22 ms·

I sold Baremetrics

818 points by anttiai 6y ago

CPLX 6y ago
The part about the investors getting nothing while the founder gets millions is really interesting. How does something like that even happen?
- zackkatz 6y ago
  Agreed. Why on earth would investors agree to not getting their money back? Did they get anything? It doesn’t sound like it. What are we missing here?
  - kenrose 6y ago
    Two things come to mind. 1. At the end of the day, investors are people too. They may care that the team ends up whole. 2. 800k is non-trivial money, but it’s a small percentage of, say, a $100MM VC seed fund. The economics of VC are that some investments will net zero return. While they could have tried to claim back something here, letting go with grace gives them a lot of goodwill to be first to invest in the founder’s next project (assuming there is one).
    - deleted 6y ago
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    - mooreds 6y ago
      > letting go with grace gives them a lot of goodwill to be first to invest in the founder’s next project Also a halo effect with other people who are reading this. But I'm guessing there were some animated discussions about this. Plus, per https://news.ycombinator.com/item?id=25045874 https://news.ycombinator.com/item?id=25045874 > We've had carryover losses for years, so from a tax perspective, there was no hit on either side.
  - ceejayoz 6y ago
    "A small but reasonable exit is life-changing for me, and a nulled-out investment is expected for you in most of your investments." Some investors are gonna be ruthless sharks. Others are not.
    - lixtra 6y ago
      It might make them more attractive to the next generation of founders, especially if it is widely communicated as here. Advertising money well spent?
  - dimmke 6y ago
    I was shocked by this too. The only thing that makes sense is that it's a form of advertising/branding for them. Baremetrics is a startup whose main audience is other startups and the posts like this have a good reach. Other startups looking into them will see this. And breaking even might be about the same as taking the thing as a loss in the grand scheme of the VC model to them. I do wonder if other lower profile companies would have gotten the same deal.
  - bluntfang 6y ago
    tax loss harvesting
- robhunter 6y ago
  This is just an idea, but I suspect taking the tax benefit of writing the investment off in Year 1, compared to blocking the sale and getting a 1x return (maybe) in 2-3 years (or more), actually has a negligible effect on the fund's IRR.
- andygcook 6y ago
  General Catalyst latest fund was $2.3B and BVP’s was $1.85B. I’m unsure which exact BVP and GC funds Baremetrics raised from, but that $800K likely doesn’t matter to either of their returns with funds of that size. Even at $100M, it probably doesn’t matter to a fund. VCs expect over half of their investments to outright fail. What’s much more important to the VCs is the good will they just built with that founder. Most founders will give back door reference checks to other founders about investors. Josh is likely to say good things about BVP and GC now. Also, they got that mention in his blog post too. It’s likely they knew Josh would write a post like this and chose to just write it off for the “we’re founder friendly” story vs. looking founder unfriendly. As a founder, I don’t think there’s anything wrong with what happened here for the investors given their fund sizes. They’re professionals investing other people’s money and expect this type of thing to happen. In fact, most VCs likely expect you to fail. If these were angel investors putting in their own money, I’d have a different opinion.
ceejayoz 6y ago
I really appreciate the lack of “our incredible journey” platitudes in here.
- asdasdad12313 6y ago
  It was a wild ride, but all journeys come to an end. Our customers and employees are our most valuable asset.
- a13n 6y ago
  Why? Building a company is a journey.
  - ceejayoz 6y ago
    I'm referring to the trite overused cliches that often fill these sorts of blog posts. https://www.gyford.com/phil/writing/2013/02/27/our-incredible-journey/ https://www.gyford.com/phil/writing/2013/02/27/our-incredibl... See also the recent example of https://www.slingbox.com/discontinued https://www.slingbox.com/discontinued, which makes this funny pair of claims: Q: Why is Slingbox being discontinued? A: We’ve had to make room for new innovative products so that we can continue to serve our customers in the best way possible. Q: Will Slingbox be releasing any new products? A: No.
ccmcarey 6y ago
I've always loved the transparency and frank writings by Baremetrics. > As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed? > But they were incredibly gracious and both agreed to write off their investment. General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.” I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.
- alextheparrot 6y ago
  Good faith decisions go a long way, if they believe in the founder that 800k becomes an investment to be front-of-line for his next company. The economics make sense insofar as that sum isn’t going to move the fund’s returns a whole lot.
  - JackFr 6y ago
    > Good faith decisions go a long way, if they believe in the founder that 800k becomes an investment to be front-of-line for his next company. Or its the cost of a lesson to stay away.
    - Aperocky 6y ago
      He did plan to retire so I don't think he would have needed them. It's more of a see you never type of situation.
      - swyx 6y ago
        if you read between the lines he is definitely going to start something again. some people cannot just sit on their hands.
dimva 6y ago
$3.7 million sounds like a lot of money, but he could have earned more than that over 7 years if he just took a mid-level job at a FAMANG company. EDIT: saw that the founder lives in Birmingham, Alabama. So yes, $3.7 million IS a lot of money.
- ccmcarey 6y ago
  I imagine he paid himself a salary during that time, and 3.7/7 would be >$500k/y which is >mid level at a FANG+ company.
- draw_down 6y ago
  Yeah, I was gonna say something like that. Nothing to sneeze at but I’ve made slightly more (not even considering my salary) by just working a software engineer job over the last 4 years. Nothing fancy, lots of afternoon naps. Not a staff engineer, not a VP, just a regular old mid-level engineer. A hump, you may say. To each their own. But you won’t see a blog post about mine because it would be a very boring read. I see posts here refusing to believe this could possibly be true. You must be a VP! Normal coders don’t make that kind of money! You don’t have to believe it- but you’re not hurting anyone besides yourself if you don’t.
- Shpigford 6y ago
  So true. I could have also hated my life for those 7 years. I make a terrible employee. :)
  - deleted 6y ago
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- mattmanser 6y ago
  That assumes he took no salary or dividends for 7 years, which seems highly unlikely given their ARR.
  - Shpigford 6y ago
    Right. I've been paying myself $100-150k a year for most of that.
boltzmann_ 6y ago
kudos for the transparency, a really interesting post
pc86 6y ago
I know there's a trope about the naive founder getting screwed by shifty-eyed VC sharks, but it really sounds like Josh screwed his investors and employees here. > I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their [$800,000] investment. He clearly didn't want it very badly, then. Nearly $3 million wasn't enough? That's about $420k per year for the time he put in, not counting anything he already took out. Keeping the extra money only increases that to about $530k/yr. And it sounds like the early employees get nothing, other than not getting fired immediately. I like the Baremetrics product but man this really leaves a bad taste in my mouth about Josh personally.
- Shpigford 6y ago
  You're making a veritable crap-ton of assumptions here. Happy to talk about specific concerns, but not if you're going in to this with guns blazing looking for a witch to burn.
  - ccmcarey 6y ago
