Camera+ turned down acquisition offers and says no to VC money | Hacker News Reader

Camera+ turned down acquisition offers and says no to VC money

techcrunch.com

195 pointsfreshfey40 comments

Will the failure of the Facebook IPO change the climate here going forward? Possibly. But it doesn’t matter . . . we didn’t build this company with the intention to flip it. We’re in it for the long-haul and we’re committed to building a real business that makes great apps, not on selling-out.

The strongest position any founder can hold. It doesn't mean you can't consider and even take short-term options for funding or acquisition. It means you need not take them unless you can do so on your own terms. Entrepreneurs have come a long way in this most recent decade in being able to do rapid company development - historically, the scale at which this is happening is quite dramatic - but some things never change: to succeed, develop a sound business model and be very careful not to get yourself overextended financially in the process of building it out. Doing that is no guarantee of success but it is a sure-fire way to limit your risks of failure.

This whole scene reminds me so much of the record business of yore.

The bit about VCs swooping in with just enough money to keep you alive and not really giving much of a rip about your creative endeavors and as soon as it looks like you might not be a million dollar baby dropping you like a hot potato.

"punk and indie developers". I really like that.

That's great. I am going to use that instead of bootstrapped from now. It also fits the kind of music we listen to.

I read an article or comment somewhere that compared making a startup to making a band. There really are a lot of parallels.

Well, a band essentially is a start-up business. Although funding etc. works a little differently.

It seems to make sense to run the numbers here:

8 million sold $1 apps, less 30% to app stores, that's $5.6m. If all 17 people on the about page took $100k salaries for the full two years (which they probably haven't, they've likely grown to this size from a lower number over the two years), that leaves $2.2m for running costs and profit. Besides that, they have 7 other apps in their portfolio which must be expected to provide some revenue.

In other words, what would they possibly do with more cash?

$2.2MM is probably peanuts compared to what they would have made in an acquisition, you'd have to figure that any acquisition price would be far north of $8MM. I'm perversely glad they didn't take it, it's great to see people really dedicated to actually starting a viable business, but frankly I'm surprised. I'd like to think I'd make the same choice but I'm not sure, especially if I were the founder. Still, kudos to them.

See the chart here: http://blog.asmartbear.com/wp-content/ss-images/lifestyle-ve... from http://blog.asmartbear.com/rich-vs-king-sold-company.html

Let's not forget that these are the guys behind MacHeist and plenty of VERY successful apps. They've turned their loyal MacHeist users into a social marketing platform for their apps. They have plenty of capital.

Camera+ has not always been $0.99, and it has in-app purchases. A revenue estimate that doesn't take those into account is going to be way off.

if you count IAP, it's probably double that, just based on my own experience with paid apps and IAP.

I love seeing stories like this. Too often VC funding or cashing out are seen as the primary measure of startup success, rather than building a successful business.

Great story, and it's a shame that this attitude is so unusual. I guess the success stories from bootstrapping don't get the press, so maybe it's not so unusual after all. Still, it's a nice counterpoint to the usual VC-is-the-endgoal idea.

if you have a product thats selling so well, is growing organically, and is already build...why would you ever consider outside funding?

Could not have said it better myself. It kind of makes me like a product more.

We seldom acknowledge it but I think the truth of the matter is that a lot of people become entrepreneurs because they want the recognition, the fame and the status.

As silly as it is, taking VC money gives you that in a way that is much harder to achieve with actual tangible success. You might be killing it with your product but carefully explaining your company metrics to someone over dinner is seldom more impactful than saying you took $10M from Andreeson-Horrowitz.

This is not entirely unreasonable as most people realise they are unable to judge the success or otherwise of early stage companies (even VCs struggle). Telling someone you were invested in by a great VC tells them that someone who knows their stuff things you're great. It's a marquee endorsement.

If you'd asked me whether I wanted the status I'd have always said yes. At the same time though I never acknowledged it in my life-calculations. I always wondered why I gambled on a big outcome when I knew a smaller outcome would (financially speaking) make me very, very happy. I doubt there are many people who can point to the happiness bump from the second $30M.

Acknowledging that recognition was one of my goals made it all of a sudden easier to rationalise decisions that, while optimal for my investors were actually totally sub-optimal for my personal financial utility. One of those decisions may well be having investors in the first place.

This is a really interesting point. To give an example, one of my friends in that scene thinks that 37signals is probably "not doing that well." I can only guess this is because they aren't raising tons of VC and having their name plastered all over TC.

