Why I sold my startup, Sparkbuy, to Google

Posted: July 13th, 2011 | Author: | Filed under: Sparkbuy, Startups | 72 Comments »

Shortly after the sale closed, John Cook interviewed me about the experience.  He did a great job of transcribing all of my verbal gems, like “Maybe that is an economic way of looking at it, or something that I am unfamiliar with.”  I’m not even sure what that means.

It was the best I could muster in the middle of a crazy, exciting, wild time.  But looking back, I realize that there’s an important question there and I didn’t do it justice.  Selling a company can be a very lonely decision, so I want to revisit John’s question and share my thinking with others who might be making the call.

 

It was a great deal for the shareholders

Most VCs don’t care how long your company takes to show a return – they don’t get to re-invest proceeds of their deals, so if you exit early, the money sits in a bank account earning interest for years instead of contributing to their returns.  Since my investors were angels, they would look at the exit on a time-adjusted return basis.  Or put simply, if I could give them back their capital plus a great return in just six months, that could be a terrific outcome.

It was our #1 choice of acquirer

Most startups are acquired.  Actually, most startups fail – but of those that are successful, most are acquired.  Given that an acquisition was, one way or another, the most likely outcome for Sparkbuy, I compared Google to a list of about a dozen other potential acquirers.  They were at the top of my list.  If was going to go to work for The Man, I was more excited about The Man being Google than anyone else.  The employees (both of them!) felt similarly.  Even the investors appreciated the bragging rights of having a portfolio company sell to Google.
Further, the people who I would be working with were amazing.  Scott Silver has always been one of my engineering leadership idols.  After trying to recruit Phil Bogle to Ontela I knew I wanted to find a way to work with him.  While I’ve never been excited about having a boss again, Nick Fox was someone I actually knew I’d enjoy working with and learning from.

I was excited about pursuing the Sparkbuy vision at “Google-scale”

The Sparkbuy product was launched out of a personal frustration with consumer electronics shopping, but the problem is much broader.  It’s just hard to find reliable, accurate, unbiased, quantitative information about products.  Search engines favor old prose over fresh data.  Sparkbuy was about helping consumers make better decisions.

The team I’m working on now is taking that opportunity to the next level.  With business development resources, the Google brand, Fortune-100 budgets, and an appetite for giant risks, we can tackle problems at a broader scale than ever before – making consumer purchasing easier, better informed, safer, and faster.

Working a real job sounded like a good idea for a while

After eight years at startups, the idea of pulling a steady paycheck for a few years was seductive.  Some personal events, while ultimately amounting to nothing, made me feel like having great health insurance wasn’t a bad idea either.  (Soapbox sidebar: health insurance reform is key to promoting entrepreneurialism and small businesses in this country!)  I loved the idea of keeping a more regular schedule, and spending a bit more time with my family.

The money was life-changing

While I’m not in the position of my good friend Rand, who’s gone on the record saying that his life savings is $25,000, I was not previously wealthy.  The Ontela/Photobucket merger was a spectacular deal for all parties involved, and I didn’t take any cash of the table – I’m still 100% invested in Photobucket.  That means the Google sale accomplished three lifelong goals for me: allowing me to set aside enough to pay for my twin toddlers’ college educations, funding my wife and my retirement account, and giving us a financial cushion that means I’ll never have to work at a job I don’t love. It also meant that, overnight, I can pay some karma forward and start investing in startups that I’m excited about (more on that soon).

I get to swing for the fences

Some people are wired for the “billion dollars is cool” kind of risk that folks love to write articles about.  I wasn’t, at least not until I figured out the aforementioned three problems.  At least I was in good company, though – my new great-grand-boss, Larry, famously tried to sell Google for $1mm and failed.

But this lets me play the Shawn Parker game without regrets.  When I start my next company, I can swing for the fences.  Or self-fund it and do something that I love, without worrying about maximizing shareholder value.  Which brings us to…

The company was in a great position to raise money, but I didn’t want to

As the CEO of a startup, I’m dedicated to pursuing value for the investors who’ve extended me their trust.  One of the primary inputs to my decision making is how best to create value for shareholders over the life of the company – it’s not the only consideration in decision making, but it’s a big one.

One of the reasons I founded Sparkbuy was that I was excited to try a different way of building a company.  While I was at the helm of Ontela (now Photobucket), we raised over $30mm.  That’s a ridiculous amount of money.  We had a lot of fun and accomplished some amazing things along the way.  I worked with a team of fantastic people and was never happier than when I was going in to work to spend time with them.  If I had it to do over, I’d do it the same.