    I'm curious how it works from a technical standpoint. If they invest, do they not own shares of the company, and then during the sale the shares are sold, did they just gift the shares back to you personally? Does that have tax implications?
    - Shpigford 6y ago
      Investment vehicle was a SAFE. They basically cancelled the SAFE as part of the deal. We've had carryover losses for years, so from a tax perspective, there was no hit on either side.
      - ccmcarey 6y ago
        Makes sense, thanks!
      - TechBro8615 6y ago
deleted 6y ago
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ianhawes 6y ago
>What I walk away with: $3,700,000 in cash >practically speaking, never need to work again Yikes, does someone want to tell him?
- isseu 6y ago
  He lives in Alabama
- simonswords82 6y ago
  Tell him what?
- maxlamb 6y ago
  what, that's it's not enough? Sure if you plan on living in the Bay Area for the rest of your life but in most other places it's definitely true.
- steve-benjamins 6y ago
  You seem pretty sure of yourself— you must know his existing savings and cost of living?
- Lionga 6y ago
  In most places of the world 20% of that are enough never needing to work again.
  - deleted 6y ago
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- KMnO4 6y ago
  Let’s say you work for a respectable $80k/year (more than enough to live comfortably in most of the world). If you get the job at 25 and retire at 65, that’s $3.2m. So yes, he can retire for life.
- bluedevil2k 6y ago
  I'm with OP - $3.7M seems like a lot, but it really isn't enough to retire on. I assume he'll need to pay taxes on that, a 20% long-term capital gains tax. Brings it down to about $3M. Being generous and giving him 3.5% return (real return) a year in fixed income, that's only $105,000 a year in income, which he'll need to pay taxes on as well. He'll net out around $85k a year.
dmje 6y ago
I have no knowledge about how to consider the acquisition details, but MAN the energy of this guy. It’s formidable.
02thoeva 6y ago
Congratulations on the sale and thanks for sharing. Very interesting for someone who's probably a few years behind you.
ffdjjjffjj 6y ago
Wait, so your investors lose money, your employees (probably just a few) got at most $80k, and you get to retire? I mean, congrats on the hustle, but I wouldn’t waste your time trying to make it look good for everyone else.
- gadders 6y ago
  The founder usually carries the majority of the risk as well.
  - remote_phone 6y ago
    It sounds like he put in no money of his own. He would not have made $3.7M without the hard work of his employees. And yet when it came down to it, he took almost all the money for himself.
    - deleted 6y ago
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    - cloverich 6y ago
      If he worked for free, he _did_ put in money of his own. So it depends on what his salary cut was, and for how long. I've been thinking of starting a company for ages, but there's no escaping this fact -- I have to give up a substantial amount of money, and the most likely scenario is my company won't take off (much less make a profit, and even less an exit). I agree employees should be compensated but ultimately, if they get a salary on day one, it is a very different calculation. I've worked as an early stage employee, and the salary cut I took was ~30% for ~1 year. I may get a payout from that, perhaps 1-5x and to me that seems a pretty reasonable balance. ¯\_(ツ)_/¯
    - cam0 6y ago
      Those jobs that the employees chose to take would not have existed without Josh actually starting the business. He created something. He took the initiative to be a builder and took the risk and responsibility that comes along with that. The investors wrote a check that amounts to peanuts for them. The employees put in their 8hr days and collected a regular paycheck. The founder is the person who deserves the payout here.
moonbug 6y ago
Wow, that's some brazen humble brag from someone who cheerfully announced how his envestors got screwed.
- mssundaram 6y ago
  And employees
  - moonbug 6y ago
    indeed, yes.
    - adewinter 6y ago
      If you think a startup can "screw" a VC/investor when it's selling for only a 2.6x multiple... You are incorrect.
andygcook 6y ago
@shpigford - Are you able to exempt your exit from capital gains under the QSBS tax laws? For those curious, more here: https://www.brownadvisory.com/us/qsbs-tax-exemption-valuable-benefit-startup-founders-and-builders https://www.brownadvisory.com/us/qsbs-tax-exemption-valuable...
- czbond 6y ago
  Founders can, his situation varies. Either QSBS or ideally through 83(b) (where one pays all taxes on company stock at founding in first 30'ish days).
  - eli 6y ago
    You misunderstand 83b, that’s just about paying the income tax on restricted stock grants up front instead of as it vests. You still would owe gains on the appreciation of the stock. QSBS allows some or all of the gains to be tax free.
- heipei 6y ago
  I'm assuming he held his shares through his own holding company.
- andygcook 6y ago
  Update: QSBS was applied here: https://twitter.com/Shpigford/status/1326163478529314817 https://twitter.com/Shpigford/status/1326163478529314817
xyst 6y ago
Interesting "journey", but as I was reading I can't get over how similar this site looks to Stripe's old UI. From the color scheme to the icons for each product in the menu bar, it's almost a 1:1 copy.
- mikeg8 6y ago
  Originally (we used Barmetrics in 2014-15), it was marketed as more of an analytics tool for Stripe. I think designing to mirror strip was intentional early on, and worked well enough to not change over the years.
skrebbel 6y ago
At the time I write this comment, half my screen is full of people calling Josh not so nice things. Folks, this is a founder who's openly sharing the kinds of things we usually keep hidden. I doubt there's been a startup exit in the last decade where a healthy skeptical HN'er couldn't find some wrongs being done, if the details had been available. It's extremely hard to get everything right, from every perspective. The only difference here is that the details are actually available. Please go easy. We want more posts like these, not fewer.
- draw_down 6y ago
  What exactly are you taking issue with? Come on.
- adamzapasnik 6y ago
  Half screen? I see a comment or two. I think it's normal/human thing to have discussions in comments like this one. Especially, when it's an exit related topic that gets shared on startup/VC related forum-site like this one? Prefer just "good job" comments, or what?
  - TwoNineFive 6y ago
    I agree. I read all the comments in this thread and this time and the negativity isn't there. It just doesn't exist. I don't know if those comments were removed, but I just suspect they never existed.
- arvidkahl 6y ago
  I have sold a business as well, and I have to admit I am very surprised by this response, too. Not only does Josh divulge information that most founders are legally forbidden from ever revealing, he also was always extremely open about the journey of the business, even facilitating the [Open Startups](https://baremetrics.com/open-startups https://baremetrics.com/open-startups) page, where Baremetrics itself is listed. What surprises me most is the lack of understanding of founder risk. Most negative comments are related to employees not walking away from this exit. It feels to me that many here seem to conflate the inner workings of heavily VC-backed businesses with a slowly and sustainably growing company like Baremetrics. I see a lot of assumptions all over the comments. I appreciate the discussion, though. It's nice to see people sticking up for employees. But a sub-10-people SaaS that's ALMOST self-funded is not the same as a prospective unicorn.
tiffanyh 6y ago
So if they sold for $4M, and the investors got $0, and the founder pocketed $3.7M ... where did the other $0.3M go? If it went to the existing employees (they have 7 of them on the About Us page), that's ~$42k per employee.
- adamzapasnik 6y ago
  He said it in an another comment; to employees.
  - deleted 6y ago
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- deleted 6y ago
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Aeolun 6y ago
