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Why I Sold My Startup Instead Of Taking VC Money (builtinchicago.org)
189 points by tallross on Nov 30, 2012 | hide | past | web | favorite | 54 comments



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.


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?


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.


LOVE the video on the Mystery Tackle Box site!

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



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.


It could be because Jack is an interesting word with a lot of meanings.

Hit the road Jack

Jack of all trades

I just jacked this car (stole it)

Can you help me jack my car up (raise it)

Jack@ass

etc...


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


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


"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...


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.


What I find interesting is that if you dig deeper into the outliers like Xero, you'll often find that the founder(s) behind it were far from being an overnight success story (although it's often interpreted that way when we read about it on hyped-up tech posts).

In Xero's case, the CEO Rod Drury started his first successful company, Glazer System, in 1995 and sold it in 2000; he finished undergrad in 1987 so he must've been around 30 when he started it and 35 when he finally had his first taste of success. And he was around 41yrs old when he started Xero (I'm basing this all off of his LinkedIn profile: http://linkedin.com/profile/view?id=122232).

We read that Ross is currently 29yrs old. And he seems like a smart guy and a capable entrepreneur. I bet you CraftJack definitely won't be his last venture, and who knows, we may very well see him working on a "Xero" a decade or two from now. This game only gets better with age and experience.


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


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


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)


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?


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)?


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.


My advice is to either (A) find a technical co-founder or (B) learn enough to be the technical co-founder.


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).


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.


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).


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).


I agree - that would be an awesome follow up post to garner more insights into getting the start-up from day 1 to selling it :)


it also has TONS of players in it.. my first job out of college was at a small lead gen company that had about 5 people working there. the key i think that company had was a crazy good( or just persistent) salesman that looped in the big players in the various niches, ADT, Brinks, Wheaton, etc..


I think that really depends on the industry as well as the team involved.


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.


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


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?


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.


Tweet me @tallross and we can connect


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.


Cached version (seems to be down here): http://webcache.googleusercontent.com/search?q=cache:r_L6UYB...


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!


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).


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!


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.)


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


> 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.


(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?


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.


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


I read blogs for entertainment and news.


I disagree. Once you have already done it your likelihood increases that you will do it the second time around. You have more capital, experience, and connections.

You are right in the sense that before you start a business you are less likely to have multiple successes than you are to have one success.


You know, if you had just finished reading that sentence, you would have seen him pointing out that entrepreneurs need to realize it probably won't happen.


Building a successful business-any successful business, bootstrapped or VC, is really, really hard. Do you really want to be working 12 hour days and losing sleep about deals falling apart or how you'll make payroll, and blowing off every social event for work, for the rest of your life? Really? Do you think it's even possible for a human being to survive 40 years of that kind of stress?

You're optimizing for the wrong things.


If your business is still doing that to you after a couple of years then you're not doing it right.

It's about building a well oiled machine and being proud of it, not just build-and-sell.


I just think that it's a bit disrespectful to the hard work that it takes to create a successful business. It's all very blasé.

The sentence I quoted basically says I should be thinking "I'll just launch a startup and it'll be easy to sell it for $xx,000,000"

We should not be thinking like this, we should be thinking that if we are lucky enough for our little idea to actually make a bit of money then we should hold onto it with both hands!


It doesn't say that at all. I said nothing about easy. I'm saying that as an entrepreneur you have to maintain the delusion that your company is likely to be worth a shit-ton of money. After all, if you don't believe that, what's the point of building it? (Assuming you don't want a small lifestyle business)


> with one exit under my belt and a good deal of financial security, I will be in an even better position to succeed the next time around

Why is an exit defined as success? Success should be building and maintaining a business that can annually bring you in a ton of cash, keep you relatively sane, keep loads of people from your country's economy in employment and above all provide goods or services that will make someone else's life/work a little easier.

You want to make a business of selling businesses, fair enough but I disagree that that is what we should all be doing.


An exit is not universally defined as success. Success is defined by the person who builds the company.

>Success should be building and maintaining a business that can annually bring you in a ton of cash, keep you relatively sane, keep loads of people from your country's economy in employment and above all provide goods or services that will make someone else's life/work a little easier.

Selling my company allows me to do all those things (although my cash is coming in up-front, for the most part, which means I can likely grow that money a lot faster than I could have if I got it over many years).

To each his own...


That sentence stood out for me, too, but I took it to mean "It's essential for every entrepreneur to think that their company is going to be successful." It seems that your quibble is with the post's (narrow) definition of success, not with the general notion that entrepreneurs should believe in what they're doing. I think the rest of the article is still worth reading.


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


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




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