Backblaze online backup almost acquired | Hacker News Reader

Backblaze online backup almost acquired

blog.backblaze.com

173 pointsepi0Bauqu45 comments

Odd as this will sound to the inexperienced, this story is not an outlier. This is what happens in the median acquisition. Investors now treat startups much better than they used to, but acquirers are the final frontier of assholedom. When you get interest from an acquirer, assume by default that it will play out exactly as described in this post: initial eagerness, followed by long and distracting delays, followed by an attempt to renegotiate the terms at the last moment. Then you can be pleasantly surprised if things turn out otherwise.

And not just in the startup world, either. I've been through several -- on both the M and the A side -- in the high-tech manufacturing sector and the billion dollar deals are no different than the million dollar deals. 99% of the time, someone is getting screwed.

How should acquirers behave?

I've thought for a while that one thing that could change the dynamic is price. It doesn't make too much sense to me that a 5 month old company with $50K in it should go for more than $1M. That is the other side to the assholedom - the exuberant prices paid for young companies.

The price can and should change as the product and team grow, so this is mainly a comment about very young companies.

Why should inputs ("5 months old, $50K in") cap valuation when something unique has been created?

That'd be like setting prices by costs rather than value!

Because the buyer could build the technology themselves for $50K in 5 months. (Okay, $100K in 10 months, given the efficiency of large corporations.)

Assuming the buyer has the programming talent and vision to create it, and the managers to allow something "crazy" to be built. That's rare in large corporations.

And assuming that a 5-month delay wouldn't cost 10s-of-millions.

And assuming the startup in question has not acquired a few key patents. And assuming the startup made no unique-but-necessary technical decisions that can't be replicated without relying on information obtained under NDA.

I don't think that exuberant means what you think it means. Perhaps you meant exorbitant?

It should make sense if you keep the word Bubble in the back of your head. Most acquisitions are ridiculous, $20m to hire a team of 10 people and throw the technology away has become commonplace. The math doesn't work out except for panic buying "Let's make sure they don't aid our competition".

Every experienced entrepreneur has this happen to them at least once in their lives, usually many times. You think you are so close to being acquired, only for it to fall apart. A startup CEO tends to spend all his/her time either raising money, or talking to a firm about being acquired.

The lesson would be not to sign exclusitivity agreements with a potential acquirer. It is not that uncommon to do this, in fact, I would say it is more common to not have an exclusivity agreement as part of an LOI than it would be to have one.

With multiple parties at the due diligence stage, it gives the startup CEO leverage to close a deal quickly, and to negotiate the price up. Acquirers are also reassured by the validation that other interested potential acquirers provide. If you are set on being acquired, speak to multiple companies and have them press while the iron (ie. their motivation) is hot. Always be prepared for due diligence.

> You think you are so close to being acquired, only for it to fall apart.

I've had it happen once, signed letter of intent, due diligence was passed etc, terms agreed to.

Not a funny experience by any stretch of the imagination.

The lesson would be not to sign exclusitivity agreements with a potential acquirer.

Or, alternatively, you make the price of exclusivity, independent of successful deal completion, high enough to make it worthwhile.

It seems like the exclusivity agreement is the main issue here. Imagine if 3PAR had an exclusivity agreement with either HP or Dell, they would not be in such a good negotiating position that they can add hundreds of millions onto the price.

My understanding of what usually occurs in deals like this is that most of the price negotiations happen before LOIs are signed in the first place.

Their post is really really f'king clever...

It's a massive "hey, we're prime for being acquired - come and get us!" solicitation.

The information contained in the post is fascinating, but its a by-product. What they are really doing in a subtle and suitable way is telling the world they want to receive new offers to be acquired.

I agree, and it's brilliant.

Were I an acquirer, I'd look down on such a shady posting. It seems rather manipulative and without knowing much context, I'd read it as a very inexperienced team. If you're trying to sell, there are plenty of backchannel methods to pass information to potential acquirers.

Shady and manipulative? I don't think so.

If I were a potential acquirer, I would be happy to have a window in to their decision making process.

