Marin Software acquires Perfect Audience (YC S11) for $25.5M
blog.perfectaudience.com
blog.perfectaudience.com
I'm swamped with emails and press inquiries and stuff but wanted to take a minute to say a quick thank you to the Hacker News community. I am not exaggerating when I say that most of what I've learned about building a startup came from things I read here. Thank you.
If you're a Perfect Audience customer, everything's going to get better. We're hiring hiring hiring and it's all going to be engineers aimed at making the product better.
From having Jedburg reach out when I had some foolish question about high-concurrency applications, to the number of folks who helped us trouble shoot a burgeoning Mongoid/Ruby memory problem at the very beginning - Thanks a million!
(I mean this in an entirely un-cynical way. Genuinely curious, and not trying to imply anything negative, $25MM ov value in less than two years is pretty amazing.)
> So, the judgment that you have to make is a) is this market really much bigger (more than an order of magnitude) than has been exploited to date? b) Are we going to be number 1? If the answer to either a) or b) is no, then you should consider selling. If the answers to both are yes, then selling would literally mean selling yourself and your employees short.
http://www.amazon.com/Hard-Thing-About-Things-Building-ebook...
They're only 20 months old so I'll make a couple of guesses before someone answers with fact:
a) For a year and a half, most employees would be perfectly happy with a cash-out worth (at the instant) tens of thousands of dollars.
b) Those same employees would be happier if they view the deal as potentially expanding the value of their previous work.
c) Those same employees would be even happier if they were running out of cash and facing a shutdown versus a buyout.
d) Sometimes a marriage creates something stronger than either of the partners ... without the back-story this one is a stretch.
'the company has set aside $2.7 million of equity retention grants to Perfect Audience employees who stay on.'
Given how few people are in the photo, there's probably reason for that to make them smile as well.
Well, they only raised a $1.1M seed round [1]. I will guess they gave up 25% in that round [2]. YC got about 7%.
At this point, I think AdRoll has become the market leader in the retargeting space. Without raising a huge VC round, there's no way PA could catch them.
Marin is a public company, so the cash + stock offer is probably higher than an all-cash offer would be elsewhere. Plus, since they're public the PA people can sell the stock sooner rather than later if they want.
So, investors get $5.75M on a 1.1M investment. Not a home run, but definitely a double in the gap with 2 RBI.
YC gets $1.6M on a $17K investment (old deal).
Founders + employees have 68% remaining, or about $15.6M.
Not selling means raising another round, giving up more equity, and still not having a guaranteed exit.
[1] http://www.crunchbase.com/organization/perfect-audience
[2] http://www.quora.com/What-is-the-average-amount-of-equity-to...
EDIT: Changed numbers to reflect YC's ownership. Still don't know what I'm talking about.
Typically seed rounds are for convertible notes, to which no equity is assigned.
Standard note terms have conversion during an actual price round, or during transfer of control of the company, or during expiration of the note.
Since they're a YC company, they opted to give 7% for $120k. That leaves 93% for the founders/employees.
Minus that, they raised ~ $980k, on seed terms, which have a valuation cap at between 3.5-6 million. The valuation cap basically says that the price per share is at most calculated by the capped valuation, not the actual valuation. So investors may have actually bought $980k of stock, at a valuation of ~3.5-6million, instead of the full $25.5 that was purchased.
Add to that that convertible notes typically have a discount ~20%, they bought even more shares, leaving them with considerably more ownership, than if they were straight $980k of post-money $25.5m
I don't know the details, and it sounds like the employee's, founders, & investors are all happy, but this does underscore that Convertible Notes can be very costly to founders.
Had their seed round been priced, the founders & employees would have made a lot more money.
As far as I can tell, valuation for priced rounds and cap valuations aren't exactly 1:1
At $1m with $4m cap, no discount, that ends up as 25%.
At 20% discount, that ends up being closer to 33%.
With 7% already given to YC, that leaves 60% for founders and employees. 15mil is definitely a nice payday for them for sure.
Another commenter mentioned this could have been at 8mil cap, 0% discount, which would have left the founders & employees with close to 80%, and extra $5 mil.
This of course is pure speculation and fuzzy math on my part.
There is now push back against a convertible note as an instrument as they tend to favor investors, and that the only upside for founders is that the paperwork tends to be standard, and you can get one for much cheaper than a priced round. The details of PA's funding could easily be another data point for why a Convertible Note isn't founder friendly.
Is your 3.5-5M valuation cap number pre- or post-money?
Given what you said, it looks to still be in the range of 25-35% investor ownership, correct?
Yeah, your numbers (25%) seem correct, but based on standard seed terms. Another commenter pointed out that PA was a hot YC deal, which may have led to much more preferable terms.
That said, I have a concern. PA was on my list of retargeting networks to check out along with AdRoll, Simpli.fi and maybe a couple others (mostly on the SRT side of things). However I'm also going to be in the market for a bid management platform in the near future, and while Marin is on my short list, so are DS3 and Kenshoo.
Will PA services and inventory remain available to customers who are NOT Marin customers in the future? Curious what sort of meaningful guarantees you can provide when I imagine the reality is that you could say one thing today, and if Marin changed their mind tomorrow, I'd be SOL. Not saying you'd lie or anything, but I know that in the real world a statement alone doesn't hold much weight when dollars start speaking, so I'm more interested in any tangibles with regards to company structure, product functionality, etc. that you can share that would be easier to put faith in.
Also, what can you tell us about customers' data being accessible to Marin if your customer is not a Marin customer? Is there any chance that audience data could be fed into an anonymized audience segment or something equivalent and leveraged by Marin customers (who might potentially be competitors)?
These are great questions. There's nothing I can write in a comment on Hacker News that will assuage any of your worries besides saying that you should try all these platforms and pick the one you like the most. Perfect Audience is free and easy to try and isn't going anywhere. If you like it, awesome. If you find another platform you like better, that's great too. Just let us know what we could have done better.
I like that you have a free trial to see the platform without requiring a contract. Other providers let you see a demo account, but actually getting to test a live campaign is always better because you can see the speed and integration with your analytics.
Are you guys still in Mountain View by any chance?
I do worry though if we will be seeing the product rolled up into some kind of expensive enterprise offering from Marin, which would likely price out a lot of the current customers of it.
Congratulations to all involved, it's nice to see such hard work pay off.
Best of luck to you and your team, so curious what you'll do next! But given how this one worked out for you I'm not at all worried :)