Good for you! I’m happy reading a sort of reasonable-ish success story. 4M is a lot, but an amount I can wrap my head around.
pier25 6y ago
> But they were incredibly gracious and both agreed to write off their investment. So the investors just accepted to lose $800k while the founder was getting $3.7M? Can someone explain the logic here?
- user5994461 6y ago
  They are investment funds that manage billions of dollars. They invested 800k hoping to make 80-800M out of it. It's pretty obvious the business didn't pan out as well as intended. It's not really worth their time anymore. Still. They could have caused troubles and tried to recoup their $800k out of the $4M. They were nice not to. The money will be written as a loss and go through some accounting/tax trick to minimize the effective loss.
  - IshKebab 6y ago
    In what way would it have been trouble? Surely they legally own that bit of the company? Something doesn't make sense. $800k is not a small enough amount for any responsible investment fund to walk away from. I wonder if maybe it was actually worth way less. I think he said they walked away from their $800k investment, but maybe that was at a much higher valuation. If it was only worth $80k I can see them not bothering.
    - cercatrova 6y ago
      800k actually is small enough to give away when you're dealing at that scale. The lawyers fees and other fees wouldn't even be worth that much from a sale. The bigger reason is reputation. If Techcrunch posted an article saying, founder screwed out of acquisition by billion dollar VC, it wouldn't work out so well for the next founder considering that VC.
      - IshKebab 6y ago
        But he would have still walked away with almost $3m, how would that be screwing him?
relaunched 6y ago
This warmed my heart. >>>General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”
- rjyoungling 6y ago
  Yeah, same here. That was such a class act. I really hope that they get some serendipity like deal flow from that good will.
  - treis 6y ago
    Maybe I'm just the Grinch but some rich dudes giving $800k to one rich dude doesn't warm my heart. Especially as someone who's gotten (relatively) screwed twice now when owners sold out. It also goes to the heart of how messed up our economic system can be. I can be mollified by saying that he worked hard and earned his ~$4 million by building a business. But I can't internally justify the VCs gifting him $800k for AFAICT nothing. I'm going to have to work for the next 4-5 years for that but he gets it basically on the whim of some person at a VC.
    - relaunched 6y ago
      It's hard to understand, when taken at face value. But, when you add a little context, VCs can do much worse. They can refuse to sell (through approval rights) and let company die on a the vine. They can force out existing leadership and bring in new leadership. They can force an acquisition. They can kill a company in a million different ways. For a fund to realize that the company can live on, even if it's not the 10-100x they were hoping for, shows class. Listen, it's not curing cancer - but, it shows a level of maturity and understand that we should praise and not take for granted. The way that fund economics work, they can write off a lot of small bets. However, the way that partnerships work, there are big egos at play. It's a dirty game, but when people do the right thing, it's worth praising.
suhail 6y ago
Congrats Josh :)
borvo 6y ago
Congratulations on reaching an exit and good luck with the next venture!
ineedasername 6y ago
The numbers work out to 7.5% equity owned by 10 employees. Would that be a typical equity share for a company like this?
- khalilravanna 6y ago
  I think someone said there were 7 employees. I saw some of the jobs listed for YC startups and on AngelList showing 1% equity for first engineer roles. So yeah that seems about right by my estimation.
- TechBro8615 6y ago
  It sounds a little low, but not unheard of. Standard option pools are generally between 10-20%.
ineedasername 6y ago
the same people who are good at starting companies aren’t always the same people who are good at growing or managing them This is an excellent insight
rjyoungling 6y ago
Losing so much respect for people, reading some of the comments...
connectsnk 6y ago
Can someone please explain why the investors were not able to recoup their initial investment of 800K$ when the company sold for 4 million? Thanks in advance.
- pavlov 6y ago
  The founder had the guts to tell the investors that there’s a deal on the table, but he’s not going to do it unless the VCs walk away from the investment. It wasn’t a growth story, so from that point of view it was dead money for the VCs anyway. But why would they agree to the founder’s payout at their expense? Either the VCs are very impressed with this founder and plan to participate in his next company, or they’re fed up and just wanted to be rid of him.
- nemothekid 6y ago
  It's not that they weren't able to. It's that the 800k isn't worth the legal fees and the possible PR damage (Bessemer doesn't want to be known as non-founder friendly because they made a fuss over 800k). It's been repeated a couple times in this thread, but VC make money by 10x-100x their original investment. They invested 800k expecting to make back 8M-80M. Anything less than that isn't worth the additional time, especially for a seed stage investment where they might have 50-60 of these per year. I think, for anyone trying to start a company and take VC funding to understand how the VC business model works. A VC incentives are much different than a founder's much of the time. In this case, the best case for the VC is for the founder to continue working on the company.
  - jariel 6y ago
    It is absolutely not 'non founder friendly' for a VC to go after their 'participating' value especially when there is actually money on the table. There would be zero negative PR fallout from that. This founder basically ripped off his investors, it's completely unethical - and he'll never get a dime of VC money again. If VC firms didn't care about getting their 1x money out then the terms wouldn't be there in the first place. It's normal to do that, and a $500M firm returning 10% a year takes 20% of that, so 2% which is not really a huge amount of money for a team of people.
deleted 6y ago
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pm90 6y ago
> also realized that the same people who are good at starting companies aren’t always the same people who are good at growing or managing them. The company itself has so much more potential than I have the ability or interest in offering and on top of that, I just wasn’t enjoying myself anymore. I thought this was a key insight, and I'm happy the author is frank about it. Some people enjoy building things from scratch, others enjoy taking a good idea and scaling it. IMO, both are hard problems and its good that he bailed before trying to go down that route.
simonebrunozzi 6y ago
Jonathan Siegel is mentioned in the article (his company acquired Baremetrics). I dealt with Jonathan in the past, and I could only say good things about him - not just his business acumen, but his integrity and generosity. Years ago Jonathan was in a position where we needed to buy back his shares in a company in which he invested early. He could have asked for a much higher price, and instead he graciously agreed to a different outcome - he understood the situation and did the right thing. Glad to see that General Catalyst did the same in relation to Baremetrics, writing off their investment. These things don't go unnoticed. Sometimes reputation is way more important than a few more bucks for your LPs.
- a_band 6y ago
  I've had a similar experience with Jonathan. He's one of the most founder-friendly people in the VC industry.
- brettcvz 6y ago
  Likewise re. Jonathan - we sold filepicker.io (now Filestack) to Jonathan and Xenon Ventures in 2014 and it was a very positive experience. For companies with solid revenues but not venture-scale growth looking for a clean exit, I would highly recommend reaching out to Jonathan and team. Happy to make an introduction if helpful.
