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.
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).
Because I was there in person when reality took place.
However the one thing no one outside Facebook can really know is why they passed on the acquisition. My reasonable guess is that they figured it would be cheaper to hire (some, not necessarily the same) developers and do it themselves. Are you asserting that it is outside the realm of possibility for them to have thought that way? Or that future acquirers, facing similar choices, would not calculate that it would be cheaper to hire developers after they run out of money?
I know exactly why they passed on the acquisition, and it was not because they thought it would be cheaper to hire someone.
It's strange to watch you keep insisting on this. You said something mistaken when there was no evidence, and now that evidence has emerged contradicting you, instead of changing your theory, you fight to find a way to make the facts conform to it. It's like watching a creationist respond to geology.
Having said that I would still let my thesis stand while withdrawing the Tipjoy incident as any kind of evidence of that thesis: given the proliferation of start-ups and the buyer's market, it is reasonable for acquirers to think that way.
The reality is that Facebook has a fairly large engineering contingent, and that writing a tipping application for the Facebook platform, will likely be a "from scratch" exercise - so there is little value in the codebase IP from TipJoy.
The actual architecture/algorithms associated with a tipping application are probably not so complex as to make Facebook believe they needed to purchase a company to get that knowledge. TipJoy has no patents that I could find on online tipping. And, Facebook wants to leverage its own social network - TipJoy just never really established enough momentum to develop their network and traffic volume to the point at which other organizations saw value that they wanted to acquire.
But, with all that said - it's true that _one_ of the reasons why Companies will purchase other companies is to acquire their engineering staff in one fell swoop. In the case of TipJoy, their small size worked against them. There wasn't much of an engineering staff to be acquired.
At the end of the day, this story probably repeats itself more often than you would imagine - as PG implied when he noted there are other YC alumni working at FaceBook - the only reason we're noticing it right now is that TipJoy is relatively high profile, and it became public knowledge that at least one of the founders is now working there soon after the startup shut down.
Thanks. That clears it up for me a bit. If in a hypothetical case there had been three developers, and a company hired all three of them without buying the company, things would have looked suspicious to more than a few people. With one person, it's easier to argue that it just made sense, given a particular scenario.
This, along with the fact that many startups have more to offer than just founder experience, also makes me think that this is unlikely to start a trend of hiring without acquiring.
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.
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.
Do you have any sources, documentation or other reason to believe that TipJoy raised $1 million?
Re: Comments. I reached out to Ivan and Abby more than 24 hours before I published the story. I understand why they'd be reluctant to respond, and I told them that.
I appreciate the back and forth on this board -- Paul's comments have been particularly enlightening -- but I'm going to bow out now. Please contact me directly if you have specific comments or questions. Thanks. pk
You could see why some of TipJoy’s backers, which include BetaWorks, the Accelerator Group, ex-Googler Chris Sacca and the Y Combinator start-up factory, might cry foul.
Have any of them actually cried foul? I recommend following up with them if you are really interested in the facts.
"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.
"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.
Your example is flawed as there is circumstantial evidence here to start speculating from. People aren't making up random ideas, they're filling in gaps. It's not right, but that's what happens when only part of the story is known.
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.
There's probably a lot more to this story than we know--there's no need to jump to conclusions.
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.
Investors own the company, not the employees--even if they are founders.
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.
"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.
By your logic, I guess I shouldn't worry about my carbon footprint.
Public-choice scholars have long argued that voting is
instrumentally irrational because the probability that a
single vote will change the outcome of an election is nearly
zero. Dennis Mueller made the point well when he noted
that "the probability of being run over by a car going to or
returning from the polls is similar to the probability of
casting the decisive vote. If being run over is worse than
having one’s preferred candidate lose, then this potential
cost of voting alone would exceed the potential gain"
While your individual vote might not statistically matter in choosing the winner, in aggregate, it most certainly does. Voting is not an individual thing, it's a collective thing and judging it by the individual is simply the wrong approach.
An outcome you do not prefer is not automatically irrational. You just don't prefer it. The solution is not to wish everyone would act against their own interests to produce your preferred outcome, but to change the incentives so that your preferred outcome is the natural result of rational choices.
It has nothing to do with my preference. An outcome that fails to result in anyone voting for a system intended to get people to vote, is a failed outcome, no matter how you look at it.
1. On average, better politicians get elected because the voting decisions of society's best-equipped voters are being amplified.
2. Only a small part of the population has to bother themselves with following political news. Since they're such great voters they'll probably do it in much greater depth (reading actual bills and scientific papers; carefully scouring campaign websites instead of believing rumors they hear on TV.)
Most everyone has a friend they consider much smarter than themselves, just do what he says.
This applies to much more than voting.
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?
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.
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.
I think this is the real take home here.