Why I Sold My Startup to Google

http://www.danshapiro.com/blog/2011/07/why-i-sold-my-startup-sparkbuy-to-google/

by danshapiro • 15 years ago

165 69 15 years ago

I get to swing for the fences

Ah, sports metaphors. I consider it to be lower on the language scale than excessive swearing, in terms of limited vocabulary. At least swearing can be used to humorous or vaguely poetic effect.

jswinghammer• 15 years ago

Why would you say that? Do believe yourself to be above sports or the people who enjoy sports?

If I were to fault that metaphor for anything it would be that it has become cliche at this point.

georgieporgie6• 15 years ago

1) It's cliché.

2) It's confusing to non-native speakers.

3) It's confusing to native speakers, too.

4) Baseball has nothing to do with the subject at hand.

5) It reeks of inaccurate, droning marketing-speak.

6) It cheapens the industry to resort of sports-derived metaphors.

AlecSchueler• 15 years ago

While I have nothing against sports metaphors myself, one drawback that I can see is that people unfamiliar with the particular sport might not be able to understand them. Indeed, I'll admit that I'm completely ignorant of baseball and do not know what "swinging for the fences" means. In fact, I only know that this was a baseball reference because of another comment.

petercooper2• 15 years ago

lower on the language scale

Ah, climbing metaphors ;-)

scale: "to climb," late 14c., from L. scala, from scandere "to climb". This is also the source (perhaps via It. scala) of the noun in the musical sense.

I admit, I'm stretching a point here, but when in Rome..

georgieporgie6• 15 years ago

How does noun 'scale' imply climbing?

How does "swing for the fences" not imply baseball?

oflannabhra• 15 years ago

Wow, someone woke up on the wrong side of the grammar bed.

I'm glad he went the whole nine yards with his explanation; too bad you swallowed that one phrase hook, line, and sinker.

georgieporgie6• 15 years ago

I did not take issue with his grammar. Nor am I going to rise to your trollish second paragraph.

mthreat• 15 years ago

I've heard "swing for the fences" many times in the context of startup companies. Fred Wilson (A VC) has a blog post entitled "Swinging for the Fences" that talks about it - http://www.avc.com/a_vc/2009/10/swinging-for-the-fences.html

shaug• 15 years ago

I was the primary developer of Sparkbuy. Dan is one of the most sports-ignorant males I've ever known. I'm just proud he used the term correctly.

georgieporgie6• 15 years ago

..Making the sports metaphor usage all the more silly.

So he used the term correctly? What does the term even mean? Swing for the fences? So he gets to 'swing' really hard? Or does that mean he gets 'thrown' 'balls' 'softly' enough that he's able to finally 'hit' them 'far'? Is he taking steroids, or their computational or business equivalent?

rokhayakebe2• 15 years ago

Very good post. It is very easy for people who do not know you from Adam to sit tell you when/if/how you should exit.5 10,20,30 millions can make a huge difference. Always remember the most important person to make happy is yourself. No apologies needed.

dschobel• 15 years ago

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.

Can anyone explain why this is the case?

rfrey• 15 years ago

Many VCs raise a fund, allocate it, then distribute the proceeds to the limited partners as the investments exit. That's why VCs are sometimes seen simultaneously sitting on several boards, looking for the last one or two investments, and raising the next fund.

danshapiro5• 15 years ago

(OP here) I tried to explain this in my post here: http://www.danshapiro.com/blog/2010/08/vc-insanity-economics... although rfrey's explanation is excellent and succinct.

joshu• 15 years ago

First, he's wrong about the money sitting it in a bank account - it is distributed to the LPs (as rfrey says)

Second, it doesn't have to be the case; it's just that most funds are structured this way. There are funds called evergreen funds, where the proceeds return to the fund and get reinvested.

rdl4• 15 years ago

Which of the big funds are evergreen?

pagekalisedown• 15 years ago

Call me cynical, but I think health care reforms will never happen because it gives big business an edge over the little guys.

jacoblyles• 15 years ago

It's not that expensive to get group insurance for a startup with 6+ employees. Count me skeptical of the idea that health insurance reform will unlock a wave of entrepreneurial talent from people who previously couldn't figure out how to swing a few hundred dollars a month for personal health insurance.

misterbee• 15 years ago

What about for the 1-5 years before employee #6 joins?

danshapiro5• 15 years ago

The difference between rates and quality from a startup to Google is staggering. I've been on both sides (as a startup CEO, and receiving COBRA from Microsoft years ago) - you get vastly more coverage for dramatically less money when you're a big company.