But I find there’s two type of people in the world – those who like refining one thing over and over and getting really good at it, and those who like trying new things.  You can guess which category I fall in to.  I wanted to try something different – a smaller raise ($1mm), angels instead of large VCs, and growing organically based on revenue.  That’s what I did with Sparkbuy, and it was a good decision when I made it.

But markets continued to heat up to a fiery glow.  The valuation of comparables in our space was shooting through the roof.  Competitors were raising rounds in the double-digit millions.  It was becoming increasingly clear to me that the best strategic decision for the company was to raise a large financing round at a lofty valuation and grow like crazy – but I wasn’t particularly excited about doing that.  In other words, what I thought was best for the company wasn’t what I, selfishly, wanted to do.

If I hadn’t sold, I would have raised money, and I didn’t really want to do that.

It was time to spin up a B2B strategy

Much as Sparkbuy’s direct-to-consumer website was winning rave reviews from users, there was new and substantial interest was on the part of other companies.  We were getting offers to do long-term deals with Fortune 500 companies that would generate huge revenues over a period of years.  Of course, pursuing those would have required raising a bunch more money.  Once again, this was what I did at Ontela; and once again, while it was fun, I wasn’t excited about pivoting Sparkbuy in that direction.

The biggest risk was still ahead of us

The bigggest challenge for any consumer startup is how to profitably acquire customers.  We knew from the start that this was the largest risk factor for Sparkbuy, and with the launch of our beta (a month before the sale), we were just starting to dig in to this problem.  I had a list a mile long of initiatives to drive profitable growth, but in the end all you can do is experiment and iterate, and it can take a long time to find the magic.  Our value as a company wouldn’t hit a new inflection point until we solved this problem, and it was a long ways off.

To sum it all up

Some of my investors were overjoyed.  Some of them were sad that Sparkbuy would never grow in to its own.  I’ve been called a sellout, and people have told me that I epitomize what’s wrong with entrepreneurs outside the valley.

It’s all cool.

I don’t claim my decisions are right for any other company, or anyone else.  This was not the hardest decision I’ve ever made.  It wasn’t even in the top 10.  There were a lot of moving parts, but at the end, it was simple.  Google hit my “life changing” number, provided a great return for my investors, gave me and my coworkers terrific jobs, and made it all happen six months from the day we were incorporated.  I’ll have other companies some day, and I’ll play them differently.  Your decision, should you be called on to make it, may be quite different – but I hope it leaves you feeling as lucky as mine has!

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  • http://www.danshapiro.com/blog Dan Shapiro

    Thanks Liam.  I think it’s true that making health insurance independent from your work removes one barrier to entrepreneurship – but from what I hear from colleagues on the British Isles, there are quite a few more to jump there! 

  • http://www.danshapiro.com/blog Dan Shapiro

    Simplifilm looks cool.  I actually thought about doing a video-pitch early on, when the product was looking shaky, but as we got a little further people seemed to “get it” in usability.  It would have been interesting to A/B the site with and without such a video, though.

  • http://www.danshapiro.com/blog Dan Shapiro

    Depends on the deal, but generally F500′s don’t like to build important infrastructure on top of a 3 person company.  For at least some of the deals we were looking at, we would have had to staff up to close the sale.

  • http://blog.liamgooding.com Liam Gooding

    Hey Dan – well in your blog you talk about raising Angel investment in the millions… that doesn’t happen over here! (In my experience)

    Raising investments over £50k is usually amongst multiple Angels. Investments of £250k and upwards are usually via investment groups of angels each throwing in £25k-£50k

    I’ve gone the latter route, because I wanted to get the extra benefits that comes with Angels and having more than 1 helps out on the advisory level. But if I’m to believe what I’ve read from other young tech entrepreneurs in the states, it’s a lot easier to get ‘Super Angels’ and Angels for £100k+ figures each

  • Anonymous

    Hi Dan,

    1st thanks for coming to FI to give a talk on your sale. Definitely one of the highlights of this semester’s talks. This article really helps me to understand how to setup my startup, Stagester, to benefit the shareholders. Good luck at Google, they are a great company. Have friends that work there and love it.

    Alvin Mullins
    http://www.stagester.com

  • http://www.danshapiro.com/blog Dan Shapiro

    You bet.  See you again shortly at FI to talk financings.

  • Alice Phu

    Don’t you think your history of working on Photobucket heavily influenced Google’s decision to acquire your company? I can’t imagine an ordinary developer selling the company as quickly as you did!

  • http://twitter.com/jasonjflaherty Jason Flaherty

    Good for you man. Great post. Everyone works to make money. If you can now help others out, you are doing more of a service to all. 

