customer service. The result was a lot of downtime and unresponsive customer service, which understandably made lots and lots of users angry and turned them away to look for alternative services. I think the new management tried to squeeze every dollar out of the product and the user base, with the obvious consequences on the user experience.
We were surprised. I don’t think we were naïve — we knew about the uncertainties which every acquisition involves and expected a lot of change. But we didn’t expect that things would get that bad.
I don’t think we were naïve. But we didn’t expect that things would get that bad.
Of course, part of the truth is also that Pageflakes wasn’t profitable at the time we sold it. So it’s understandable that the new owners wanted to make changes in order to bring us to break-even more quickly. On how they tried to do that I couldn’t disagree more, though.
When starting a company, my goal is to have an impact. So I’m very pleased that Farecast was picked up by Microsoft, was enhanced to become Bing Travel, and is now widely available and broadly used. It’s a tad bittersweet, because you do want your company to become a Big Stand Alone company, but overall I’m happy with the outcome.
The best thing is that the product and the team found a good home in a company that’s both technically very strong and has deep pockets to invest in the product. The worst thing is that I had many other ideas of how to extend and enhance the product.
If successul, a Big Stand Alone company has more of a chance of creating its own culture, controlling its own destiny, and continuing to innovate. That said, often the resources of a larger company can be a better way to get the product out to people.
It’s a tad bittersweet.
Socialthing was acquired by AOL in August of 2008 (it was still in private beta at the time). Socialthing Founder Matt Galligan:
I left about nine months after the acquisition because I was getting antsy. The corporate environment made it harder for me to be able to be creative and that’s when I thrive. I don’t really miss it, but that’s because of some sage advice that a fellow entrepreneur once gave me: The amount you sell for should be the amount that it takes for you to be ok with never working on your product again. It rang very true, as I stopped working on Socialthing two months into working at AOL.
The amount you sell for should be the amount that it takes for you to be ok with never working on your product again.
The best thing is the incredible high that you get when what you’ve been pouring your heart and soul into has been validated. I’d be an idiot if I didn’t say that the financial impact wasn’t also one of the best things.
The worst things about selling are twofold: 1) The due diligence phase. It’s long, drawn out, and soul sucking. Going through every document, every receipt, every legal decision ever can get pretty tiresome. 2) I don’t get to work on it anymore.
The best thing you can do is forget about acquisition. Build the best product you can, and worst case scenario, you’ve got something you’re proud of. Best case scenario, it turns into a sustainable product, a sale, or (more promisingly these days) an IPO.
I’ve been through an acquisition before: The previous startup I worked at, iPhrase (natural language search engine for enterprises, pre-SaaS era), was acquired by IBM. So I would say the most important thing, as with fundraising and recruiting, is to think about it as a “marriage” rather than focusing on the “wedding.” You need to have a strong internal champion, and you need to make sure as a founder that you feel like the acquiring company “gets you” and wants the same things or closely aligned things for your company. That’s not easy to determine in the best of cases, especially with the complexities around negotiation, due diligence, etc. that is a heavy part of M&A, but it’s what you need to keep focused on.
Think about it as a “marriage” rather than focusing on the “wedding.”
Some of the responses above have been condensed and edited.