You can get expensive, crappy health insurance as a startup, but for a lot of great candidates, quality health insurance is a hard requirement.

pasbesoin• 15 years ago

Try to get -- or to hold -- such insurance with an older workforce, especially once someone is or has been seriously ill.

I'm not in that position, but a relative is -- minus the illness part, as far as i know. I think their rates went up over 20% last year. Although they are not a tech start up; rather, medical, and already established for some years.

My real concern is that people in the U.S. are, these days, paying "life" rates for what is essentially "term" insurance. Take an all too typical contemporary example. Someone has held one or several jobs that included health care insurance from the time they graduated, say two decades ago. During that time, they may well have paid significantly more in insurance premiums than they received in care -- as a statistical average, their demographic certainly did. (I don't care whether they employer paid some or all of the premiums; call it an indirect wage, if you will.)

Now entering the latter half of their forties, and at higher risk, they are sh-tcanned by their (latest) employer and face extended unemployment or a job that doesn't offer health care benefits.

If they were still in employer provided coverage, they'd still being paying in their X per employee per year (simplifying away the differences between diferent employer-provided plans). It might be time for the system to, on average, pay back some portion of all those accumulated premiums. Sort of a "whole life" insurance policy, from a health insurance perspective.

Instead, the "accrued benefit" (I know this is a crude analogy) has fled along with the job.

Aside from arguments about innovation and economic growth, the current health care insurance model in the U.S. is simply not coherent nor predictable with regard to providing coverage. For many, a third party -- one increasingly having wildly diverging interests -- is in control of their coverage.

Many people would be happy to pay into a pool at the kind of pricing the major employers receive. But as independents, they don't have that option.

nedwin• 15 years ago

Congratulations Dan

dennisgorelik9• 15 years ago

Google essentially killed http://www.sparkby.com (Like it killed Gizmo5 in the past: http://www.google.com/gizmo5/ - initially it was "temporary", but then became permanent).

Why does Google do that? Why not allow it to grow and gradually integrate refined pieces of technology into larger project [Google Product Search]?

rokhayakebe2• 15 years ago

You know that "Call phone" link in your gmail, and when you answer a phone call inside your gmail, that's Gizmo5.

dennisgorelik9• 15 years ago

How about ability to integrate Google Voice with Skype?

Gizmo5 did that.

GMail does NOT.

dennisgorelik9• 15 years ago

What's the replacement for SparkBuy?

I want to buy an inexpensive laptop with 80+ GB SSD and 4+ GB RAM. Where do I go to find that?

---

Edit: thanks to sliverstorm for suggesting newegg.com It's seems to be a good replacement to SparkBuy (unlike Google Products Search).

NewEgg even looks somewhat similar to SpartBuy interface.

dennisgorelik9• 15 years ago

Dan, how long do you have to work for Google?

danshapiro5• 15 years ago

Not at all! I can leave any time I choose. But I'll be here for a good while - it's a great team doing cool stuff, I'm learning & making great connections, and it wouldn't be cool to ditch. There's obviously some economic incentives as well, but that's the lesser part of it at this point.

While I personally wouldn't mind sharing details, for obvious reasons, I can't.

dennisgorelik9• 15 years ago

Could you share one last detail: when would economic incentives irreversibly kick in?

I'm a little bit skeptical here, considering the following:

1) You are not working for Google founders directly. You are working for subordinates of subordinates (think bureaucracy).

2) You are not working for any of the best Google teams (Search, Ads, Gmail, Maps)

3) Your project is killed already without any working replacement.

---

Edit - to all of you downvoters here: I consider the decision Dan made as quite reasonable.

He did a good job and got good reward for that.

He also shared his experience with all of us, which is very educational. I'd like to thank Dan for that.

