No lack of discussion about MySpace buying PhotoBucket for $300-million ($250-million plus a $50-million earn-out) but one thing that struck me is whether the founders of Flickr, Caterina Fake and Stewart Butterfield, are having yet another round of sellers’ remorse given they sold their photo-sharing company to Yahoo for about $50-million in 2005. Of course, $50-million is nothing to sneeze at, particularly when you’re able to start, operate and sell a company without giving any equity to venture capitalists. Still, there’s an awful lot Fake and Butterfield could have done with an extra $200 very, large ones.
The PhotoBucket vs. Flickr situation does raise an interesting issue for successful entrepreneurs who find themselves the belle of the ball. When the suitors come calling, how do you know when it’s the right time to go home with someone? What kind of questions do you (and your board/advisors) have to ask before accepting a takeover offer? Selling is not only a financial decision but an emotional one. The idea of giving up your baby to someone else after you’ve put so blood, sweat and tear into it is difficult, if not agonizing – especially when there are lots of dollars on the table.
Look at Jonathan Abrams, who built Friendster into a red-hot social networking start-up long before everyone became obsessed with MySpace or Facebook. The story goes that Abrams turned down a $13-million offer from Google before Google did its IPO. If Abrams had accepted the deal, he would have had stock worth significantly more than the $13-million. Another good example is Facebook’s Mark Zuckerman, who has apparently turned a $1-billion offer from Yahoo. Why not take the money and retire to an island in the Caribbean? Maybe Zuckerman thinks Facebook is worth more – and judging by the recent surge in popularity, he may be might. Or maybe Zuckerman’s not ready to give up the most exciting start-up he’ll ever do.
This discussion reminds me of the Kenny Rogers song, “The Gambler”, which includes these lyrics.
You got to know when to hold em, know when to fold em,
Know when to walk away and know when to run.
You never count your money when youre sittin at the table.
Therell be time enough for countin when the dealins done.
A company is worth … whatever you can get for it. Yahoo!Photo was likely part of the why Yahoo! offered less in the negotiations. Sure they killed it now but that is only because of the Flickr aquisition. The service was new but but established on a shoestring. Photobucket was established months before them and rode that first mover status for all it was worth.
While one can argue wether they could have got more, it ignores the realities of the sale. The investors thought it was good enough then and there were doubts about sustaining it without capital.
From the Inc Interview:
http://www.inc.com/magazine/20061201/hidi-butterfield-fake.html
Fake: There are all these factors that went into the decision to sell. One of the first investors was Stewart’s friend. He was extremely ill, and he stood to make a lot of money if we sold the company.
Butterfield: You never know when an Asian currency crisis is going to happen or 9/11 again or the market tanks or whatever. So we definitely believed that Flickr had a lot of potential life, but at the same time, it was a great result for all the people who had agreed to invest and who trusted us. We shouldn’t have sold when we did, but you don’t know that until after the fact. And it’s not like we have some tragic life story. We’re on the cover of Time magazine and the cover of Newsweek. Reid Hoffman [an early investor in Flickr] said, “You can always do it again. And the amount of money that you’ll make on this will change your life in a way that…”
Fake: “…you’ll be able to be entrepreneurs the rest of your lives.”
As for the Facebook comment. Could be he’s a man of his convictions who hasn’t got the right terms. Greedy. Just wants to keep captaining his ship even if it means it may run into the reef. With a site like Facebook can you blame him?
I’m not sure its correct to say that flickr was started without venture capital
Dick Hardt is well known to have angel-invested in flickr, and presumably he didn’t do it for zero equity in the company.
From the horses mouth @ http://blame.ca/dick/?p=48
Hey Mark,
Great post. I’ve pondered this situation many times as well. I truly believe that Flickr should have waited a bit longer before selling. Their offering was much superior to others out there at the time. Their loyal user base and ability to actually charge for a service were their main distinguishing points. Both create a compelling value proposition for any potential suitor.
As for Facebook, Zuckerberg made a smart, calculated gamble that has definitely paid off. Facebook’s user base and retention levels are constantly increasing.
Cheers,
Aidan
PS. I think you may have a typo in there… “he may be might” should be “he may be right” I believe.
The European Audiovisual Observatory has just released an study showing that Europe enjoys of over 150 VoD Channels. 47 of them are IPTV.
http://le-depanneur.blogspot.com/2007/05/over-150-vod-services-in-europe-47-iptv.html