Facebook, TipJoy, the Deal that Didn’t Happen and the Hire that Did

http://mediamemo.allthingsd.com/20090822/the-odd-tale-of-facebook-tipjoy-the-deal-that-didnt-happen-and-the-hire-that-did/

by pakafka • 17 years ago

97 74 17 years ago

mediamemo.allthingsd.com

il• 17 years ago

So basically Facebook got the same benefit as if they had acquired the company(the talent) for less money and the investors got screwed.

GavinB2• 17 years ago

Presumably they don't get the brand, domain name, existing code base, and access to registered users.

There's probably a lot more to this story than we know--there's no need to jump to conclusions.

jonknee• 17 years ago

I don't think Facebook needs the domain, code or registered users. They liked the idea and obviously the people behind it. But to launch it on a Facebook like scale it would need a rewrite, tons of legal power and probably a new name anyway (even TipJoy learned to not like their name).

scorpion0322• 17 years ago

> brand name

The founders have themselves said that they have little traction, and 3rd party payment services will not add much value.

> domain name

Doesn't matter, when brand name isn't useful

> Existing code base

Its takes significantly less time to build it the next time.

> Registered users

Facebook has 250 million users! <1% cant matter anyway.

tipjoy• 17 years ago

Debatably, they got less than half the talent, thank you very much!

scorpion0322• 17 years ago

At less than a tenth of the price?

webwright• 17 years ago

Abby > Ivan? :-)

jharrison• 17 years ago

I sense strife intra-marital strife.

_pius2• 17 years ago

Well, that thickens the plot considerably.

medianama2• 17 years ago

This is clearly a conflict of interest. The founder should have disclosed the terms of employment offer to the investors (if not general public)

gruseom2• 17 years ago

On what basis are you saying that they didn't?

Edit: Well, now we know. "No basis" actually turned out to be an understatement. http://news.ycombinator.com/item?id=779693

Edit 2: just noticed that it was you who asked the question. Credit where credit's due.

johnnyg• 17 years ago

Isn't a startup's founder obligated to act in the best interest of the inventors whose money and risk made the venture possible?

nostrademons• 17 years ago

There's no evidence that they didn't.

FaceBook held all the cards here - all they had to do was wait until TipJoy ran out of money, then snatch up one of the founders when he goes looking for a job. Which is what they did. What else would you have the founders do?

Just highlights the importance of bargaining position. Make deals when you don't need them, because you won't be able to when you do.

plainspace• 17 years ago

Just highlights the importance of bargaining position. Make deals when you don't need them, because you won't be able to when you do.

I think this is the real take home here.

ivankirigin• 17 years ago

This completely doesn't tell the whole story, and those of you commenting should realize that.

_pius2• 17 years ago

It's the most difficult kind of article to rebut: the kind that "raises questions" without drawing any conclusions. But they sure made the situation look pretty shady.

gruseom2• 17 years ago

But they sure made the situation look pretty shady.

Really? I read it twice and while I agree that the author was trying to make it look shady, all he actually comes up with are "undisputed facts". It's like trying to make a horror movie by adding scary music to paint drying.

I know nothing about the details here, but when an attempt at innuendo refutes itself, that's pretty weak.

davidw• 17 years ago

Comes across as "there's more to it", but it did tell a side of the story that your earlier announcement didn't mention at all, which is why I guess people are interested in it.

Hope you both come through it all ok in any case, and good luck at your new job, and at some point in the future, your next stab at a company.

jsankey2• 17 years ago

I think most people probably do realise that. I understand you're probably not in a position to tell it all just yet either. Seems like it would be in Facebook's and your own best interest to clarify the already-public information (if not more), though? Kill the speculation before it starts to echo.

gehant• 17 years ago

Speculation of what exactly? You're telling me a sentence like this would cause legitimate speculation:

"Supposedly there is no proof that PG is a cold blooded killer but there are no facts to prove otherwise."

Most of that article was stretched assumption & hyperbole, at best.

The only shady thing in all of this is that site forces a pop-up.

pakafka3• 17 years ago

Ivan, I'm noting your comment, and Paul's, on my post. But the offer I made multiple times to you and Abby still stands -- if there's more info that you want to get out, I'm happy to chat. pk

mattmaroon2• 17 years ago

This is my favorite online "journalism" technique ever. When someone you want a scoop from won't comment, just make a bunch of crap up and then when they get angry say "hey feel free to comment".

jacquesm• 17 years ago

Will you be working on something similar to tipjoy or will you be working on unrelated stuff ? (I understand almost everybody commenting below assumes that you got 'snapped up' at firesale prices but they're going on the assumption that tipjoy is what they want you for, not your general knowledge of the art).

sabon• 17 years ago

And just yesterday or 2 days ago I wrote this under the story of TipJoy shutting down:

"The whole story seems to repeatedly wave the arms and shout:

"Hey, Twitter! Hey, Facebook! Here we are! We know how to do this! Hire us, hire us, hire us!!!".

At least that's how I read the story. And I'm quite convinced it's their intent. Which shouldn't be a bad thing too.

Well, of course customers' money is the most important thing, no doubt about it.

But it struck me that you mentioned several times in the article that you know what and how to do, you just don't have the leverage of being the main body. Why would you deny it? Is it something bad? I don't think so. Would you refuse if Twitter or Facebook approached you with a decent offer?"