Your friend is simply wrong. I think buying a house in italy and commissioning a custom super car is evidence that he doesn't know what he is talking about.

http://www.autoblog.com/2010/09/07/pagani-zonda-hh-commissio...

That means DHH is doing well, and has little to do with 37signals.

Sorry to post this here, but jsprinkles' profile is empty.

@jsprinkles: do you have a blog or website? Really enjoyed your xip.io comments (http://news.ycombinator.com/item?id=4082017) and would like to keep up with your adventures. On a related note, it would be nice if HN had RSS feeds for specific user submissions and comments.

I prefer to stay semi-anonymous, but a few people know who I am (it wouldn't be rocket science to deduce). When I posted under my real name folks I did not know would come up to me at conferences and argue with me about things I had said on Hacker News. People tend to get offended by my remarks because I disagree with a lot of this culture, so it's also easier to just keep that separate from my career.

Thank you for the kind words.

Fund-raising is only a means to an end. And sometimes it's an excellent way to scale a business after the business has been figured out. But taking VC money just because it makes you feel cool and high-status is a terrible risk-reward decision. You're trading the next 4+ years of your life and a huge chunk of your company's value for bullshit short-term prestige.

I think entrepreneurs should always maintain a tunnel-visioned focus on hard results and performance, if you absolutely kill it and dominate your market, everything else will follow. Fame, recognition, and status are for tech scenesters and bloggers - not startup founders.

Startups are the ultimate test of your inner scorecard - http://therealfoxyroxy.wordpress.com/2009/07/11/an-inner-sco...

Just wanted to say thanks for commenting. I realized I probably wouldn't be happy accepting a large buyout if I were to strike it rich.

The journey really is the reward.

If there's a big player that might jump into your space with a bigger marketing budget, and you know how to use money to accelerate your growth before that happens, it makes sense to take money.

To some, I think it's like getting into an elite school - with similar effect.

You're paying out quite a bit of your company, in most cases, and getting some capital in return. But what you're also buying into with your equity is a large network of alumni and connections.

In addition, just like how some (silly, IMO) companies hire Ivy League grads because they've passed someone else's rigorous selection process, getting funded by an A-list VC proves to some that your company has chops. So for many founders, trading equity for VC investment is also a hedge for the future - a glowing resume item useful for driving business or acquisition at this or the next venture.

Personally, I think the more early-stage-successful companies stand on their own merit rather than buying into the "old boy's" VC club, the better. I think more weight has been placed on VC selection than is reasonable of late, both in M+A and the tech media. The more successful companies buck this trend, the more likely non-VC companies are to get considered for acquisition down the road, and the more likely said companies are to be able to drum up press for an IPO, as well.

because there are six hundred million people worldwide in your target audience, you have convinced 10,000 of them to pay you, and all told you need to spend $5 on a new customer, and make $10 from a customer in a year.

What, do you expect to grow organically from 10k users one year to 40k, then 160k, then 640k, and so on, hoping the market stays EXACTLY THE SAME FOR THE NEXT 8 YEARS? (Oh and you can't spend anything on development because you're rolling all the gross profit into reaching new customers.)

Or, you know, do you want to speed up the process and try to get as much of the six hundred million this year as you can, while the iron is hot - and stay ahead of your competition, who will be vc-backed?

You may have a general point, but there's a couple orders of magnitude difference between 10,000 (your example) and 8 million (the company we're discussing).

Fair enough. Though I do think that 10k is less of a sure thing than 8 million customers. The latter proves the model a lot more efficiently, and probably gives enough data for a better overview of the market.

In my example, you're actually asking the VC to speculate on what you say is the size of the market. Sure you can grow from 10k to 30k easily. The question is the size of the market you're trying to get them to invest into.

Whereas, at 8 million, the question is, do you really have a model that you've proven? Or, have you been spending more on getting the customers than you can ever hope to get from them? (wihout mentioning any names!)

If you're doing a good job being competitive and ensuring high customer satisfaction, it's hard to see how you can quickly grow organically from 8m to a size of market of 700m (say), if that is the size of your market, in just a couple of years.

I mean, you have to be providing these customers something, and at a competitive rate. that has to cost you money. no business just explodes without any marketing or other costs to a size of 700m (say). This is where VC money comes in.

in the concrete example of an 8million user organization, it would be impressive of them to get to 9m, 11m, 12.1m, 13.1m year-over-year all organically. It would be impressive of them to, profitably, get to 20m from 8m in 10 years, all organically.