Great article about requiring a break-up fee in case a buyer walks away after the company has spent lots of time and money on lawyers for nothing.

The title made me think of a funny situation where every service sends an e-mail to their users whenever an acquisition fails:

Dear customer,

We regret to inform you that our company has almost been acquired. Your accounts will continue to work throughout this period of non-transition. Upon such a time we find a buyer, you will then have 30 days from the date of announcement to find an alternative.

The Management

A lot of interesting offhand tidbits in it -

Our team has been through a few acquisitions

So we know they were not babes wandering the woods.

But then -

They went to shop the offer which seems logical enough but seemed to believe this process can really be all that 'discreet'.

Then

we heard rumors that Cogswell had previous acquisition processes that started and didn’t complete, which made us a bit nervous.

and

At the last minute, around midnight on Tuesday, Cogswell said yes [...]

These seem like overt red flags, although, of course, they are made much more obvious with the hindsight provided by the author.

We called Spacely. Our contacts there were really unhappy. They wanted to do the deal, but in the months since we went silent [...]

Ouch, months.

Long story short, if you have just two bidders of which one did not choose to bid unsolicited and maybe has a history of less than good-faith bidding, you're navigating treacherous waters. And you might end up navigating them even if you do (or think that you do) know what you're doing.

On a completely different note, I'm disappointed to hear that they've been courting an acquisition. I really don't understand this -- you have a great product, happy customers, lots of growth, a solid business model, and tons of continued growth potential; why would you want to get out of that?

I've been promoting their service and gradually signing up my clients (even though, last I checked, their reseller program still wasn't active). I was hesitant at first because I wanted to be sure that my clients were getting a service which would be around for the long term. Bummer.

Why are you disappointed?

I'm not clear how 'being acquired' is some how negative?

Being acquired isn't necessarily a negative, but all too often the next step after being acquired is "Hi, we've been acquired and this service is shutting down." (With a nod that they'll be back, and better than ever. Which generally doesn't turn out to be true.)

I'm generalizing here, but when someone decides to build a startup, it's usually because there is a problem that they want to solve so desperately that they're willing to forgo the comforts of a regular paycheck and having to only concentrate on one or two things a day. They're willing to endure sleepless nights, stress, uncertainty, and pour a huge amount of effort into creating something.

So, they tend to take care of their customers really well. They tend to produce the best product or service they can, and if they succeed at that, they become really popular.

Established large businesses have completely different priorities. Oracle's licensing schemes for one example are not designed for their customers' benefit; they're designed to maximize Oracle's profit, calculated in part by how many customers they can afford to lose.

In Backblaze's case, let's look at their business model: $5/month for unlimited storage per computer. This is great for their customers. It solves an important problem. They even mentioned in this post that they set out to create this service after one of their friends suffered an agonizing data loss.

But, that's not the most profitable way to run the business. Oracle for example would make a lot more money on it by offering it to their enterprise customers at some absurd monthly fee (plus fees for an annual support contract), and ignore the consumer market altogether, along with all of the headaches that comes from the additional data storage and support costs for supporting the consumer market.

So yeah, I'm not usually too excited by the news that some really great startup is looking to get acquired.

Don't pop the champagne until the money is in the bank.

Great article about the whole acquisition process. I can't recall a more detailed account.

I have never heard of this service before but it looks pretty sweet. $5 for unlimited backup storage? How on earth?

This is what they say about it on their website:

"How Can You Backup Everything Online For Just $5 per Month? We have developed a highly efficient storage system that enables us to optimize how we store data. And we’re counting on some people having a lot of data and others not very much, but that it will work out on average. "

..but still. Almost sounds scary.

Without technical details on how they actually manage this (Anyone can figure out that storage is an accumulative cost) I am pretty skeptic.

At $5/month the break-even on even a VERY cheap solution is around $40GB/person.

Also; Backblaze backs up everything on your computer except your operating system, applications, temporary files, or those over 9GB.

So you can't make a bootable backup this way. This is my preferred method because when the shot hits the fan all I do is boot off my backup disk problem solved

This would be true if Backblaze were simply offering 'unlimited storage for $5/mo.' Needless to say, they're not. Rather, they offer backup unlimited by size for individual computers at $5/mo. The difference is what allows them to create a profitable business.

