
Why I Sold My Startup Instead Of Taking VC Money - tallross
http://www.builtinchicago.org/blog/why-i-sold-my-startup-instead-taking-vc-money
======
wrath
Congratulations... Having gone through a very similar situation I have to say
it was the best decision I've made. I sold my first company for less then I
could have had if I would have taken the "chance" of going the VC route... but
what that enabled me to do (as you have mentioned) is to pay off my house and
put a descent chunk of money aside. Most importantly though, it gave me the
freedom to try new things once I decided to leave the company that purchased
us. Instead of looking for a salary that would pay my mortgage, put food on
our table, and pay my monthly expenses (e.g. 100k +), I could manage well on a
salary of 35-40k.

Bottom line, for me is that financial security makes me sleep well at night.

My original startup also gave me insight on what I loved to do in a startup
and what I didn't love. I personally joined a startup as employee #1 and
helped grow the company to where we are today.

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ChuckMcM
Thanks for this Ross. Its always an interesting choice (and its good to have a
choice!) I recall when my CEO got an offer to buy the company in the late 90's
and turned it down because he was fixated on going public. Even later it
wasn't clear if that was the 'right' financial choice or not, but as a VC
funded company it really drove a wedge between him and the board. That was a
really high price to pay.

You didn't mention the size of your team at the time of the sale, was it just
you? You and a co-founder? How did they feel one way or the other about the
choices?

~~~
tallross
Thanks for sharing that story. That's a big fear a lot of founders have when
they are deciding if they should seek/take VC money.

As far as our team, we were small. CraftJack was owned by the first company I
started, Tribe9 Interactive. I owned the majority of that, but I brought on a
CTO a few months in to CraftJack and he has a share of Tribe9 and my first
employee has a small share as well. But that was it. I was careful to get both
of their approvals before taking the deal (although I didn't have to legally
as I owned the majority), but I wanted everyone to be on board and would be
happy with the move.

Also, the fact that they still own part of Tribe9 means they have equity in
future companies we start or invest in (we already co-founded and invested in
one called Mystery Tackle Box, <http://mysterytacklebox.com>, which is off to
an amazing start growth wise). It was important to me to make sure everyone
was game.

~~~
timjahn
LOVE the video on the Mystery Tackle Box site!

"Or you can stick with the baseball bat approach..."

~~~
tallross
We have some other good ones too:
[http://www.youtube.com/playlist?list=PL5pSwIdp6w7L3bAZwhsIuq...](http://www.youtube.com/playlist?list=PL5pSwIdp6w7L3bAZwhsIuqNMuq94A_gcj&feature=plcp)

:)

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BHSPitMonkey
Sounds like a happy ending for all parties. Congratulations!

As a side note, is "jack" a new domain name trope (like omitting vowels, or
sticking the letter 'r' after some verb)? This month I've been introduced to
CraftJack.com, SweetJack.com, and JackThreads.com, and I don't completely
understand the significance.

~~~
tallross
Interesting. I bought the domain almost 2 years ago so I'd like to think I
started the trend! ;)

~~~
biot
LoJack has you beat. According to Wikipedia, it was founded in 1978. :)
However, magicJack (2007) might explain the recent popularity of the name.

~~~
StavrosK
"Jack" in LoJack has the meaning of "steal" and in "magicJack" the meaning of
"thing you plug into things". I don't know about the more irrelevant
domains...

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ryanevans
Big congrats to Ross. It's very impressive to build a company to $1MM in a
year. I wish we heard more stories like this. It's far more interesting to me
than reading about Xero raising a bunch of money.

~~~
tallross
But then what would TC have to write about?!?!?! ;)

~~~
startupstella
amen. i think it's important for stories like this to make the rounds so
people see that they have options rather then LETS RAISE MILLIONS OF DOLLARS
RIGHT NOW OR FAILURE

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startupstella
i love this article because it gives a real example of the kind of
conflict/dilemma real life startups have...ross was brave to buck the VC trend
and realize that financial security would allow him to be more risky with his
next venture. that kind of perspective is really rare for young entrepreneurs
(being one myself, i can appreciate this)

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fuzzythinker
Hi Ross, I'm wondering what is your mindset when you approach a competitor for
investments. Or was there enough differentiations in the two companies that
they would really benefited had they invested in you instead of buying your
company?

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joonix
Congrats! You must be on cloud 9. I think you made the right choice.

Any advice to someone trying to setup this kind of platform in another
country? I've been trying to do this in a market that lags far behind in this
type of lead generation. I don't have the skills/resources to build a backend
from the ground up. Is there a solid, basic software package out there? Would
CraftJack ever license its platform to other markets (countries)?

~~~
tallross
If you just want to sell leads there are some basic lead distribution
platforms out there like boberdoo.com. We built our own in-house. If you have
a lot of custom stuff you want to do, find a CTO.

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tzaman
The obvious question, how much? (I'm aware you can't give precise numbers, but
would be nice to have a feeling how much 1 year startup is valuated at).

~~~
tallross
There is no formula for how to value a startup after one year. In our case, we
had over $1MM in revenue and built some very cool technology that was new to
our space. It all depends on the company, the team, and the situation.

