An acquisition rarely starts out looking like one
Acqui-hires are usually chalked up as failures by the ones who end up selling their companies. Even Dennis Crowley said Dodgeball was a failure when he sold to Google, and I admired him a lot for his work on foursquare. He’s widely regarded as having won the mobile social networking space (in 2009, the buzzword was LBS or Location Based Services).
Startup #1 was sold
I started GraffitiGeo in the winter of 2008 after a conversation with my friend Siong. The iPhone had just come out, and I was very excited about it. It was the first time I bought stock in a company, and I bought some Apple shares at $92 shortly after the iPhone was announced at WWDC.
I found myself wanting to know two things when I went out: where should I go to eat, and what should I order once I get there? And Yelp was very much a desktop experience at the time.
So we built that, and shortly after going through Y Combinator in 2009, we sold it to Loopt. We knew foursquare was a major competitor and we thought with Loopt’s help, we could take them on. Sam Altman showed me one of the coolest things I had ever seen. He pulled his laptop over and said “put your cell phone number in.” So I put it in, and instantly, Loopt triangulated my phone’s location to the office I was sitting in. Loopt had negotiated exclusive carrier deals. This was before GPS was supported on phones, and I was blown away. Eventually and unbeknownst to me, GPS would become a commodity when Apple built the hardware and released APIs for it.
Our team started working on Loopt products, but through much of that, I remember feeling frustrated because I felt like I was moving slow. I’m not at all saying Loopt was a bad team, and Sam Altman is one of the smartest people I know. He’s a great person and I respect him a lot. It’s more than likely that I wasn’t a right fit for the company. But I do remember telling myself I wouldn’t sell that quickly again.
Startup #2 received an offer
After I graduated from college, I helped start Bloc. We started talking to another company founder who was competitive and #1 in the space. “Hey, we’d love to chat. We’re up in SF, come hang out.” And we did that. We got some good feedback along the way; I actually credit Shereef with steering Bloc into a profitable company. Something felt odd though: there was a lot of help being offered. Shereef’s a great person, and the people at Dev Bootcamp are amazing to say the least. I felt guilty, so I told Shereef I insist he take some advisor equity for all of the effort. Eventually, the question was asked: “Do these really need to be two separate companies? Why don’t we just buy you.” And strangely, this didn’t surprise me when this question came up. I anticipated it for several weeks. I had been through this same courting process before.
So it felt familiar to me–even though the message was innocuous enough, as they always are–when I wrote an article that was on Hacker News and I saw a response from OkCupid Labs that said “We’d love to chat, we’re up in SF.” I became suspicious that they were going in that direction. A few people had e-mailed me after I wrote that article with some sensitive information that I won’t repeat here, and that confirmed my gut reaction. I’m not saying the individual from OkCupid Labs is a bad person for wanting to reach out, and I have nothing against OkCupid personally. I appreciate the gesture and the time he took to respond. But when you’re doing a startup, you can’t entertain the idea of being acquired (or acqui-hired) because it’s just a distraction. To be totally honest, I’m not sure what the benefit of meeting up would be. We are (edit: were), after all, competitors.
IAC could use some competition
If anything, my main concern is IAC and not even OkCupid. I’ve used OkCupid, and while I’m genuinely frustrated with how much time I’ve had to invest in it over the past 6 months, it is the best dating app of all the ones I’ve tried so far. They’ve come the closest, although they haven’t moved since they were acquired. From what I’ve heard, IAC isn’t a fun place to be at, and they seem to be buying up everything in the online dating space. CollegeHumor’s CTO wrote an interesting article on PandoDaily about their decision to sell to IAC:
The party ended in 2006, when we sold our company to IAC, a conglomerate owned by media mogul Barry Diller. Bit by bit, the youthful energy that created so much value was siphoned off. Whereas we’d once been free to work on whatever seemed interesting, we now found ourselves in vaguely defined middle-management roles, sitting through pointless meetings where older doofuses who didn’t understand the Web challenged our intuitions and trivialized our ambitions.
What Paul Graham told me
For some reason, reading the PandoDaily story reminded me of a conversation I had with Paul Graham at his house, just after Loopt indicated interest in buying us. This is paraphrased since I’m going off memory that’s about 4 years old now:
Pretend you’re walking in this direction, towards this tree over here. The thing you do when somebody has any interest acquiring you is you just keep walking in that same direction, and you don’t pay any attention to them. They’ll probably wave their hands around a little bit and say ‘Hey! Look over here. We want to talk to you.’ But don’t do it. Just keep your attention focused on your startup, and don’t start walking down a different path. Treat it as a background process and don’t let it distract you.
I understand the slight irony in writing a blog post after being told to stay laser focused on my startup whenever a competitor wants to talk to you. But I’ve always had an interest in startup patterns, which is part of why I wrote Startups Open Sourced and talked to 33 startup founders. I will probably continue to blog about startups regardless, even if I were told that it’s a waste of time to do so. It takes less time to write about this than it does to make the commute to SF and meet with someone (living in Sunnyvale, it’s no exaggeration that going up to SF will kill about half my productivity for the day).
To go a little further, I think selling could be an indicator that you’re out of ideas. From Peter Thiel’s Class 13 notes, I found this interesting:
Related to this is the observation that companies with really good plans typically do not sell. If your startup gets traction, people make offers to buy it. In an indefinite world, you will take the money and sell, because money is what you want. PayPal had and executed many good ideas. But by 2002, to be quite honest, it had run out of them. There were no clear ideas on what to do next. So there was a certain logic to selling the company.
But when companies have definite plans, those plans tend to anchor decisions not to sell. There is no reason to stop when you can do so much more. The internal narrative—the secret plan—organizes people around the specific things that are going to be built in the months and years ahead.
Remember: an acquisition rarely starts out looking like an acquisition.
It’s a gradual courting process, where the acquirer takes you out for coffee, offers to help, asks about your metrics, and eventually pops the question. It’s kind of like getting into a romantic relationship.
If you’re going to go down that path and talk to them, just be honest with yourself and recognize the reason they want to meet up. It’s not being done out of pure altruism. Here’s my rule of thumb: if you’re not sure whether to meet with them, you should stay focused on what you’re working on.
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