Still, there is another side to that story which I think should be exposed too.

dotBen• 15 years ago

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

I continue to be of mixed minds as to whether having personal wealth (or not) leads to a greater or lesser level of risk tolerance - and itchiness to exit.

Sure it's easy for those with a high net-wealth to take bigger risks but we see all the time those with nothing (or even less with nothing, ie college debt) take just a big risks because they have nothing to lose.

I wonder if willingness to take risk is essentially a bi-polar bell graph, which leaves something like $25k in the bank in that sticky middle... not enough money to risk it all but too still much to be lost.

daleharvey• 15 years ago

I was really confused by the implication of this statement

is someone who has $25k in life savings "poor" or "wealthy"? I agree with you that its a sticky middle, but the post seemed to imply one or the other.

rewind• 15 years ago

I think in Rand's case, it means "poor". He has tremendous value built up in his company, but nothing personally to show for it. He's still an unforseen string of bad luck or hospital stay from being completely broke (or worse). That's why some people mention it's okay for him to take some money off the table if he raises additional funding.

writetoalok• 15 years ago

So what's the word on continuity after being acquired by Google? The frickin site is down and no news on if or when it'll be up again.

zach5• 15 years ago

I'm sure it's presumably the usual Google continuity scenario, as made famous by Writely, GrandCentral, JotSpot, and many others.

The site goes dark, there's a series of huge planning and strategy sessions, the project gets staffed up and there's a lot of back-end work done. Then, just about the time everyone forgets about the original company completely (not long in the startup world), Google announces a product that takes the original startup's product to a scope and scale well beyond the original. However, it may leave out features that made the product quirky or popular within certain niches. Then a bazillion people start using it and everyone takes it for granted.

staunch3• 15 years ago

Some people might take away from this the idea that you can just build a cool little prototype and Google will come along and snatch you up.

I'd bet this acquisition happened almost entirely due to relationships and salesmanship. Most hackers who don't already know the right people (e.g. former Googlers) would have no chance of pulling this kind of thing off.

Do not try this at home folks. The only real chance of an exit for most startups is one based on actual success in the marketplace.

zach5• 15 years ago

What is true for getting acquired is about as true for acquiring customers. If people don't know about you or haven't heard of your product from other means, you have to break through a wall of indifference.

This is the real value of coverage in the industry press and why I think Steve Blank's fretting over people jockeying for TechCrunch articles, which I initially agreed with, is a little too idealized. Companies get a lot of mileage from being featured in startup industry press outlets. I know it doesn't get them many customers, but it puts them in position to get them. It really helps grow partnerships, boost stature at industry events and frankly increase interest in the founders' future endeavors.

staunch3• 15 years ago

Getting tech press works largely based on relationships. If you have those relationships then of course you should exploit them.

For everyone else the only safe bet is to follow Steve Martin's advice and "be so good they can't ignore you"

Reddit didn't get a TechCrunch article until they were acquired.

rdl4• 15 years ago

I agree that knowing people and making connections is key, but it's perfectly reasonable for a hacker to develop those relationships in the course of building a successful startup. You don't need to be born knowing those people, or even have worked with them directly -- you can meet them at conferences, or through other introductions, and build relationships over time. When it comes time to do deals (or just getting bugs fixed), it's great if they have a pre-existing relationship with you, even if it's not an especially close one.

Also, top-tier investors (YC, SV Angel, angels, VCs like Sequoia, A-H, Kleiner, Accel) will help you make those connections. Or getting a well connected lawyer (e.g. Ted Wang at Fenwick) to represent you.

ma2rten• 15 years ago

From the interview referenced in his blog:

"Sparkbuy founder Dan Shapiro doesn’t like talking to people on airplanes. But on a trip between Silicon Valley and Seattle late last year, the entrepreneur started a conversation with the guy sitting next to him, which happened to be Google’s Matt Klainer. That chance encounter, along with a previous meeting with Google Kirkland site director Scott Silver, led to the search giant’s interest in Shapiro’s new search engine for consumer electronics."

It might just be PR though.

nl3• 15 years ago

They were a YC company. As has been previously noted, YC gives you lots of advantages.