  - andymboyle 6y ago
    Just wanted to say, I used filepicker.io years and years ago on a project and it was wonderful. Thanks for developing something that was easy to use and intuitive, especially when I was still learning the ropes.
- itsderek23 6y ago
  +1. Jonathan is great to work with if you are in a similar position as Baremetrics.
kgog 6y ago
> As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence. I have never seen this before. Guaranteed outcome regardless of DD. Is this an outlier company?
ponker 6y ago
Extremely gross that he pocketed $3.7m but asked his investors to walk away from their $800K, because he needed to meet his financial "goals." This is the flipside of all of the VC deals that completely fuck over the founders.
- sequoia 6y ago
  Do you imagine the VCs had to sell all their clothes and are now walking around wearing barrels held up by leather straps, before they retire for the evening to a cardboard box over a steam vent? You really think they had to cut back their Dom Perignon budget over this loss? Do you think they were "strongarmed" by this investor? There is what is for them a teeny tiny pie, and rather than demanding their small slice back they said "you know what? Go ahead without us. Bon Appetit :)"
  - ponker 6y ago
    If I stole your TV you likely wouldn’t be moving into a cardboard box either. Does that make it ok?
    - sequoia 6y ago
      If you borrowed my TV and later I said "you can keep it" that would make it OK, yes.
maxekman 6y ago
Really cool to see the details of the sale presented in the first paragraph. I wish more companies would be similarly transparent, even for running metrics about ARR etc.
vmg1 6y ago
thanks Josh for sharing this info
alex_c 6y ago
I was incredibly confused to read "Investors are writing off their $800,000 investment". Sure, $800K isn't huge money for a fund, but it still seems... odd... to be so nonchalant about it? Then I checked General Catalyst, they manage multiple funds in the $500M - $1B range[1]. In that context the $800K really is a rounding error, around 0.1% of a single fund's size. It never ceases to amaze me how money stops being money past a certain amount (which would be life-changing for most people), and just becomes numbers to move around. [1] https://www.crunchbase.com/organization/general-catalyst-partners/investor_financials https://www.crunchbase.com/organization/general-catalyst-par...
- cj 6y ago
  I imagine there must be a bit more to the story. It's not common for investors to write off $800k out of good will (doesn't seem like something in the best interest of their LPs). Edit: > It’s a really exciting day here at Baremetrics! I’m stoked to announce that General Catalyst has invested $500,000 in Baremetrics, as part of a new fund they’ve created for businesses on Stripe. Turns out there is more to the story. Baremetrics got their cash from a fund specifically intended to promote companies integrating with Stripe. In other words, the goal of the fund was to promote Stripe moreso than to generate returns for LPs
  - alex_c 6y ago
    Ahh good find, and according to CrunchBase that Stripe fund was $10M total. That makes a bit more sense now.
  - csomar 6y ago
    So they invest in a company and then they invest in a bunch of companies to raise the turn-over of the first company. Seems legit.
  - pkrotich 6y ago
    Interesting - I truly expected Stripe to buy Baremetrics.
- PeterisP 6y ago
deckard1 6y ago
Maybe I'm hopelessly naive here, but $4M cash @ 2.65 ARR, so ~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? Then there is the mention of running at breakeven most of that time. There are solo founder SaaS businesses making more than that with 80%+ margins. As others have mentioned, you'd be better off working at a FAANG. So, did something go wrong here? What is it about this analytics business that makes it so expensive to operate? Were all the employees necessary? Was the pricing or marketing wrong? Or is this just the reality of most SaaS? I gotta say, this really puts a damper on what I always thought was a fairly lucrative business model, if you could make it past the early bootstrap/product-market-fit period.
- jaredhansen 6y ago
  >~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? The median and modal ARR for SaaS businesses 7 years after founding is zero.
  - deckard1 6y ago
    Of course. The vast majority of all businesses fail. That's not what I'm asking. No one gets into business to just breakeven after 7 years. Most people are looking at this as a success story when it just seems like Xenon and their other investor that took a loss were doing them a favor.
  - texasbigdata 6y ago
    Across all businesses across all industries in North America a reasonable guess (with a wide confidence argument) would be 1x revenue as a baseline valuation.
mv4 6y ago
I applaud the author's transparency. Congrats on the deal!
hiimtroymclure 6y ago
All I can is congrats and im jealous. This is the exit ive dreamed about
tinyhouse 6y ago
Wow, such a great read. I love people who are so open and honest. btw, how does tax work in the US for acquisitions? is the money he's getting is taxed the same as income?
- bingdig 6y ago
  He'll likely pay no federal taxes. If the business is >1 year old, it's treated as capital gains. Since the company is >5 years old, he can likely take advantage of the Qualified Small Business Exemption up to $10m and pay no federal taxes. https://www.investopedia.com/terms/q/qsbs-qualified-small-business-stock.asp https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...
  - tinyhouse 6y ago
    Thanks for the info. That's pretty amazing.
    - texasbigdata 6y ago
      To be specific, since it might help someone and it’s important to get the technicals right, dig into the IRS portion of the federal code, section 1202, or QSBS. Note, doesn’t apply to LLCs ... so you eat double taxation if cash flow positive but it’s less burdensome now with the Trump tax rule. Decent link here: https://www.svb.com/blogs/svb-private-bank/understanding-qualified-small-business-stock-the-capital-gains-exemption https://www.svb.com/blogs/svb-private-bank/understanding-qua... I believe, but can’t find, that you need to trade cash for the shares to qualify, so if your basis isn’t zero, it might require writing a check into the entity to cleanly qualify.... moral of the story here is pay someone to help you on this :)
    - killingtime74 6y ago
      it's only amazing because he spent so long making so little
rexreed 6y ago
Thanks for actually giving real numbers here. I hate startups that spin fire-sale acquisitions into something more substantial than they are. So I am super happy to see some real transparency with real numbers and a real talk about the earn out.
fred_is_fred 6y ago
Oh I didn't connect the dots that this is the "job hopper twitter guy". As someone who's last 4 companies have been acquired - I found him to be extremely frustrating to follow.
mrisoli 6y ago
I interviewed for Baremetrics a while ago and a major reason for this was because I am a fan of Josh and its openness culture. Ended up not following through the process as I got a job offer in the mean time. I enjoyed even my first impressions at the interview process and I'm happy Josh got a nice payout, congrats! I do hope Baremetrics transparency continues in some fomr as its a big inspiration.
NelsonMinar 6y ago
Did his 10 team members get zero? Is he proud of that?
jariel 6y ago
The bit about $3.7M seems really odd - how is that even legal? Conrad Black literally went to jail for selling newspapers and taking a personal commission on the side. [1] When you're selling company value, but taking the money yourself in the form of some kind of arbitrary comp, that's defrauding investors, it's a form of embezzlement. That the investors 'didn't care' is fine, but I don't see how it could have been arranged in the first place - the acquirer does not get to decide how much the 'founder' is going to get. Also - the $800K write off seems odd. A million dollars is not nothing, and there would definitely not have been $800K in lawyers fees, far from it. Something here doesn't seem quite right. Also - folks - if he is negotiating comp outside of share value, that's not only hosing the investors - but any employee equity as well. A small team where some other guy has 5% of the company, that's $150, not a lot, but not nothing. If the package was dealt outside of equity, those equity holders were screwed, if in fact there were other shareholders/equity holders. [1] http://news.bbc.co.uk/2/hi/business/6897991.stm http://news.bbc.co.uk/2/hi/business/6897991.stm