  • http://www.danshapiro.com/blog Dan Shapiro

    I’ve never been much of a developer. :)  But my experience founding & running Ontela (now Photobucket) probably weighed in as well.

  • Luke

    Gosh, that description of the heavy lifting required to grow Sparkbuy into a more profitable company left me feeling rather tired.

    As an entrepeneur I guess I’m greatly excited by the first birth of income, but really not so by the expansion effort involved to make a promising business grow.

    I know the truth is that this makes me half an entrepeneur. Or maybe less than half because although the first job is ‘testing’ to uncover unknown profits in the market, the far bigger job is staying put and extracting all the potential income out of that. Which is what every successful company has done. Me, I would have thought of something new to do by then. I don’t quite have the mindset to stay on one spot for years…

    Maybe there’s a course somewhere on becoming a finisher?

  • http://www.clubnetsearchmarketing.co.uk/ zigojacko

    Great story Dan – When your attracting the attention of the likes of Google, you know you’ve got to be doing something right.

  • joe cline

    Great points, now how does a small start up go about trying to get the attention of someone like Google if they believe there idea is a game changer also??

  • http://www.danshapiro.com/blog Dan Shapiro

    I think the notion that an idea, by itself, is game-changing is tough.  Implementation and execution changes the game.  If you’ve got a startup that’s kicking butt and doing amazing things, send me an overview & demo and I’ll try to get it in front of the right people.  If you’re not quite there yet, send me a resume and I’ll get that in front of the right people for sure!

  • http://twitter.com/markslucas Mark Lucas

    Dan – Great work, certainly would love to learn from anyone who can pull a startup to Google exit in under a year…I subscribed to your blog in Reader *disclosure Google product :) I hope you continue to post such great stuff.  

  • Anonymous

    Highly concur concerning the need for medical health insurance change. I have
    been constantly protected being an business owner exclusively due to
    California’s really intense small-business medical health insurance laws and
    regulations.

  • Anonymous

    Great post – I know it must have been difficult to have
    developed and sold it while growing. Considering the possibility of greater success
    and larger payout at exit vs the immediate security offered to you and the
    employees with accepting Googles offer. Found your blog in a link form Rands,
    and would have to agree with some other the others that that may have been
    following for some time – that I appreciate the transparency of your describing
    your thought process in a difficult decision. – Wishing you continued success. Thank
    you.

  • http://www.browsermarketshare.com/ Opera

    Very good post thanks. Having a wife and children arguably makes this not only the correct decision, but the only one. 

  • http://twitter.com/alexsberman Alex Berman

    Awesome story and congrats! 

    I was wondering if you could speak to how you think your educational background played into your success as an entrepreneur, since you mention that you don’t consider yourself a fantastic coder.  Was it your expertise in business, UI/UX, PM, or something else that you think helped you make it this far?

  • http://www.danshapiro.com/blog Dan Shapiro

    Thanks Alex.  I got a BS in engineering from Harvey Mudd with a minor in poli sci.  That left me with an unusual hodgepodge of technical and “fuzzy” skills.  I’ve always dabbled in programming, but never loved it enough to do it for a living, and always preferred brute force solutions to elegant algorithms.

    I got a job at Microsoft as a PM on the Windows team in ’97 and worked there for five years, first in the kernel in a relatively technical PM position, then on the UI team for Windows XP as a fuzzy wuzzy pixel pusher PM.  I’ve been “PM” (for many values of “P”) for most of my career working for the man. 

    Honestly, though, if I had to pick one educational experience I wouldn’t trade for anything, it would be speech & debate in high school. Everything else overlaps; that’s a really unique skill set that’s been orthogonal to everything else I’ve ever done, and tremendously useful.

  • http://www.facebook.com/people/Marie-Brannon/100003651679161 Marie Brannon

    Great
    article!! by the way I am looking for eye care and I have myopia
    –Someone suggested me Allegany Optical    and claimed that they
    provide very good treatment at affordable fee but don’t know if anyone here
    had any experience with them , please give me your feedback

  • Elmar

    Dear Mr. Shapiro,

    I have read the following article: http://venturebeat.com/2012/05/08/dylans-desk-how-mechanical-turk-can-help-you-find-your-next-startup-idea/ . Could you possibly tell me which questions you have used as far as http://www.census.gov is concerned?

    Thanks in advance
    Kind regards
    Elmar

  • Melting Granite

    Didn’t Google end up killing Sparkbuy? If true, big surprise. I loathe Google more with every passing day.