It turns out there is more to the story behind the sudden demise of Tipjoy. The micro-payments service was trying to sell itself, according to a source with direct knowledge of the attempted transaction, and even got an all-stock offer from Facebook nominally worth around $5 million. The deal fell through when Facebook walked away.
But Facebook didn’t walk away completely empty-handed. It managed to hire Tipjoy co-founder and CTO Ivan Kirigin instead. After the acquisition negotiations fell apart, Facebook reached out to hire Kirigin. They made him an offer, and he accepted. It is not clear what he will be working on, but Facebook Payments would be a good guess.
Some investors weren’t too thrilled because Tipjoy was still in discussions with other potential acquirers (including Twitter and PayPal). But once Kirigin was out of the picture, the other interest evaporated, say our sources.
All of this brings up a real dilemma for small-app startups. If all Facebook or Twitter has to do is hire one or two key people instead of buy the whole company, then it will be hard to capture much value in the long run.
As for Facebook, building its own social payments platform makes a lot of sense. Kirigin and his co-founder (and wife) Abbey, spell that out in Tipjoy’s farewell post:
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. . . . we know very intimately the difficulties in gaining actual traction. The only way to get around this is for the platforms themselves to control payments – then all people wanting to operate on that platform would have to play along. We believe that a payments system directly and officially integrated into social networks such as Twitter and Facebook will be a huge success.
Now Kirigin can try to prove that social payments can succeed within one of those larger platforms, Facebook, even though Tipjoy was better known as a Twitter (and blogging) phenomenon.
TipJoy did not respond to repeated attempts to contact them on this post.
Update: Abby Kirigin emails:
Erick’s accusation that Ivan took a job at Facebook while “Tipjoy was still in discussions with other potential acquirers (including Twitter and PayPal)” is absolutely absurd and totally untrue.
Of all people, it is Ivan and I who would have most loved to see Tipjoy acquired and our investors paid. That anyone can even insinuate that that is not the case shocks me.
-Abby Kirigin
co-founder, tipjoy.com
Perhaps the TipJoy founders should discuss this issue with their investors, who disagree, in a more private forum.
If I were an investor in Tip Joy I would be upset. Heck look at it from Y Combinator point of view. They pump around $15K (not an exact figure) in Tip Joy and have a chance to cash out around $1M?
I’m curious… was TipJoy ever bigger than a 1.5 person company?
Abby’s LinkedIn lists her as still being employed at Nokia.
If this was the case then yeah, once the sole full person guy gets hired away, there’s no one else working there… is there?
I guess the this shows how screwed up the Y Combinator model really is.
“Yes we give you accesss!”
“Yes we provide more than capital”
“Yes we will take a big part of your company for $15,000″
WTF?
Sorry, I can get a $100,000 job elsewhere.
So you consider 5-6% a “big part” considering the contacts they provide on demo day? Note they likely lose much of this when VC money comes in as well.
Hard to see your argument.
Its the Y-Combinator model. Very early stage investments for a big chunk (comparatively) of equity. The start-ups/founders are very young and are agreeing less for the money than for the opportunity to be validated.
Its far easier to walk in a room when the doors been opened a bit for you.
Ivan is not only smart, but a well focused and drive guy. Facebook is lucky to have him.
Good for him, best get to work quick before @jack launches his. Twitter is probably the better platform for social payments but who’s to say.
Yeah, because Twitter’s layer of identity is so strong.
Awesome! Now that Palm CEO has exposed the salary fixing in silicon valley with “secret recruiting non-poaching agreements”, he might have made some decent cash.
As for the rest of us, maybe the competition between companies fighting it for top talent AGAIN will start to trickle down to the rest of us.
http://www.bloo...id=ahgf6sIeFZ4c
Wow, $15K, about half of what you could make working at McDonald’s. You get what you pay for, and what you get in that situation is a team that is not really interested in lining your pocket at their expense.
$15K buys you maybe a couple months of somebody’s attention. Beyond that, you are under no further obligation to them. If you want more attention, you ought to put more money on the table, otherwise the people you think you have under your thumb might just get hired out from under you.
basically sums it up
+ 1
Yes, when the best alternative you provide to entrepreneurs is less than a job at McDonalds, don’t b surprised if they don’e have your best interests at heart.
You pay people peanuts, and you get monkeys. Shame on Y Combinator.
If you know someone making more than 15K/yr @ a McDonalds, they are lieing about their income… 15K as near max for McD’s thats why they are still making money in this economic time.
The coders that do the $15k investment projects are royally desperate. In some cases they barely know how to write code.
It’s a bunch of brainstorm, slap it together far too quickly projects.
I’ve seen how they work. The premise is that they can out innovate, by out maneuvering quickly with a small team. It rarely works, even with the blogger pipeline they have set up pumping them.
I think there are talented teams that take the option; however, I do agree with the pump and dump blogger pipeline.
