Number 5: The Cat Is Out of The Bag and The Bags In The River!

Posted: June 19, 2010 in Direct Thoughts

Yep number 5 is in the bag.  We exited and finally closed.  Here is the press release:

BenefitFocus Acquires BeliefNetworks

I came into the office the day after the press release and the phone rang:

me: Hello?

speaker: Hi this is such and such with Morgan Stanley

me: hello.

speaker: How are you today?

me: good.  I suppose your calling about the release.

speaker: yes, you have had quite a run.

me: I suppose so.

speaker: well we just wanted to make sure your aware we are available for these type of liquidity events.

me: Yes I am aware and already have taken care in such areas, thank you good bye.

Honestly this time around it was lackluster.  I’m not jaded just tired of the chinese water torture that is prevalent due to the region.  So if anyone has been following what has been happening over the last couple of years we founded a company that created some pretty good software.  We won some awards, had some customers using the technology and to top it off it is some of the hottest technology being discussed.  When blood is in the water the sharks come.  The M&A folks at the following companies had very frank and positive discussions with us: Google, Facebook, Oracle, IBM, Microsoft, NewsCorp etc.  As noted a company called BenefitFocus acquired us.  Which brings me to the current issue at hand.  If anyone read my previous blog ( Amazing Moments Of The Past Year)  then you may remember this:

  • It’s not just Timbuktu, it’s beyond nowhere.

This was in response to location.  Lest anyone think that location does not matter.  It does.  Sandhill, Embarcadero, 1st Street Pioneer Square, Newbury St.  Having to get on a plane and leave requires time and time is money especially in disruptive software.    Geography makes a difference:  Menlo Park, Seattle,Cambridge, London, Bangalore, Israel.  You can make the argument all day about burn rate and easy access to talent but it is much easier to go where the money is to begin with and not have to compete at a disadvantage.

So here is where I want to make some very strong points:

(1) Location Location Location – Did I say Location?!

I seem to be able to time technology pretty good.  When to deploy, what is going to happen and how it will unfold.  When we were in the early stages of thinking about names, look and feel and all the really fund stuff of a startup we had a teleconference with some folks who I trust that have been around the block several times and have worn several hats.  When I told them I was going to found the company in Charleston, South Carolina they about jumped through the phone.  One of them said “Dude please do not waste these ideas in that area.”  Another said, “Look you wont get funding, if you do it will be a small amount, then the same companies that fund the institutional rounds also are the same companies that will buy the company or put their buddy Bob the CEO with a background of being a copier salesperson in place.”  Well me being me i said man we have enough contacts and background to make this happen.  The talent will be cheaper and we can get some guys to move from the valley due to cost of living.

Guess What?  I WAS WRONG!  Yep I said it: I WAS WRONG!

Along those lines everyone may also remember this: Deadly Sins of A StartUp by Bill Bagloglu ?  Read to about page 8.  Take your time I will wait.  OK? Finished? So amazingly enough he mentions the company that purchased BeliefNetworks! He also mentions this: “Geographically, BenefitFocus is in one of the most technology unfriendly places in America, South Carolina.They had no venture funding or top- tier capital investments behind them.”  It appeared my hubris had gotten the better of me.  Now BenefitFocus is amazingly successful.  I believe they are the Microsoft of the Health industry.  Yet they have been in business a L O N G time.

(2) East coast VCs focus too much on the IPO:

Every single and I mean every single east coast VC talked to us about IPO.  I was direct our exit strategy was NOT IPO it was to get purchased by Google, Microsoft, Oracle, IBM, Cisco, Yahoo (you know the guys behind the firewall).  I dont even need to put a link in these guys.  Lo and Behold!  on TechCrunch a story about how IPOs are essentially a thing of the past for the very reasons I was stating almost 4 years ago now.  Further I said I wasnt founding the company for this particular company I was founding the company to exit so I could start a proper VC!

The Poor, Pilloried IPO

So I completely agree with this assessment.

(3) Too much time Business Model Engineering

Yet Another Thing I find interesting is the extreme business model focus.  Almost three years ago when we had real time (before spritzer APIS) twitter semantics with clustering people were looking at the stuff running and said, “Twitter is a fad, why focus on Twitter?”  I continually argued it was going to be one of the main data feeds for the world of Dataspaces moving forward and that the actual software wasnt that important.  Data as a Service (Daas).  Literally I thought people had gone catatonic on me.  Then the would ask: “Yes but where is the software?”

Thus I am ready to get on with this new show and hopefully help some of the hopeful few entrepneuers in the South East get the right thing accomplished and that is taking your idea to the bank!

Until then go big or go home!


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