simook 6y ago
Amazing
fairity 6y ago
Everyone's talking about how the founder got lucky that his investors let go of their $800K liquid preference. My guess is that this wasn't all luck. The VC's in this case knew how transparent this founder was being in reporting his startup journey. They knew that this decision would get publicity. With this knowledge, the VC firm probably made a calculated decision to forego their liquid pref in return for the good will generated by the founder's transparent PR. It's cool to see the founder being financially rewarded for his transparency.
- taphangum 6y ago
  Long term thinking. I can't think of a better advertisement for these VC's. Calculated or not, it is a great move
- GoRudy 6y ago
  yep and good chance these two VCs are the first check in his next business in 24 months.
- sonofaragorn 6y ago
  If letting go the $800k was purely PR, then that's some expensive PR. Who reads these blogs, a couple thousand people maybe?
  - exolymph 6y ago
    10k+ people will read the post, probably more. HN alone can send that much traffic (I speak from personal experience). And it's more about who than how many.
  - fairity 6y ago
    If they do this 10 times, they will establish a well-known reputation for being founder friendly. This would cost $8M. They are investing $1B over all their funds. Will the impact a founder-friendly reputation has on deal flow and close rate increase their fund's ROI by 0.8%? Almost certainly.
    - 6y ago
g3houdini 6y ago
I support Josh and his healthy approach to showing others what is possible when you share and contribute to the internet.
victop 6y ago
> This (No time-based or performance-based earnout) was the greatest limiting factor on acquistion price. For those who have gone through an acquisition, how much more Josh could have netted if he accepted to stay 2-4 years?
- gkoberger 6y ago
  Depends on a lot of factors, but probably not much more. The company could have potentially netted more overall, but I’d say Josh’s take would remain about the same. If nothing else, he’d take on a lot of risk... the potential package could seem higher, but a lot can go wrong over 2-4 years (both personally and with the acquiring company).
lubos 6y ago
> We’re also a company that has purposefully operated right around breakeven for years. And here is the problem. Take VC money and now you are forced to run company at breakeven point. This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year. He could have met his family financial goals long ago and still keep the company. This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.
- fairity 6y ago
  Agreed in general. But, in this specific instance, his outcome is probably comparable to what it would have been had he optimized for profits. Given your 500K/yr estimation, he's selling for 8x earnings - not the best, not the worst. I've taken the profit optimization route for my own business, and often wonder how much money I'm leaving on the table by not hiring a larger team and chasing (profitable) growth.
  - orasis 6y ago
    I suspect in most cases you would have quickly hit a growth ceiling with that larger team. Fantastically fast growing companies have generally growth pulled out of them by the market. Yes, there are things you could probably do to grow faster, but those things are the spontaneous insights that occur in the shower.
  - bigiain 6y ago
    Also, "not the best, not the worst" combined with "securing my families financial future" and "doing the right thing by my team/employees" and "relieving myself of a management and company ownership role I don't enjoy" sound like a totally better outcome _for him_, than spending another ~7 years managing something he's bored with and not starting new things. For a lot of other people, a half mil a year profit from a successful small company they'll own pretty much in perpetuity might be what they'd choose. I can see why he didn't. (I'd almost certainly have made the same choice myself.)
- ignoramous 6y ago
mxpxrocks10 6y ago
hey Josh - just want to throw it out there that we love baremetrics.
abuehrle 6y ago
Congrats! Sounds like a good outcome. From what I've read (my understanding may be wrong), using a revenue multiple at all for valuation is surprising for companies A) under $5M total valuation and B) with lower growth rates (looks like Baremetrics grew ~11% in the last 12 months). Can someone who knows better than I weigh in on the valuation math here (in general -- no one knows the exact details of this transaction, obviously). I'm not questioning it, but I am curious to get perspectives on this real world example.
- philjr 6y ago
  The revenue multiple is probably not the metric they used to arrive at the valuation, but it's certainly a normalizer that people use to compare outcomes. Multiples of trailing 12 months net profit would be more common for a smaller entity.
question12322 6y ago
Nice outcome. Congratulations! Do anybody know how much Xenon Partners (te same buyer) paid recently for UXPin.com? I think that UXPin is 5-10x times bigger, but saw that their CEO after selling the company instantly joined Google as a senior manager. UXPin had a few investors and 3-4 cofounders. So probably different outcome?
bryanmgreen 6y ago
Great outcome for both sides. Josh gets the exit he really seems to need for his personal and financial well-being. Xenon gets one heck of a product for honestly quite cheap. Better marketing will actually go a long way here.
theptip 6y ago
> No time-based or performance-based earnout... Everyone on the team stays…or goes Curious about this one; are the acquirers not bothered about the possibility of everyone jumping ship? They have a new CEO and generalists on hand to take over the business immediately? And/or the business is basically in “runs itself” mode, with most of the work being done on growth opportunities? Normally I think of the golden handcuffs as a necessity to stop the business from imploding and being worth zero, but interested to know why this wouldn’t apply.
- killingtime74 6y ago
  you realise this is a $4 million business right? it's not 40 or 400.
  - theptip 6y ago
    Yes, can you elaborate a bit more? Seems to me that with a small team, you're more likely to have N=1 bus-count processes which would be sensitive to someone leaving.
luord 6y ago
> "We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way." That is incredible and, as the author says, classy. If I ever find myself actually doing the investment rounds for anything I create or help create, I hope that people like General Catalyst take an interest.
ph0rque 6y ago
> 2.65x ARR What about gross profit (or more precisely, EBIDTA)?
astatine 6y ago
Thanks for sharing this. This has the kind of details that I would have loved to see and almost never gets shared in so public a manner. I respect the soul searching that you went through and the decision that you took. Thanks again. Wish you the very best in whatever you _start_ next.
barry27 6y ago
I read this whole post saying "barrymetrics" in my mind and only when the genesis of the idea was explained did I twig that it's probably bare-metrics.
lorthemar 6y ago
I'm really happy for Josh, I loved the blog posts. Always so honest and straight forward. Sadly, many SaaS companies hit a brick wall after initial investments and the first growth streak. Especially, analytics companies. I've worked with a mobile analytics company in the past and it was pretty much the same story. Only, they weren't as transparent and couldn't walk away with a profitable exit. So this really looks like the best way he could exit without burning himself out.