And for this I was severely downmodded. Well, wasn't the part of Facebook approaching you right? In my opinion you should have made this known to give people the full picture. For them to judge and make opinions having all the facts, not some of them.

medianama2• 17 years ago

I would like to hear PG's (or other investors) views on this.

pg6• 17 years ago

Facebook didn't do anything wrong. Tipjoy was out of money. They'd been talking to several potential acquirers, including Facebook, but those deals all fell through. So the Tipjoys were going to have to get jobs somewhere. Since they were worried about money and Ivan admired the hackers at Facebook, I asked FB if they'd offer him a job, and they did.

It doesn't portend anything for the future of startups, as this story seems to imply. If your startup tanks, you have to get a job somewhere, and lots of hackers get jobs at Facebook. There are several other YC alumni working there.

amichail3• 17 years ago

Comparing this to voting, most people vote because they want to be seen in a good light by their friends and family (and some vote because they don't understand probability). Perhaps some sort of similar social pressure could have been employed with TipJoy.

adrianwaj2• 17 years ago

I wonder if they fell through, because in Kirigin's words:

"We strongly believe that social payments will work on a social network, provided that they’re done within the platform and not as a 3rd party."

So at that realization the acquirers decided to build rather than buy.

ApolloRising• 17 years ago

That was a very nice thing for you to do.

startingup4• 17 years ago

Basically it appears like Facebook made the rational calculation that hiring the developer at retail is a lot cheaper than buying the company wholesale.

That is consistent with what I have argued in HN comments: with the glut of start-ups (50 from YC alone this year?) prices will drop towards replacement value. The replacement value of a start-up amounts to a hiring bonus for its developers. This is likely true even with substantial user traction.

We saw much the same thing in the implied valuation of iLike - after liquidation preference, developers basically get a hiring bonus, if they stick around. And iLike had 10 million monthly users on Facebook.

So unless a start-up has a plausible path to independent profitability, it is going to be subject to the brutal laws of a buyer's market. In other sectors this effect has been well observed: take enterprise software for example. There are public companies with $100+ million revenue that trade for basically not much more than cash on hand.

byrneseyeview2• 17 years ago

Yeah, if the startup's sole value is that it looks good on a résumé, that's true. But many startups have added brand value -- if Microsoft wanted to get into micropayments, for example, I think Microsoft TipJoy would have more initial traction than Microsoft Micropayment using the same developer. FB already has a great brand name.

randallsquared3• 17 years ago

In this particular case, Ivan's already mentioned that the brand was a net drawback, in the previous thread about TipJoy this week.

startingup4• 17 years ago

In my mind, brand value equates to user traction. User traction alone isn't enough for valuation (particularly in sober times), particularly when the acquirers have massive user-bases themselves.

Microsoft's historical acquisitions were of that kind (starting with DOS!): technology/development teams, with little or no premium paid.

As an acquirer this is perfectly rational behavior.

Why make a VC rich? That is the logic that is increasingly being applied and the proliferation of start-ups makes that logic very compelling. Let's say FB next needs a real time video service. Do they really need someone else's brand or audience? They would likely scout for a hot development team with good technology, and there are many to choose from.

pg6• 17 years ago

Note to the reader: don't believe every plausible-sounding explanation of events you read on a comment thread.

trapper• 17 years ago

I'd like to know why you think this isn't close to reality. There are tons of startups out there with no path to independent viability. Why wouldn't potential acquirers simply wait until the founders run out of what little money they have on hand then snap it up for a pittance? Or simply hire the developer?

If someone can get something to market in three months the first try, it's going to be much quicker on the second try, especially if they don't have to deal with all that "other" stuff (marketing, business dev, launch plans etc).

johnnybgoode2• 17 years ago

If the grandparent poster is correct, it's quite possible that YC's model has serious flaws. Considering these implications, wouldn't a reasoned counterargument be more appropriate than snark?

byrneseyeview2• 17 years ago

It's like the Zeno's Arrow of stories: we get half the remaining story every time.

khangtoh• 17 years ago

This is an really interesting situation. What I'm really curious about is how/where IP of Tipjoy would eventually end up? Ivan doesn't own those IP, TipJoy does.

Assuming Facebook had initiated the acquisition, I can only imagine they're after 1) The technology/IP behind Tipjoy 2) The talents

I find it hard to believe that Facebook would fork out $5M just for the "talent", so I think that was more of a technology buy for Facebook.

So if that's the case, Ivan would be threading into an unfavorable situation since their investors technically own parts of TipJoy and would want to protect TipJoy's technologu and IP. I do think there's a potential that those investors could file claims against Facebook and Ivan if he does end up working on Facebook's payment system.

Again, I'm not pointing out anything against Ivan but I do want to know as entrepreneurs, if we do get into such a situation, what sort of risks/factors could arise from this?

sanj• 17 years ago

Ivan & Abby, are you both heading west? I'll miss having another startup here in Arlington.

far33d• 17 years ago

Sad to see another entrepreneur leave Boston.

sown• 17 years ago

Wow. What a ride it must have been. I wish to be part of such a ride someday. :)

Facebook, TipJoy, the Deal that Didn’t Happen and the Hire that Did

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