DropSend founder Ryan Carson, who has been chronicling the ups and downs of the process of selling the company, writes a long post about how a deal fell through with YouSendIt. While it’s fairly unorthodox to tell the whole story as it’s happening, it certainly is an interesting marketing move and makes for great reading. One note of caution, however. Flock was not pleased to have their name brought up as a potential buyer in the original posts, and YouSendIt may not be ecstatic, either, about this recent tell-all. At the very least, if you are interested in keeping your dirty laundry to yourself, consider signing a nondisclosure agreement with Carson before beginning negotiations. I eagerly await the next installment of this series.
by
Michael Arrington
on
January 3, 2007
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- Actively Discussed Posts
- NSFW: After Fort Hood, another example of how 'citizen journalists' can't handle the truth
216 comments - "Horrible Things" Slink Back Into Zynga
198 comments - Zynga CEO Mark Pincus: "I Did Every Horrible Thing In The Book Just To Get Revenues"
195 comments - Fever Pitch: It's Droid Day, Enjoy The Moment.
147 comments - Think The Droid Launch Was A Let Down? Not So Fast.
135 comments
Good chronicle..something of the sort which every start-up founder would want to read and learn..
I guess Carson is making a mistake here (off from the actual merger failure).
“I asked if I could blog about our conversation and Khalid said the board wasn’t comfortable with it (Damn!).”
No board is comfortable with blogging the specifics of a deal-talk. This does indeed show on the personality of Carson..He would not have blogged this if the deal had gone through. This does imply that companies looking to strike a deal with this guy need to be extra careful, as he is well capable of blurting out all that happened on the discussion table…
Wasn’t his post published in December?
I don’t blame Carson for sharing and actually consider it a courageous move that has been very enlightening. What bothers me most is that a lot of companies are *not* serious when considering acquisitions. Instead, they get all the details about the “competition” and then can bail out at any time. This story is a perfect example.
Drop send link is broken.
Actually that’s a technology I wouldn’t mind to have, but developing such thing in-house and to build that tiny user base doesn’t cost $1M in my book. I don’t know about those media-connections already developed, but by looking at the revenue that probably comes from those connections it doesn’t sound like a killer deal either.
I don’t mean to bring up the dirt = someone correct me if I’m wrong – but I’m not sure where the $1M price tag comes from.
I also don’t see the problem in running both DropSend *and* HeyAmigo. Anyway, best of luck. I guess we will certainly know how things develop.
Carson may have made an unethical move by writing about this, but the information is very valuable to anybody who wants to know how such deals are made.
I’m not suggesting it was unethical at all…just highly entertaining.
Let’s assume many large companies pursue M&A opportunities as both directions for growth AND for corporate espionage (just collecting info).
What’s more unethical: conducting negotiations in bad faith or blogging about them?
This is a question of integrity rather than ethics. I’d rather give him benefit of doubt. Besides, Yousendit ended up not buying it, so big deal. Anything goes. It’d be like being rejected by a potential investor and not being able to tell anyone about the rejection. Sounds ridiculous.
I talked to him about acquiring DropSend, but the manner in which he was working the various interested parties against eachother rubbed us the wrong way. Mostly because he was using that to justify his asking price for a produce/service that was a “low hanging fruit” in terms of building something that could be where he was at the time in short order. I think he missed the lesson here for himself – and perhaps a different “sales” tactic would have returned better results.
I can’t speak for how he handled conversations with other parties, but I’d suspect that he was the same to everyone else as he was to us.
Actually, I think he would have been better off to put it on ebay rather than handle it the way that he did.
I’d like to find some sort of lesson here, but the only one is that a sub $1m acquisition for a commodity product is really not all that interesting or exciting. From what I gathered, he exchanged only a couple of words with the CEO of the company he wanted to buy his business; there was never an offer from the company; and basically one guy in the company was interested. Not exactly the anatomy of a failed merger, more like one guy’s attempt to sell a ‘company’ for much more then it’s worth to people who knew better.
Well an NDA is legal document so maybe it was already broken by the other party and Carson feels that whatever happened is cover enough for him to disclose deatils…he could not be that stupid!
wth! is drop send???