818 points by anttiai 6y ago

CPLX 6y ago

The part about the investors getting nothing while the founder gets millions is really interesting. How does something like that even happen?

zackkatz 6y ago
Agreed. Why on earth would investors agree to not getting their money back? Did they get anything? It doesn’t sound like it. What are we missing here?
- kenrose 6y ago
  Two things come to mind. 1. At the end of the day, investors are people too. They may care that the team ends up whole. 2. 800k is non-trivial money, but it’s a small percentage of, say, a $100MM VC seed fund. The economics of VC are that some investments will net zero return. While they could have tried to claim back something here, letting go with grace gives them a lot of goodwill to be first to invest in the founder’s next project (assuming there is one).
  - deleted 6y ago
    [deleted]
  - mooreds 6y ago
    > letting go with grace gives them a lot of goodwill to be first to invest in the founder’s next project Also a halo effect with other people who are reading this. But I'm guessing there were some animated discussions about this. Plus, per https://news.ycombinator.com/item?id=25045874 https://news.ycombinator.com/item?id=25045874 > We've had carryover losses for years, so from a tax perspective, there was no hit on either side.
- ceejayoz 6y ago
  "A small but reasonable exit is life-changing for me, and a nulled-out investment is expected for you in most of your investments." Some investors are gonna be ruthless sharks. Others are not.
  - lixtra 6y ago
    It might make them more attractive to the next generation of founders, especially if it is widely communicated as here. Advertising money well spent?
- dimmke 6y ago
  I was shocked by this too. The only thing that makes sense is that it's a form of advertising/branding for them. Baremetrics is a startup whose main audience is other startups and the posts like this have a good reach. Other startups looking into them will see this. And breaking even might be about the same as taking the thing as a loss in the grand scheme of the VC model to them. I do wonder if other lower profile companies would have gotten the same deal.
- bluntfang 6y ago
  tax loss harvesting
robhunter 6y ago
This is just an idea, but I suspect taking the tax benefit of writing the investment off in Year 1, compared to blocking the sale and getting a 1x return (maybe) in 2-3 years (or more), actually has a negligible effect on the fund's IRR.
andygcook 6y ago
General Catalyst latest fund was $2.3B and BVP’s was $1.85B. I’m unsure which exact BVP and GC funds Baremetrics raised from, but that $800K likely doesn’t matter to either of their returns with funds of that size. Even at $100M, it probably doesn’t matter to a fund. VCs expect over half of their investments to outright fail. What’s much more important to the VCs is the good will they just built with that founder. Most founders will give back door reference checks to other founders about investors. Josh is likely to say good things about BVP and GC now. Also, they got that mention in his blog post too. It’s likely they knew Josh would write a post like this and chose to just write it off for the “we’re founder friendly” story vs. looking founder unfriendly. As a founder, I don’t think there’s anything wrong with what happened here for the investors given their fund sizes. They’re professionals investing other people’s money and expect this type of thing to happen. In fact, most VCs likely expect you to fail. If these were angel investors putting in their own money, I’d have a different opinion.

ceejayoz 6y ago

I really appreciate the lack of “our incredible journey” platitudes in here.

asdasdad12313 6y ago
It was a wild ride, but all journeys come to an end. Our customers and employees are our most valuable asset.
a13n 6y ago
Why? Building a company is a journey.
- ceejayoz 6y ago
  I'm referring to the trite overused cliches that often fill these sorts of blog posts. https://www.gyford.com/phil/writing/2013/02/27/our-incredible-journey/ https://www.gyford.com/phil/writing/2013/02/27/our-incredibl... See also the recent example of https://www.slingbox.com/discontinued https://www.slingbox.com/discontinued, which makes this funny pair of claims: Q: Why is Slingbox being discontinued? A: We’ve had to make room for new innovative products so that we can continue to serve our customers in the best way possible. Q: Will Slingbox be releasing any new products? A: No.

ccmcarey 6y ago

I've always loved the transparency and frank writings by Baremetrics. > As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed? > But they were incredibly gracious and both agreed to write off their investment. General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.” I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.

alextheparrot 6y ago
Good faith decisions go a long way, if they believe in the founder that 800k becomes an investment to be front-of-line for his next company. The economics make sense insofar as that sum isn’t going to move the fund’s returns a whole lot.
- JackFr 6y ago
  > Good faith decisions go a long way, if they believe in the founder that 800k becomes an investment to be front-of-line for his next company. Or its the cost of a lesson to stay away.
  - Aperocky 6y ago
    He did plan to retire so I don't think he would have needed them. It's more of a see you never type of situation.
    - swyx 6y ago
      if you read between the lines he is definitely going to start something again. some people cannot just sit on their hands.