“…it will be hard to capture much value in the long run…”
It might also be a correction factor for VCs demands for big liquidation preferences. If an entrepreneur can do better by letting the deal fall through and accepting an individual offer, does that reflect poorly on the entrepreneur or is it an indication that the investors needed to leave more on the table?
This is a general comment, I have no knowledge of the tipjoy terms.
spot on.
What gives?
Erick, Kirigin’s name is misspelled in the title!
what was the signing bonus?
1 million bucks down the drain with nothing to show for it. only in america
LOL. It kind looks like a sell out. But hey the guy is looking out for his future. Though it would have been better if he got the company sold for even $1.5 mil rather than ZERO.
Y Combinator should sue Facebook. Founders are part of an intellectual property you as an investor invests in.
The fact that you can lose value after being sold by a founder, and at the same time having that found flip flop to a potential buyer, that is unlawful.
Facebook has shown their true color: steal ideas and people.
Thugs.
YOU MAKE A GOOD POINT. I mean if I invest in a guy and his company, and he turns around and just ditches everything without looking out for the investors interest. It does look a bit fishy.
Yup…
I agree, I don’t understand how this behavior can be accepted or congratulated. After reading this I was outraged as the lack of commitment this weak team showed.
I guess Facebook thought – why not just buy the founder, instead of the whole company? Anways he is gonna have to create a new platform for Facebook micro payments and cannot use Tipjoy
Sorry, for the investors
But you guys deserve it 
Paul Graham from YC, in another forum, recommended/asked Facebook to hire Ivan. Tipjoy was out of money and no suitors. It was done.
I really liked tipjoy and the concept, thought it was a drop dead great idea. But how to make it work? That was my question. Plus could it have been tweaked to something better?
Lots of losers are assembling at Facebook. Not good.
Google only hires winners.
Wow, he gave up a mutlimillion dollar IP sale for a 6 figure job with little benefits.
I bet they love him.
“even got an all-stock offer from Facebook nominally worth around $5 million”
ORLY??? Or will Ivan finally clarify this number too the same way he clarified their $1M funding number.
“We were advised (in retrospect incorrectly) to be ambiguous and say “raised under $1M” when the amount we raised was actually much less.”
Those guys at Facebook are know for not having any original ideas. They just steal ideas and capitalize on it…isn’t that how Facebook started ehh?
Honestly, I think Facebook is just hype (even though I also have an account.) there’s nothing really COOL or SPECIAL about Facebook.
Thanks Ivan for making it a little harder for other small startups to raise funding. Investors are putting money in YOU, and most founders will appreciate this enough not to screw them over.
Your d*ck move will make at least some angels/VCs question whether the founder their investing in might just jump ship for a nice job that their money helped you get.
Hey lets not turn this into an morality thing.
In the world of startups, its all business.
VCs will replace the founder at the drop of the hat if they felt someone else would do the job better. And they should, since its their money. The founders know that when they went looking for outside investors.
In the same way, investors know that an investment may go sour should a founder leave. That’s why they prefer to fund teams instead of a one-man operation.
At the end of the day its all risk management on both parties and its “just business”.
Try not to get so heated up about it, OK buddy?
They should have replaced this guy long ago
Tipjoy never really took off. It was always a “nice idea” not a very practical one. 
Chip, buddy, in the world of startups integrity goes a long way. When a founder gets replaced, he walks away with his equity. And as you said, a founder knows this is a potential consequence of taking the money.
Yes, an investor knows a founder can leave. Doesn’t make this any less of a d*ck move by Ivan (especially *if* there was still any potential left for them to be acquired). So I’m just calling it as i see it.
“When a founder gets replaced, he walks away with his equity.”
In many scenarios in which a founder leaves the company much of their equity is lost in future rounds in a cram down. Basically, if you are no longer working for the company, latter rounds of investors don’t really feel inclined to take care of you. Reverse Splits are one of the common mechanisms in which this is done. Another is to grant re-ups to all existing employees and significantly dilute the founders (who won’t be subject to such a re-up)
And, at the end of the day, as painful as this sounds, it really is just business. The Majority Shareholders (typically VCs) will make a decision that yields the greatest ROI on this particular deal – and Founders should likewise have the same attitude.
Besides – All of this is for naught. Tip Joy was out of money anyways, they were shutting down, and Ivan needed a job – You prefer he end up homeless? If the existing investors had simply come up with another 6 months worth of salaries, I’m sure TipJoy would still be in existence.
At the end of the day they didn’t, because TipJoy didn’t make sense as a standalone company, and so shutting it down was the logical move by the investors and founders.
If in fact TipJoy’s founders made a strategic decision to shut down because they honestly believed further acquisition opportunities did not exist, then they made the right move. Given many of those facts are now unclear (different stories from the investors vs. the founders/YC), I’ll give Ivan the benefit of the doubt and take back my criticism of him.
“different stories from the investors vs. the founders/YC”
What different story “from the investors” are you referring to? Erick Schonfeld doesn’t even imply his sources are the investors.
maybe you didn’t read the update, and Erick’s response to it:
“Perhaps the TipJoy founders should discuss this issue with their investors, who disagree, in a more private forum.”