Let me start by saying this:
The reason why I wrote that post is because I thought it would be very helpful to small companies like us who have never sold a company/product. If you’ve never tried to sell your web app or company, it’s a very scary and confusing process. We wanted to throw some light on the whole process for everyone else.
Also, I emailed their team before I posted it, just to make sure everything was OK and they didn’t bother to respond. As I didn’t write anything defamatory or reveal any of their vital information, I see nothing wrong with the post I wrote.
Now I’m going to respond to the various comments. Here we go:
Not sure why my post was unethical at all. I let them know I was going to blog about it (which they didn’t bother to respond to). We didn’t sign any NDAs so we broke no confidentiality agreements and finally, the deal fell through! So what’s the problem with talking about it?
Hey David – I’m sorry that it bothered you the way we conducted the negotiations. I don’t actually know what you mean by “working the various parties against each other”. I simply said “We’re in serious talks with two current buyers, at $1M. Are you still interested?”
Hi Sally. I guess I didn’t explain the negotiations with YouSendIt very well. I had one long phone call with the CEO and then another long meeting with him and five other people. It was more than “one guys in the company”.
None of us signed an NDA. That’s besides the point though. I would never share sensitive information – NDA or no NDA. I’m not out to hurt YouSendIt at all. I’m simply trying to help small companies like us understand how these negotiations take place.
Take care everybody and happy new year
I admire Carson’s ability to share some intimate details about the deal. As an entrepreneur in the web space I have read his posts on his business with great interest. It is an interesting statement on the new mindset that comes with some of the startups that are in the web2 space. Share for the sake of sharing.
I think that the motivation is completely admirable and honest.
But what concerns me about the general trend to talk about things openly …is talking before there is a deal. (Carson is a look back at what happened) I have noticed this in a couple of instances. I am not sure if it is inadvertent or planned but it has ruined a few deals.
If a company is in talks with a large company for a take over …. the last place either party should read about it is in techcrunch. There seems to be a notion that if some one has shown interest in you then there must be others that should be interested and if there is a bidding war it is better. Sure sounds great in theory ….to the shareholders. But that doesn’t sit well with the company looking to buy your company.
I can’t help but think about the rumours of a bubbleshare / myspace deal …..much rumored but in the end it ended up as a post on techcrunch aptly named “BubbleShare, Counting Unhatched Chickens”
So thanks to Carson for letting me into the anatomy of a deal that never was ….
Great insight.
cheers
scott
The DropSend updates have dried up recently. It’s appearing that the whole sale has been a failure and not just with YouSentIt.
When we run an M&A process we usually expect to see metrics something like the following:
Long list of potential acquirers: 200-250
Short list of qualified acquirers: 70-100
Initial discussions and signed confidentiality agreements: 30-50
Indications of interest/offer with an acceptable valuation: 3-5
So the fact that Ryan was 0 for 1 (or maybe 0 for 3 – I couldn’t follow how many interested parties he talked to) with a company that didn’t get much past an initial exploration shouldn’t be that surprising.
David, I love Carson’s response (post 14): $1million – are you still interested? He’s even working you (and others) in his response. You gotta hand it to him, he’s a genius.
He goes about his business like one of those people who expose themselves in public places. There’s an old Hebrew word for him: onanist.
oops, apologies to Carson, not for calling him an onanist, but for being blind to the quotations in his response to David.
Still, discussing money in public is pretty vulgar and akin to tossing off in public places
I posted about this back in November (click my name) and my thoughts were based on my former occupation: a public accountant. I worked on many M&A deals and know that in Corporate “America”, typically you want things to be sealed.
My belief is that it is important to remember that a potential buyer may not want stats and so forth in the public eye. But they lose that ability when the seller puts it all out there.
That said, I think Ryan is one of the most trusted and well respected people out there and I am sure whomever buys it will have made a good purchase. I enjoy Ryan’s posts and sure wish I could get my schedule as tight as his!
I think the real key to his posts is in the education for the readers. That education is worth a lot overall for others trying to sell their web apps in the future.
