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Comment by parkingrift | Hacker News Reader

This is basically a story of well connected people who used their connections and existing wealth to buy their way into a market. I truly despise this “method” of building a business, and I doubt it will lead to long term results.

These guys apparently had spent $160 million and according to the article, had “no product here.” It’s perplexing to me that they were then able to so easily raise hundreds of millions of dollars to buy competitors that did have a successful product.

And this was barely a year ago. Why do investors believe two failed founders will be able to grow and scale this business when they couldn’t grow and scale their own business?

I’ll personally make sure to avoid this company as I don’t at all respect their method for creating a viable “business.”

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This reminds me of how many developers think sales has no real skills.

Pulling off acquisitions at this scale takes a way more than you are giving it credit for.

I think what they were saying is this company puts off snake oil vibes. It's like calling Microsoft a success in the game industry when they bought companies or products to position themselves as a leader of the industry when the argument can be made that they couldn't build it back up if it went under.

xBox is pretty successful, no? Is the ability to building it back if it went under the only test/indicator of a successful business operation?

You seem to be focused on software development as the only 'legitimate' avenue to building a company/business; if this is true, why? Are VCs 'illegitimate' for being unable to run the companies and develop the corresponding products they profit from? Are software developers 'snake oil' vibe-y for being unable to create the hardware they rely on?

> Pulling off acquisitions at this scale takes a way more than you are giving it credit for.

I don't think anyone is denying that skill is involved, but skill is often orthogonal to utility. Skill can be abused. Con men, burglars, and pickpockets all have skill. Malware authors have skill. Torturers have skill. I'm not saying sales is equivalent to any of those (OK maybe con men) but the point should still be crystal clear. What people are saying is that Fivetran hasn't succeeded in creating any value, and might even have destroyed value. When a big company "succeeds" by acquiring competitors they quite rightly get antitrust scrutiny because that's bad for competition and innovation. The principle doesn't really change for smaller predators.

[I work at Fivetran]

The comment “there was no product here” is referring to a specific (very lucrative) market segment.

The rest of the product was and still is selling just fine.

As a fivetran customer who did a bake-off last year between all the ELT vendors, there is absolutely “a product there”. The advisors’ comment assumes a lot of context which the article doesn’t 100% clear up.

Fivetran has been a home run for us.

Sure. Is that why Geoff Ralston referred to them as a cockroach, and surmised that everyone else thought they were dead until they pulled the rabbit (acquisition) out of the hat?

They took 160m and turned it into a 5 billion dollar company... And that's not success to you?

160m + “$565 million to bankroll the deal.”

Anyway the company “forecasts $189 million in revenue this fiscal year” how on earth that translates to a 5.6 billion valuation is anyones guess.

Valuations are generally a multiplier of yearly revenue, which makes sense. Valuations are, on paper, what you'd buy a company for, and in the old school look of things, how much the company made per year was a good metric, and you'd multiply it by several years, since you'd probably not buy it as a super short term investment.

Now, the actual multiplier values used for that... we can debate them for ages :-)

Old school valuations are based on profit not revenue. Which inherently avoided selling dollars for pennies.

Valuations based on revenue are essentially arbitrary because they are always based on models of potential rater than actual performance.

Old school valuations are based on NPV discounts of future cash flows. That obviously includes profit, but also all the other factors around growth and drag along. You'd never get any of the valuations we see today based only on x'ing profit, even for the oldest of old school businesses.

Sure, you can specify things as estimates of future profit based on past profit adjusted for risk, growth, NPV, and whatnot.

However my point was these calculations are at their core core based on profit.

The $160m are real in a way that the $5bn are not.

They had one product that wasn't enterprise ready, now they have two products, where the original is still not enterprise ready.

They took $160 million and turned it into nothing. Then they took $565 million and bought a successful company.

Summarized a different way they took $725 million and turned it into a business with $189 million in annual revenue over a period of a decade.

If they had just invested all the VC money they would have $1.8 billion. I’d consider that a more successful outcome to be perfectly honest. Is anyone really going to pay $5b for Fivetran at 26x revenue? Doubt.

> I truly despise this “method” of building a business

I used to think this way and then I realized "whats the difference between a company that raises $100M to put it all in sales & marketing, and one that raises $100M to acquire a business with paying customers"

The answer is the latter one is much easier to do.

Neither is easy to do

Agreed, and yet the OP "despises" this.

On one hand we have two founders that raised $160 million and spent nearly a decade trying to build a business.

On the other hand we have two founders who within a calendar week decided to raise money, did raise money, and made a successful bid for a company.

One of these things is not like the other. One of these things is actually hard. Sing it with me!

What's the difference between conning wealthy rubes out of $100M and building a business that earns $100M?

I don't really care which is easier. Neither are easy, but the latter provides value to more than the con artist, while the first does not.

At some point someone is purchasing the asset for $1B. If both instances get purchased for $1B, then why do you care how they got there (assuming they both did it legally)?

You're being tricked into thinking there is "one way to build a business". There isn't.

It's not that there is only some moral goodness in building a business from scratch. I hate the idea of rich people just using their wealth and connections to succeed, basically using their connections to get undeserved access to capital. Society would be better off if it didn't happen.

> building a business from scratch

Please do tell. What exactly do you mean "from scratch"?

What's not especially useful in my opinion is wealthy people who are failing in their company calling up their buddies to get more funding to buy up other companies that are doing something useful and successful when your own product is failing. Regardless of this case, we are all better served - & society is better served too - by new companies creating technologies and solving problems that succeed or fail on their own merits; the group that is not better served by this is people who succeed through influence peddling and connections to other rich people.

I think that article misrepresents it a little, makes it sound like they had no product. Both the current and previous startup I worked at has been a paying customer of theres, at scale, making it about 6 years total

> It’s perplexing to me that they were then able to so easily raise hundreds of millions of dollars to buy competitors

Building things is definitely hard work! It sure is a lot easier to just know the right people, but you also should have the right skills and insight to identify the opportunities.

> This is basically a story of well connected people who used their connections and existing wealth to buy their way into a market.

Rich guys going to elite colleges to study CS in shambles.

i mean, that was obviously hyperbolic framing by a forbes writer who needed to create some contrast in the before/after comparison in order to make the deal seem like a company-saving thing. company was probably already worth $4b even without HVR. they just exaggerated the deal difference based on available data points. dont take the article's hyperbole at face value beyond the cited facts.

I don’t think a company where their own board of directors said they don’t have a viable product, should be valued at $5B, $4B, or even $1B

They directly quoted a board member saying “there is no product here.” If there is hyperbole it’s coming from Fivetran itself.

> These guys apparently had spent $160 million and according to the article, had “no product here.”

Actually it sounds as if they had a good board who were making them look forward to find bigger markets. This seems very positive to me.

Having a very short window of opportunity helps. In this case - they (investors) had only days to decide. There is just so much due diligence that can be done over the weekend. And the target was already making good money.

They didn't buy a competitor, they bought a company that was operating in a different market segment so they could cover both mid-market and enterprise customers. Neither product worked for the other segment.

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