Also, while the brand (CraftJack) was a year old, I had started some of the
properties we used to generate leads 1-2 years prior to that so was able to
build some revenue from there.

~~~
jyu
This space tends to be not tech saavy or sexy, but has a lot of dollars. Were
you mostly collecting the leads and then selling them off to national buyers
like QuinStreet etc? That seems to me like the only way to go from $0 to $1mm
in a year. I have a lot more questions like how you deal with leads quality,
if you were driving the traffic yourself (PPC, SEO, media buys, etc).

~~~
tallross
I started off that way as an affiliate, but eventually, when I launched
LocalPainterQuotes.com, which a year later became CraftJack, we started
selling direct to service providers and built a lot of technology that other
companies were/are not providing to their customers. The revenue increase
really came over 2 years as we had some revenue before we launched CraftJack,
but it was still pretty quick growth and all bootstrapped. That's one of the
things you can do in LeadGen easier than other sectors (bootstrapping).

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hahla
As a website broker, its always refreshing to see articles like this popup on
hn. Selling instead of taking vc money isnt the sexiest option but its the
right one for alot of companies and founders alike. Im on my mobile so I havnt
had a chance to analyze craftjack to give my full opinion, but I can almost
guarantee that for a leadgen site he picked the right option.

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thauck
I know MBAs get shit on a lot around here (and I am not one, but close) this
really is a simple expected value proposition. Something an MBA is introduced
to early.

On the one hand he can sell his start up for a thus undisclosed amount of
money, on the other he can continue on and have some expected payout (could be
0 could be a lot). If `expected sell amount` < `continue amount when sold`,
continue, else sell. Certainly you have to consider time value of money, the
future opportunities of having financial security.

Given the stats presented (2% of comp sell for > 2 million) we could deduce a
lower threshold for what he sold for assuming the above behavior... but really
he did what was best given the circumstances...

Congrats

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sixQuarks
Congratulations! I have a question if you don't mind. Out of the 1MM in
revenue, how much of that was profit? Were you spending money on traffic
generation?

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kevinrpope
I worked for a company in Australia that sounds like it does something similar
(lead gen for tradespeople). I'm curious how you made the transition from
national brands/affiliate model to the direct-to-suppliers model (as mentioned
[here](<http://news.ycombinator.com/item?id=4854030)>). If you'd rather not
discuss here, my email is in my profile.

~~~
tallross
Tweet me @tallross and we can connect

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OldSchool
How much is usually not revealed unless the acquirer is a public company.

His story is a good example of balancing risk and opportunity. Early VC money
will just give you some job security, while selling out when you 1) have a
qualified buyer, 2) your company looks good and 3) you have little or no
wealth outside the company can give you a big head start on life.

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fbuilesv
Cached version (seems to be down here):
[http://webcache.googleusercontent.com/search?q=cache:r_L6UYB...](http://webcache.googleusercontent.com/search?q=cache:r_L6UYB026MJ:www.builtinchicago.org/blog/why-
i-sold-my-startup-instead-taking-vc-money+&cd=1&hl=en&ct=clnk&gl=us)

------
OldSchool
Craftjack.com looks like a great example of doing something really well that's
not particularly glamorous and has successes already in about the same space
(the obvious comparison Angieslist.com). You don't need to "invent" something
out of the blue sky to make money, just do it well. Nice job on all fronts!

~~~
tallross
Thank you!

100% right. Although a lot of the technology we built for our service
providers was new, the business model was not new at all. There are dozens of
leadgen companies in the home improvement space as well as dozens of lead
management tools, but none of them are providing an integrated product that
both sells leads to service providers and then improves the way they follow up
with those leads (thus increasing their satisfaction with the leads, which
increases spend and lowers attrition).

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gopi
Great Story. Years ago i used to be the top affiliate of ServiceMagic
(HomeAdvisor) supplying 8-10% of their entire lead volume. But instead of
creating a sustainable web property leveraging my SEO skills i was
concentrating on shorterm money by making throwaway sites...Still regret it!

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drumdance
Hey Ross, thanks for sharing that. I went through a similar experience with my
first company in Chicago back in the late 90's.

Will you be getting out to Denver often? Drop me a note next time you're in
town. (I'm in Boulder.)

~~~
tallross
Should be there in Jan/Feb. Tweet me @tallross with your info and we'll
connect. Thanks!

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jamesjguthrie
> While I think it's essential for every entrepreneur to think that their
> company is likely to sell for tens of millions of dollars

Stopped reading right there. I want to build a life time business, not
something to sell after a few years then move onto something else. The
likelyhood of building even 1 successful business is small, it's obviously
even harder to do it again and again.

~~~
MattGrommes
(This comment assumes you actually did stop reading.)

I'm curious about the mind-set that says "Stop reading, I didn't agree with
this sentence." Do you read part of a lot of articles on HN? Since you don't
know what you're missing I guess you can't answer this but do you think this
is a sound strategy for learning anything?

~~~
jamesjguthrie
Most don't read blogs for education. If I start reading a blog article that I
think might be a lot of nonsense then I will stop reading it.

~~~
readymade
So you read blogs in order to flatter your preconceptions, then?

~~~
jamesjguthrie
I read blogs for entertainment and news.

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ricupero
bird in the hand is better then two in the bush.

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dmarti21
Because you're dead inside? No more belief in anything?