Unlike a system that stores your cumulative history, Backblaze simply keeps copies of every file you have on you computer right now. If you delete something from your local drive, Blackblaze notices, and flags their copy for deletion in 30 days. In other words, they're in the data mirroring and recovery business, not the general archive trade (a point they make very clear in their promotional materials).

They also protect themselves from overload by limiting the drives they backup to local ones (internal or external), and explicitly excluding network drives. In other words, while the amount of data per machine is unlimited, the number of machines per account is limited very strictly. This distinction is what keeps them viable.

There is an additional limit on what they handle imposed by network speeds. Realistically, most people can't send more than 4-5 GB per day. For some, it's as low as 2-3, and if you can deliver 9-10, you're doing well. Blackblaze notes this clearly, pointing out that an initial backup can take weeks, if not months to complete.

What makes them especially awesome is that they don't expect you to wait this long to recover your data. You can download files via their website at no charge. Alternately, you can flag larger collections, have them copied to DVD, and FedEx'd for next-day delivery. And if you've got a lot of stuff you need immediately, they can put up to 400 GB on a single USB drive and overnight that to you for $250.

Obviously, their proposition doesn't serve everyone. But for a certain class of customers, it's absolutely perfect.

If you delete something from your local drive, Blackblaze notices, and flags their copy for deletion in 30 days

So much for the "damn, I must have deleted that file; I guess I'll have to recover it from my backups" scenario.

They give some details here on how they got the cost of a Petabyte down:

http://blog.backblaze.com/2009/09/01/petabytes-on-a-budget-h...

Finally somebody using JFS... I could never figure out why you read so little about the filesystem. Seems to be fast, mature and not all that CPU intensive. I also wonder why they're not using something like gluster fs to replicate data over several nodes. data seems to be pretty local at backblaze.

It's a shame Backblaze don't have a Linux version, it looks like a pretty neat offering.

Have used Backblaze for about a year now. It's a solid system, though I use it IN ADDITION TO a local backup on my primary machine, not INSTEAD OF one. If I had to pull files over my 'net connection to my new HDD, rather than just grabbing them from my Time Machine drive sitting on my desk...well, I would be typing this on my laptop rather than my hard-drive-failed-but-replaced desktop.

Hopefully Backblaze stays chill about being acquired, and waits for a really good offer that will allow them to keep on doing what they're doing now, except better. I'd back up with Backblaze any day over Mozy or Carbonite, the only two "big dog" competitors in the area...

The key was when Cogswell upped their offer, pushing the OP away from his gut instinct to go with Spacely. Cogswell callously (and perhaps not even in its own interest) refused to let the deal drop (probably someone had intuition that a Spacely was involved). Aside from the backout and legal costs (which might be insignificant for a big company), Cogswell got to keep the option alive, at Backblaze's expense (through losing the Spacely opportunity).

This kind of shit happens constantly with big companies.

On their product:

I was all set to pay up for Backblaze last week, but the GUI you use to define what's backed up has a hard-coded list of excluded directories and file extensions (!!!).

Why can't I back up /Applications/ or a .iso file?

If those files push my total backup size larger than they tolerate then that's a separate issue. Too user hostile; uninstalled the sucker.

When they do their sums they are gambling that the average amount of space per user will leave them profitable. They advertise unlimited storage rather than capped storage so they have to hedge their bets somehow.

I like their model. Your milage may vary.

great that they shared the story. no way to know going into one if these deals if it'll happen to you or not. yes, there were red flags, but there are almost always red flags. and when there aren't red flags, it can still go south. you see it happen with the big boys, too.

i love their user growth curve graph but wonder why it's over a year old...?

I thought this was a fantastic article. Not too often do you see such a candid account of a failed acquisition.

Great article. Thanks for sharing.

This is almost 'trollworthy'. Hey we 'almost' got bought out, so hey try our service (Profit)

Thank FSM! I LOVE my Backblaze! It's the perfect backup solution, no-foolin'.

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