I suspect PG (& YC) would encourage everyone to try becoming a YC company too.

danshapiro5• 15 years ago

No, we weren't a YC company.

Here's what actually happened:

I went on a networking trip to the valley to touch base & brainstorm with some VCs I'd met at my previous company, Ontela. On my way back, I got bumped in to first class. I hate talking to people on planes, but my rule is: if I'm in first, or I'm flying to/from SJC, I force myself. Well, this was a twofer.

The guy sitting next to me turned out to be a Googler. We exchanged some emails - I was still working on company concepts at the time - and months later, when we were featured in Techcrunch, he called me up and said he wanted to talk. He was the one who put together the internal Google team that did the deal.

The deal wouldn't have gotten done, though, without the tireless advocacy of a senior Google technical leader. I first met him maybe 4 years ago, introduced by an old friend, and we had coffee once or twice a year to keep in touch. We always talked about working together, and now we are.

Truth is, I hate "networking" as much as the next guy (although I enjoy the resulting friendships that sometimes form). But one of the key jobs of a startup CEO is creating serendipity, so it's something I force myself to do. And it usually turns out for the best.

rdl4• 15 years ago

Congrats on building something people want AND exiting! Thanks for writing about your experience (this was the good kind of post mortem)

I think another consideration for a (good) founder is "what happens to my team". If I had spent 2-3y building a great team, and had normal startup equity distribution (founders had a lot relative to virtually all employees), there would be a bit of a disconnect in motivations.

Selling a company where you own 10-20% for $100mm is life changing, at least for me. Even if it means working for a really shitty acquirer (e.g. Yahoo) for 2 or even 4 years, that might be enough money to make it personally worthwhile. After all, you could kick back and emphasize "work/life balance", especially after years of startups -- maybe work on non-commercial side projects, maybe teach or take classes, do hobbies, etc., while working at a stable job. Then do your own awesome company, self funded (or VC financed on very favorable terms) in a few years.

However, for employees, it might only be $50-500k of equity payout. That still leaves an employee in the "must work for a living" category, and I personally would be a whole lot happier going to work every day for an awesome small team at an independent company, or for a great acquirer or a PE/fund style "hands off" acquirer (where the team/product stays intact), than to get a $50-100k bonus to go work for Yahoo for 2 years.

A lot of the entrepreneurs I respect the most, who have recently done M&A deals, explicitly valued "what happens to the employees and the company" pretty highly. A lot of them ended up selling to companies like Amazon which have kept operations intact at their acquisitions, vs. the Yahoo-style glue factory.

danshapiro5• 15 years ago

Great point. I was including them in the first two points, but their welfare was a huge consideration and I should probably have called it out separately.

rdl4• 15 years ago

Also, do you have any thoughts on Seattle or other parts of WA/PNW vs SFBA? I love Seattle but am doing a startup down in SF for now.

photon_off2• 15 years ago

I'd never heard of SparkBuy.com -- how did it get snatched up so quickly by Google? A precursory glance at it's stats shows it as being tagged only a handle of times on Delicious [1] and is ranked 200,000+ on Alexa [2].

[1] http://www.delicious.com/url/dd6d860947e61d97884bb3719377c7f... [2]: http://www.alexa.com/siteinfo/sparkbuy.com

It's a great concept, and I think it could fit into Google Shopping quite well. If you haven't checked out Google Shopping, you should -- they do some interesting things by aggregating reviews, doing NLP, and extracting out key terms. An example would be showing you a TV and it's ratings/sentiment analysis for several attributes like "color", "design", and whatever else is relevant for the product. With a more clever UI, they could churn out some amazing product search. I sure wish I had their data.

Tangentially related, I've been working on a similar website in my spare time. If anybody could point me in the right direction in terms of a price comparison API, and/or how to sign up for decent affiliate programs, I'd be quite grateful. Also, Google, if you'd like to hand me the keys to your product database I'd be happy to make a much more useful UI for you.

photon_off2• 15 years ago

Why the downvotes? Is it not legitimate to ask how a scarely-known website ended up being acquired in such a short time?

chopsueyar• 15 years ago

health insurance reform is key to promoting entrepreneurialism and small businesses in this country!

Agreed.

Why I Sold My Startup to Google

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