If, however, the size of the market is more like 200m, this is a good place for VC money instead of that 10-year plan!! Especially if competition might end up better-funded.

(also see my cousin comment here - http://news.ycombinator.com/item?id=4085660)

i'm trying to follow your example, but still not sure about:

" and all told you need to spend $5 on a new customer, and make $10 from a customer in a year"

who is making this demand? if you're lean enough you should be able to keep growing at a more organic rate.

sorry, I was not putting as much thought into the specific numbers as you are - or into my particular phrasing - I just tried to make the numbers round, specific, and illustrative. Use different numbers by all means.

I think it's fair to say you must spend something on customer acquisition and infrastructure to service them: it's impossible to spend $50,000, get to 10k customers, and not spend another nickel but three months later you have two hundred million of them. There are a lot of variable costs and acquisition costs, even though they get factored into your total expenditure.

I mean, what fixed costs does a 3-person startup actually have? 3 times 160 hours @ $0.00 per hour, i.e. the founders' time, sure, and then what? If you get to two hundred million customers, every item in your budget is much greater. I can't think of a single service that can get those customers for free, and on a paying-for-conversions rate a few bucks seemed realistic (rounded to factor in all your variable costs broken down to customers).

I think though that pretty much any numbers you pick you will see that if a startup is 'taking off' it needs more money to address the money left on the table (from the rest of its proven, addressable market) if they want to do it fast. (Whiile the iron is hot, while they have momentum and maybe press coverage, while they're young and hip and new, while market conditions don't change due to unforeseen external changes, and finally before well-funded competition arrives on the scene, including from big companies who will enter if the growth holds out. Big companies don't just enter any market that has 10k customers, they might not even do market research yet, which you already have. Etc etc etc.)

What startup can you think of in which if you bootstrap to $100,000 in revenue from 10k customers, and let's say miraculously have the complete $100,000 to spend, you can magically address the whole 600million person market your 10k customers are in by the end of the following year?

I think that's what I meant by the word 'all told' - factor in every cost into those 10k customers. (Except your fixed costs of 3 x 160 hours @ $0, of course! And a $10 domain name.)

Attempt at humor: 640k users should be enough for anyone.

Generally I wouldn't want to, but one possible reason is to take some money off the table. Just sell part (non-controlling) of your stake to have FU money personally. You don't want to sell the company, but you might want the life-changing amount of money that says you don't ever have to work again. That can be done by selling part of the company to another investor.

Can someone with VC experience (on either side of the table) explain what part of an investment goes into the founder's pocket? Does it change with each deal or is there a standard percentage?

Obviously a $10MM investment does not equate to a $10MM deposit in the founder's personal bank account, but at what point is the founder no longer expected to live on Ramen?

I don't have first hand experience, but from what I've read I think it changes with each deal. For example, Rovio just did a deal where they took almost all of the cash out. They are very profitable so they don't need the money, but they wanted to cash out some. I think most deals are the opposite of this, with not very much being taken out.

But is selling a part of your company really the only way to get some FU money, if the company is doing really good and is highly profitable? can't they payout the profits as some sort of dividends.

(Not claiming that this particular company has a lot of profits, the question is more meant to be general. lets take rovio as an example maybe)

Of course. But profits from say a year or two aren't going to be nearly as high as selling off 25% of the company for example.

To take this way past reasonable, consider Instagram. If they could convince someone to give them 250 Million for 25% of their company instead of selling the entire company, that would be huge FU money and they could keep running their company, while evening maintaining a majority stake. I could see that as a very tempting option.

Also, it allows the founders to diversify a bit. Consider that these people are multi-millionaires on paper, you wouldn't generally recommend they put all of their money into one investment, even if it is their own company.

I never understood this whole rush to sell your business. When I build something I become emotionally invested in it and I wouldn't sell unless I started hating my product or not believing in it any more.

There should be a clear motivation behind selling something you care about (well, if you ever cared about your product in the first place, that is), not because techcrunch or VCs tell you it's the right thing to do.

I suspect Apple will add in filters feature into Camera and Photos app in iOS 6. This might impact some income for Camera+ app.

Perhaps they can take the money and invest in iPad version of the app. iPad is the next thing after iPhone and it is shame that I have to use such app in iPhone compatibility mode.

But reading from the story seems like taking money from those kind of investors isn't such a good idea going forward.

Actually should not accept investments from any one, but the says "f*ck the VCs" is unethical.

Reply on news.ycombinator.com