dimva 6y ago

$3.7 million sounds like a lot of money, but he could have earned more than that over 7 years if he just took a mid-level job at a FAMANG company. EDIT: saw that the founder lives in Birmingham, Alabama. So yes, $3.7 million IS a lot of money.

ccmcarey 6y ago
I imagine he paid himself a salary during that time, and 3.7/7 would be >$500k/y which is >mid level at a FANG+ company.
draw_down 6y ago
Yeah, I was gonna say something like that. Nothing to sneeze at but I’ve made slightly more (not even considering my salary) by just working a software engineer job over the last 4 years. Nothing fancy, lots of afternoon naps. Not a staff engineer, not a VP, just a regular old mid-level engineer. A hump, you may say. To each their own. But you won’t see a blog post about mine because it would be a very boring read. I see posts here refusing to believe this could possibly be true. You must be a VP! Normal coders don’t make that kind of money! You don’t have to believe it- but you’re not hurting anyone besides yourself if you don’t.
Shpigford 6y ago
So true. I could have also hated my life for those 7 years. I make a terrible employee. :)
- deleted 6y ago
  [deleted]
mattmanser 6y ago
That assumes he took no salary or dividends for 7 years, which seems highly unlikely given their ARR.
- Shpigford 6y ago
  Right. I've been paying myself $100-150k a year for most of that.

boltzmann_ 6y ago

kudos for the transparency, a really interesting post

pc86 6y ago

I know there's a trope about the naive founder getting screwed by shifty-eyed VC sharks, but it really sounds like Josh screwed his investors and employees here. > I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their [$800,000] investment. He clearly didn't want it very badly, then. Nearly $3 million wasn't enough? That's about $420k per year for the time he put in, not counting anything he already took out. Keeping the extra money only increases that to about $530k/yr. And it sounds like the early employees get nothing, other than not getting fired immediately. I like the Baremetrics product but man this really leaves a bad taste in my mouth about Josh personally.

Shpigford 6y ago
You're making a veritable crap-ton of assumptions here. Happy to talk about specific concerns, but not if you're going in to this with guns blazing looking for a witch to burn.
- ccmcarey 6y ago
  I'm curious how it works from a technical standpoint. If they invest, do they not own shares of the company, and then during the sale the shares are sold, did they just gift the shares back to you personally? Does that have tax implications?
  - Shpigford 6y ago
    Investment vehicle was a SAFE. They basically cancelled the SAFE as part of the deal. We've had carryover losses for years, so from a tax perspective, there was no hit on either side.
    - ccmcarey 6y ago
      Makes sense, thanks!
    - TechBro8615 6y ago

deleted 6y ago

[deleted]

ianhawes 6y ago

>What I walk away with: $3,700,000 in cash >practically speaking, never need to work again Yikes, does someone want to tell him?

isseu 6y ago
He lives in Alabama
simonswords82 6y ago
Tell him what?
maxlamb 6y ago
what, that's it's not enough? Sure if you plan on living in the Bay Area for the rest of your life but in most other places it's definitely true.
steve-benjamins 6y ago
You seem pretty sure of yourself— you must know his existing savings and cost of living?
Lionga 6y ago
In most places of the world 20% of that are enough never needing to work again.
- deleted 6y ago
  [deleted]
KMnO4 6y ago
Let’s say you work for a respectable $80k/year (more than enough to live comfortably in most of the world). If you get the job at 25 and retire at 65, that’s $3.2m. So yes, he can retire for life.
bluedevil2k 6y ago
I'm with OP - $3.7M seems like a lot, but it really isn't enough to retire on. I assume he'll need to pay taxes on that, a 20% long-term capital gains tax. Brings it down to about $3M. Being generous and giving him 3.5% return (real return) a year in fixed income, that's only $105,000 a year in income, which he'll need to pay taxes on as well. He'll net out around $85k a year.

dmje 6y ago

I have no knowledge about how to consider the acquisition details, but MAN the energy of this guy. It’s formidable.

02thoeva 6y ago

Congratulations on the sale and thanks for sharing. Very interesting for someone who's probably a few years behind you.

ffdjjjffjj 6y ago

Wait, so your investors lose money, your employees (probably just a few) got at most $80k, and you get to retire? I mean, congrats on the hustle, but I wouldn’t waste your time trying to make it look good for everyone else.

gadders 6y ago
The founder usually carries the majority of the risk as well.
- remote_phone 6y ago
  It sounds like he put in no money of his own. He would not have made $3.7M without the hard work of his employees. And yet when it came down to it, he took almost all the money for himself.
  - deleted 6y ago
    [deleted]
  - cloverich 6y ago
    If he worked for free, he _did_ put in money of his own. So it depends on what his salary cut was, and for how long. I've been thinking of starting a company for ages, but there's no escaping this fact -- I have to give up a substantial amount of money, and the most likely scenario is my company won't take off (much less make a profit, and even less an exit). I agree employees should be compensated but ultimately, if they get a salary on day one, it is a very different calculation. I've worked as an early stage employee, and the salary cut I took was ~30% for ~1 year. I may get a payout from that, perhaps 1-5x and to me that seems a pretty reasonable balance. ¯\_(ツ)_/¯
  - cam0 6y ago
    Those jobs that the employees chose to take would not have existed without Josh actually starting the business. He created something. He took the initiative to be a builder and took the risk and responsibility that comes along with that. The investors wrote a check that amounts to peanuts for them. The employees put in their 8hr days and collected a regular paycheck. The founder is the person who deserves the payout here.

moonbug 6y ago

Wow, that's some brazen humble brag from someone who cheerfully announced how his envestors got screwed.

mssundaram 6y ago
And employees
- moonbug 6y ago
  indeed, yes.
  - adewinter 6y ago
    If you think a startup can "screw" a VC/investor when it's selling for only a 2.6x multiple... You are incorrect.

andygcook 6y ago

@shpigford - Are you able to exempt your exit from capital gains under the QSBS tax laws? For those curious, more here: https://www.brownadvisory.com/us/qsbs-tax-exemption-valuable-benefit-startup-founders-and-builders https://www.brownadvisory.com/us/qsbs-tax-exemption-valuable...