Sounds pretty clear to me that there are two sides to this story.
this is one of those beliefs that gets bandied about a lot, but doesn’t actually happen as much as people think in real life. VCs know that, unless a founder really sucks (which happens of course; I can name a couple off the top of my head) the VCs know that replacing a founder at the helm will never replace the passion, drive and sheer craziness to work down to the bare bones that it takes. An uninterested CEO replacing the founder happens way less than you think and although when it does it sometimes is done very loudly (gets a lot of press) it’s still pretty rare. Some EIR or big name person may be brought in for a) cache b) getting ready for an IPO or to guide the company through an acquisition or merger, but VCs know that hard work and passion and a little bit of craziness is what makes an entrepreneur. You don’t just replace that. Few companies seeking funding are actually funded, and fewer actually get to that step of needing a top level replacement. Often it’s the founder too who walks away as the excitement of building something new wears off and the humdrum of running the business bores them.
VCs who invested in this founder got nice shaft, they deserve this to be so dump investing in founders like this, and FB watch out this guy mightleave you for M$ if they wiggle more $$$$
Investors lost (lots of $$$), Ivan Kirigin lost (reputation) and Facebook won. Facebook didn’t win by getting Ivan, he’s irrelevant and unremarkable, but they won by getting rid of TipJoy and displacing a payment service for Twitter (their mortal enemy) for ZERO CASH OR STOCK!
Exactly.
Paul Graham (head of Y Combinator)’s take on this: he claims to have ASKED Facebook to hire Ivan.
See http://news.yco.../item?id=779693
I was witness to some of the negotiations (I’m not going to say which party I was involved with) that didn’t work out.
Paul Graham seems to be the only one here who understands how Silicon Valley works. This isn’t about Ivan or anyone screwing over VCs. This is just business. Plenty of acquisitions never get off the ground for any number of reasons. Plenty of startups never take off or don’t quite achieve critical mass and run out of money. Considering the economy we’re in, none of that should even be surprising. And when startups founder, talented founders frequently need to take a job to pay the bills. And there are a lot worse companies than Facebook to work at, and lot worse developers than Ivan Kirigin for a company like Facebook to hire.
And before you all go feeling sorry for the VCs and their millions of dollars, remember that they play this thing like a portfolio game – they know most of their investments will fail. Paul Graham certainly knows it, and I’m sure the VCs know it.
I’m sure that in a few years, after Ivan Kirigin makes a nice chunk of change in Facebook’s IPO and the economy is solid again, he’ll be ready to set sail again on another startup and plenty of investors like PG will be willing to invest in it because they know he can deliver. Facebook surely knew it; I have it on good information that they’re not looking for people who they “can manage,” they want people who can “get shit done,” and TipJoy shows that Ivan’s got it.
@P Dev
Well well… seems we have an ‘insider’ here!
Pray tell… are more companies who are piggy-backing larger social networks going to find themeselves up against the wall soon… or do you think TipJoy is just a unique case here?
They’ll get what you pay for. They bought an individual whose going to be hard to manage (by nature of being a tech-focused entrepreneur) which in the long run doesn’t solve many problems. Who would invest in any of this kid’s future startups knowing it might end like TipJoy?
I think that Facebook will have the same problem in a couple years.
I doubt that an investor will give in money again.
why not,
good move. Facebook will grant him some options and a nice package.
It’s the investors failure not giving him enough sources to scale his business
I’m really amazed how much Facebook is willing to spend on one person. Are these people acquisitions worth the price?
And what does it say about people already working at Facebook who didn’t get a cool deal, but produce? Are they not worth as much?
http://www.traderbots.com
I have met Ivan well before he planned to sell TipJoy. He was passionate and totally committed. Startups take risk so investors and founders earn big. Future startups and wealth is built on the shoulders of those who tried and failed.
So I think its unfair to criticize Ivan. He worked hard and created a whole new segment – Payment on Social Media. He is a smart engineer, so Facebook hired him. Its good for Facebook.
Two years back another Y! Combinator startup Kikko, also from Boston failed and the founder Justin Kan went onto build Justin.tv next.
Paul Graham has done well in spotting talent and giving them a chance, rest is part of the investment risk cycle where startups become business or fail and close. But smart entrepreneurs take that experience and make something big happen wherever they go.
So Good Luck to Ivan and Abby.
The real question is why did they say no to Twitter who was the logical acquiror?
Just another web 2.0 dot com bomb in my eyes.
“Perhaps the TipJoy founders should discuss this issue with their investors, who disagree, in a more private forum.”
This is ridiculous. Maybe you should be a journalist and talk to the founders before you write demeaning shit like that.
I have a new idea! Facejoy! Tipbook! Joybook! FaceTip! Oh f*ck it..
Good for Ivan. They believe, and I agree, they’ve got something that can make an impact. When that happens you serve the vision not the other way around. Ivan is doing what best serves the vision.
The investor drama is a shame but really a dull side note.