
Xobni Walks Away From A Microsoft Deal - mhartl
http://www.techcrunch.com/2008/04/30/xobni-walks-away-from-a-microsoft-deal/
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mattmaroon
Why does nobody mention the fact that it would be very unusual for VCs to
allow a company to be acquired at a 2x return? I don't know what their pre-
money was when they took that 4.25m, but even if they gave away half of the
company, that's a post-money of 8.5m. No VC is going to approve a sale for
less than 30m in that situation, and even that might be too low.

I don't have any inside knowledge of what went on there, but I can't imagine
that selling for 20m was an option for the founders even if they had wanted
to.

~~~
GavinB
VCs should allow a company to be acquired when they believe its value has
peaked, not some preset ratio or return. A smart VC would sell at 80% return
if he thought it was only down from there.

~~~
mattmaroon
Well, it's fairly rare a VC invests in a company that early stage and thinks
it's peaked a year later. I agree with you, but that doesn't happen.

~~~
GavinB
There's certainly a psychological/selection bias aspect to it. If they bought
in early they're more likely to have a rosy vision of the future prospects
than your average spectator.

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SwellJoe
I admire their guts and their determination. It's awfully hard for
20-something folks to look at 20 million bucks (probably $10mil by the time
the investors got their share, but still serious lifestyle-changing money) and
walk away from it. Of course, as Matt pointed out, VCs don't like such a small
return. 100% in 18 months isn't bad, but it's also not the kind of returns VCs
need to see to make their math add up right. They can afford to fail
frequently, but they can't afford to succeed modestly on a few investments and
fail on the rest of them--they can only afford the failures if the successes
are huge. So, it's either fail hard or win huge. It's a weird model, but it
seems to work for the investors (the entrepreneurs might not always be getting
a great deal out of that math, though).

Anyway, I'm optimistic that the guys have the flexibility to evolve their
ideas into a $100mil business. Wider platform support is crucial, of course,
but so is solving a "hair on fire" kind of problem. Email is obviously a huge
industry, and I know there will be many more huge successes in email-related
startups, but they've got some stiff competition.

So, get back to work guys...you've got a long hard road ahead of you.

~~~
bluelu
I haven't yet seen an unique usefull idea from xobni so far, except that they
group attachements by author....

~~~
rms
They added Gmail-style conversational threading to Outlook. That's one of the
best features of Gmail and something Outlook was really missing. It's not a
unique feature, but it's definitely useful. There aren't many companies out
there that are trying to improve the basic functionality of email; I'm
actually surprised that Xobni has seen so little competition.

~~~
briansmith
Once you get used to it, outlook's standard conversation view is more
convenient than GMail's, at least for me.

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watmough
I haven't used Xobni, but if Google desktop search can index my Outlook, then
Google are most likely but an intern away from eating Xobni's lunch.

Sender, recipients, subject, threading. I wonder if access to Outlook is the
real true prize for all that work on Google desktop.

It still seems pretty surprising that the only really viable way to search MS
Email is by using Google desktop search.

~~~
bigtoga
Xobni != Outlook search. At all. And Google Desktop Search is not the only
really viable way to search Outlook.

???? Do you even use Windows?

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ryanb
I'm honestly surprised by all the fuss over xobni. I have it running on my
Outlook at work, where I get a ton of e-mails per day, and I frankly haven't
found it to be very useful as of yet. Maybe I haven't fooled with it enough.

~~~
Bluem00
Search-done-right and the list of attachments sent between myself and a
contact have removed a perpetual source of frustration in my workday. Maybe
your situation is different.

~~~
Prrometheus
I used to regularly run 5-minute long searches in my inbox to find a
particular attachment that I needed. It was hell compared to, say, GMail. I
haven't tried Xobni, but the search and attachment features are the right ones
to tackle.

~~~
briansmith
I heard that Outlook 2007's search is much faster than previous versions. Is
that true? Maybe it isn't as fast as Xobni, Lookout, or Google Desktop Search,
but people have said that it is fast enough.

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dfranke
W.r.t. to simply becoming a feature of Outlook, I can't imagine what else they
could possibly have expected. But $20M is a pretty weak offer.

~~~
bigtoga
With what basis do you have to say $20m is a weak offer? I'm not clear on what
numbers you are using to base your view on. I'm not privvy to the internals at
Xobni so I couldn't even guess whether $1m is weak let alone $20m.

~~~
dfranke
They've taken $5M in funding, which probably means they took it at at least a
$10M valuation. Furthermore they're already a mature, established company,
probably moreso than any other YC company besides Loopt.

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okeumeni
I want to reiterate my advice to Xobni, Sell and run! These guys are beasts
they will make a copy of Xobni and make you history, remember Netscape.

~~~
tx
Yea, these beasts can't even compete with their own 5-year old products.

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aupajo
I think it's clear that Microsoft want to add these kinds of features to
Outlook. I wonder now if they'll attempt to build their own as a direct
competitor, or shop around for another business to aquire?

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smhinsey
I think if you're willing to assume the risk of starting the company in the
first place, then you ought to be willing to assume the risk of rejecting an
offer and then potentially failing afterwards. It's a risk, but if you enter
into it with your eyes open, and the situation makes sense, it's one you
shouldn't be afraid of.

I wonder if people wouldn't be having this same conversation about the
Google/Yahoo deal that was kicked around in the early days. (I know that deal
was different, but it's the same risk - what if your company could become the
next Google by turning down this offer?)

On another note, I think this response speaks to the question a lot of people
have asked about whether YC companies are being created simply as acquisition
targets or whether they're in it to create long term businesses.