Ryan is also one of the bloggers I have competing in BloggerMania:
http://www.cent...tches-announced
I’m not see much of a story or insight in Carson’s post. So, he has a company that he want to sell …for whatever reason; he didnt’ say. Is the company not making money? If not, why not?. Would have been nice to know why he wanted to sell. So, he has a hallway conversation with an employee of a company that is a potential buyer, but his employee didn’t have the authority to make the buy, no buy decision. But, Carson gets excited because he thinks they have an agreed upon asking price.
The person that did have the authority to make the buy/no buy decision didn’t see a product compelling enough to pay $1MM for.
I’m sorry. not seeing much insight here at all. I see a guy that didn’t do his homework and didn’t ask the right questions before thinking he had a deal. I guess that is some type of takeaway. But I would hope even a Bryman School graduate would have that much common sense before assuming anything.
DropSend is a better name. It will win. YouSendIt wasn’t serious and playing games.
#21, he answered most those questions on his old blog, barenakedapp.com. You can find it is making money and they just want to invest more time into their new online application.
@21. Thanks! I’ll peruse that. My point was, I really didn’t see much of an “anatomy” in Carson’s blog post.
Has anyone noticed the obvious (and the reason I didn’t continue with Ryan)??
DropSend isn’t worth the asking price. Period.
If it was (or if it was a good deal) don’t you think someone would have bought it?
Ryan had (has) a saled problem, and it’s common with ISV’s like his.
His sales are small, but growing. But his product has no secret sauce – no patent pending technology, no sizzle. It’s easy to replicate – and by easy, I mean CHEAP.
So, the question becomes, “Do you buy, or build?”
With his sales so low, getting to his current (back then – heck, even now) sales numbers would be trivial at best. So, why pay? What if you stuck a million bucks into your copy project? Say you budgeted $30k to develop the app, get some hosting, etc. and then left $200k for marketing for a 6 month period (which I think is a heck of a lot more than Ryan is spending … probably $199,999 more actually) and then pocketed the rest. See the problem?
Sure, buying Dropsend gets you up and running NOW, but since he put it up for sale, had you started a copy project of DropSend, I’d bet you would be up and running now. right? (Ryan, how long did it take you to develop DeopSend?)
So, back to the sales problem. Ryan put the price at $1 million, and there were a few sniffers, myself included. My thought process was that this was an asking price and he would negotiate down to a realistic price. He indicated that this wasn’t the case and since he had more than one person interested in DropSend, he rationalized that the asking price was spot on.
I think I even said to Ryan that he should just milk it for all its worth and he’d probably get WAY more than the asking price in terms of ongoing cash flow.
We’re in a similar situation with one of our hosted email products, and while I’d like to sell it, I can’t imagine anyone buying it for a price that would be worth my time to sell for. So, we milk the cow. And we smile.
So, we have the combination of an easily replicated product, low (but growing) sales and a high asking price combined with a seller who talked WAY TOO MUCH to potential buyers and didn’t realize what was really going on around him. No harm there – since what did it really cost him? He didn’t sell DropSend, but he’s still got the cashflow/profits and I think/hope he’s learned a lesson here.
David
Does this price include any team members? If so, I think 1M may be low, and he may be talking to the wrong people (no offense David). If not, then the price is pretty high but not unjustifiable to an interested party. That may be the problem though, who really needs a simple (but well executed) file sending app?
Blogging about the deal seems dumb. He comes off as naive (although it certainly has generated some good conversation) and it’s obvious he’s not talking to anyone really interesting. You can see the same thing with inexperienced CEOs blogging about “all of the unsolicited VC interest”. Yeah right, if you have VC interest you get a term sheet or stay quite, you don’t slap it on your blog.
No, just the product and customers.
Most of the bases have been covered in the above comments. In fact, throughout Carson’s blogging of DropSend’s sale, readers’ comments have been of the most interest to me. However, let me add something to think about regarding buyers. A comment above says, “Besides, Yousendit ended up not buying it, so big deal.” Perhaps it could be a big deal for a company if information about acquisition interests gets out. For example, if a competitor learns that you considered buying a company, they might know something new about your operations or strategy… that you are weak in a particular area, entering a new industry, expanding product lines, vertical integration, etc. Furthermore, that an acquisition was considered but not completed could be even more damaging because it might reveal vulnerabilities to a competitor.