~~~
bigbang
Just another data point, even AOL tried to acquire yahoo during 95/96 for
cheap. Just that price wasnt agreeable I think. Now 12 years later Yahoo
acquiring AOL is an option to fend off MS.

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wumi
<http://www.paulgraham.com/googles.html>

"Tip for acquirers: when a startup turns you down, consider raising your
offer, because there's a good chance the outrageous price they want will later
seem a bargain. [1]

From the evidence I've seen so far, startups that turn down acquisition offers
usually end up doing better. Not always, but usually there's a bigger offer
coming, or perhaps even an IPO."

~~~
menloparkbum
"Usually" is the key phrase. The first startup I worked for turned down an
$50M acquisition offer when we only had 15 employees and no funding. Everyone
up to employee 10 would have made at least a million dollars off of the deal.
2 years, $20M of investment and 150 employees later, the company was "sold"
for peanuts in a deal where the VCs folded us into another portfolio company
and nobody got anything.

~~~
davidw
IIRC, Linuxcare turned down a few offers when it was still 'hot'. I don't
think they were very good offers, but it still turned out to be a mistake.

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iamelgringo
I really think that if Xobni sticks to it's guns, they can probably have a
nice ISV and make quite a bit more than $20 million a year without breaking a
sweat. If they price their product for $100 a license, then they'd only have
to sell 200,000 licenses a year to reach $20 million a year.

~~~
kirubakaran
_"If they price their product for $100 a license, then they'd only have to
sell 200,000 licenses a year to reach $20 million a year."_

Since the price of MS Office Home Edition is $150, imho they will have a tough
time justifying a price higher than $29.99 (with the current feature set of
Xobni at least). Don't get me wrong - I like Xobni... I am just saying this
from a practical sales standpoint.

Considering this and considering they have to pay income tax instead of
capital gains tax, they may have to sell at least a million copies to make $20
million.

Of course they can make it into a product with a ton more features making it
worth $100 a piece in the eyes of Joe CubeDweller.

~~~
martin
"Since the price of MS Office Home Edition is $150..."

I don't think that really has anything to do with it. There are plenty of
Office plugins that cost hundreds or even thousands of dollars. It's all about
how much value the product offers and how much that value is worth to the
users. I don't disagree that $100 a seat seems a bit pricey for Xobni's
existing functionality, but I don't doubt it could someday be worth that or
even more to a large organization.

~~~
mwerty
> There are plenty of Office plugins that cost hundreds or even thousands of
> dollars.

Do you remember the names of these plugins? I know there are some dev-tool
type plugins that cost a lot.

~~~
martin
Well, I work in the financial industry, so that's the type of product I'm
familiar with... but Bloomberg, FactSet, SNL, Capital IQ, Datastream, Mekko,
DealMaven... all of those offer Excel, Outlook and/or PowerPoint plug-ins that
carry price tags well above those of the Office apps they depend upon.

~~~
kirubakaran
Thank you for sharing the knowledge. I didn't know that.

Follow-up questions: I look at Xobni as a time (hence money) saving tool for
the end user... not a money making tool. Are all the tools/plug-ins that you
mentioned money making tools? Can a time saving tool be sold for a price
higher than the host app?

~~~
martin
Well, it's kind of a blurry line that separates the two. The financial
industry existed before all of those products did. Building a financial model
doesn't _require_ these products -- one could do it by spending hours pouring
over government filings, etc. to compile all the information needed -- so
they're all "time saving." And since time is money -- faster modeling means
more work can be done in the same time, and/or fewer analysts are required to
do the same work -- they're all "money making."

I suppose you could distinguish between the "market data/financials products"
and "products that save time and thus money in other ways." Mekko, for
example, might fall into the latter group -- it's basically just an advanced
charting tool. It retails for about $500. DealMaven, which is basically a
workflow improvement tool, would probably fall into that category as well,
although I'm not sure what it costs.

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bootload
_"... The deal would have been a natural for Microsoft, which was offering to
buy the two-year old startup for somewhere in the $20-million range ... Xobni
offers a plug-in for Outlook that makes it smarter and easier to use ..."_

The product is a strategic choice. A choke point for desktop users to the
Internet. Microsoft desktop users. The low offer could reflect the lack of
competition. So the question can Xobni adapt to what people want and bring in
a competitor?

Then I read this article ~ [http://www.techcrunch.com/2008/04/28/xobnis-
secret-project-m...](http://www.techcrunch.com/2008/04/28/xobnis-secret-
project-merge-outlook-with-yahoo-mail/)

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jdroid
The poll, as of right now. (heh heh, 1337)

$20 Million?

    
    
        * Hell, yes! Are they crazy?
          1600 
        * No, they will be worth a lot more a year from now.
          1337 
    

Total Votes: 2937

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mynameishere
[Shaking my head]

Can't figure out who's behavior is more mystifying...the paymasters at MS, or
someone who turns down 20M for a basically useless widget.

~~~
ivankirigin
50K users find some use in it. I'd like the analytics for GMail. Hell, if they
work with gmail, the iGoogle open-social effort might replace facebook for me.

~~~
anewaccountname
50K downloads is not 50K users.

~~~
ivankirigin
You're right. I just misread the stats.

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jdavid
this does not look like an IP buy for MS, it looks like a human capitol buy.
It's one thing to have a product, a business and be allowed the freedom to
innovate. Its another thing to be brought in and fix someone-else's problem.
Its my guess that MS wanted Xobni to re-vitalize outlook rather than advance
their product.

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nazgulnarsil
look they got a 20million dollar offer while still in beta. They're obviously
on to something. Turning down the money at this point isn't that risky.