czbond 6y ago
Founders can, his situation varies. Either QSBS or ideally through 83(b) (where one pays all taxes on company stock at founding in first 30'ish days).
- eli 6y ago
  You misunderstand 83b, that’s just about paying the income tax on restricted stock grants up front instead of as it vests. You still would owe gains on the appreciation of the stock. QSBS allows some or all of the gains to be tax free.
heipei 6y ago
I'm assuming he held his shares through his own holding company.
andygcook 6y ago
Update: QSBS was applied here: https://twitter.com/Shpigford/status/1326163478529314817 https://twitter.com/Shpigford/status/1326163478529314817

xyst 6y ago

Interesting "journey", but as I was reading I can't get over how similar this site looks to Stripe's old UI. From the color scheme to the icons for each product in the menu bar, it's almost a 1:1 copy.

mikeg8 6y ago
Originally (we used Barmetrics in 2014-15), it was marketed as more of an analytics tool for Stripe. I think designing to mirror strip was intentional early on, and worked well enough to not change over the years.

skrebbel 6y ago

At the time I write this comment, half my screen is full of people calling Josh not so nice things. Folks, this is a founder who's openly sharing the kinds of things we usually keep hidden. I doubt there's been a startup exit in the last decade where a healthy skeptical HN'er couldn't find some wrongs being done, if the details had been available. It's extremely hard to get everything right, from every perspective. The only difference here is that the details are actually available. Please go easy. We want more posts like these, not fewer.

draw_down 6y ago
What exactly are you taking issue with? Come on.
adamzapasnik 6y ago
Half screen? I see a comment or two. I think it's normal/human thing to have discussions in comments like this one. Especially, when it's an exit related topic that gets shared on startup/VC related forum-site like this one? Prefer just "good job" comments, or what?
- TwoNineFive 6y ago
  I agree. I read all the comments in this thread and this time and the negativity isn't there. It just doesn't exist. I don't know if those comments were removed, but I just suspect they never existed.
arvidkahl 6y ago
I have sold a business as well, and I have to admit I am very surprised by this response, too. Not only does Josh divulge information that most founders are legally forbidden from ever revealing, he also was always extremely open about the journey of the business, even facilitating the [Open Startups](https://baremetrics.com/open-startups https://baremetrics.com/open-startups) page, where Baremetrics itself is listed. What surprises me most is the lack of understanding of founder risk. Most negative comments are related to employees not walking away from this exit. It feels to me that many here seem to conflate the inner workings of heavily VC-backed businesses with a slowly and sustainably growing company like Baremetrics. I see a lot of assumptions all over the comments. I appreciate the discussion, though. It's nice to see people sticking up for employees. But a sub-10-people SaaS that's ALMOST self-funded is not the same as a prospective unicorn.

tiffanyh 6y ago

So if they sold for $4M, and the investors got $0, and the founder pocketed $3.7M ... where did the other $0.3M go? If it went to the existing employees (they have 7 of them on the About Us page), that's ~$42k per employee.

adamzapasnik 6y ago
He said it in an another comment; to employees.
- deleted 6y ago
  [deleted]
deleted 6y ago
[deleted]

Aeolun 6y ago

Good for you! I’m happy reading a sort of reasonable-ish success story. 4M is a lot, but an amount I can wrap my head around.

pier25 6y ago

> But they were incredibly gracious and both agreed to write off their investment. So the investors just accepted to lose $800k while the founder was getting $3.7M? Can someone explain the logic here?

user5994461 6y ago
They are investment funds that manage billions of dollars. They invested 800k hoping to make 80-800M out of it. It's pretty obvious the business didn't pan out as well as intended. It's not really worth their time anymore. Still. They could have caused troubles and tried to recoup their $800k out of the $4M. They were nice not to. The money will be written as a loss and go through some accounting/tax trick to minimize the effective loss.
- IshKebab 6y ago
  In what way would it have been trouble? Surely they legally own that bit of the company? Something doesn't make sense. $800k is not a small enough amount for any responsible investment fund to walk away from. I wonder if maybe it was actually worth way less. I think he said they walked away from their $800k investment, but maybe that was at a much higher valuation. If it was only worth $80k I can see them not bothering.
  - cercatrova 6y ago
    800k actually is small enough to give away when you're dealing at that scale. The lawyers fees and other fees wouldn't even be worth that much from a sale. The bigger reason is reputation. If Techcrunch posted an article saying, founder screwed out of acquisition by billion dollar VC, it wouldn't work out so well for the next founder considering that VC.
    - IshKebab 6y ago
      But he would have still walked away with almost $3m, how would that be screwing him?

relaunched 6y ago

This warmed my heart. >>>General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”

rjyoungling 6y ago
Yeah, same here. That was such a class act. I really hope that they get some serendipity like deal flow from that good will.
- treis 6y ago
  Maybe I'm just the Grinch but some rich dudes giving $800k to one rich dude doesn't warm my heart. Especially as someone who's gotten (relatively) screwed twice now when owners sold out. It also goes to the heart of how messed up our economic system can be. I can be mollified by saying that he worked hard and earned his ~$4 million by building a business. But I can't internally justify the VCs gifting him $800k for AFAICT nothing. I'm going to have to work for the next 4-5 years for that but he gets it basically on the whim of some person at a VC.
  - relaunched 6y ago
    It's hard to understand, when taken at face value. But, when you add a little context, VCs can do much worse. They can refuse to sell (through approval rights) and let company die on a the vine. They can force out existing leadership and bring in new leadership. They can force an acquisition. They can kill a company in a million different ways. For a fund to realize that the company can live on, even if it's not the 10-100x they were hoping for, shows class. Listen, it's not curing cancer - but, it shows a level of maturity and understand that we should praise and not take for granted. The way that fund economics work, they can write off a lot of small bets. However, the way that partnerships work, there are big egos at play. It's a dirty game, but when people do the right thing, it's worth praising.

suhail 6y ago

Congrats Josh :)

borvo 6y ago

Congratulations on reaching an exit and good luck with the next venture!

ineedasername 6y ago

The numbers work out to 7.5% equity owned by 10 employees. Would that be a typical equity share for a company like this?

khalilravanna 6y ago
I think someone said there were 7 employees. I saw some of the jobs listed for YC startups and on AngelList showing 1% equity for first engineer roles. So yeah that seems about right by my estimation.
TechBro8615 6y ago
It sounds a little low, but not unheard of. Standard option pools are generally between 10-20%.

ineedasername 6y ago

the same people who are good at starting companies aren’t always the same people who are good at growing or managing them This is an excellent insight

rjyoungling 6y ago

Losing so much respect for people, reading some of the comments...

connectsnk 6y ago

Can someone please explain why the investors were not able to recoup their initial investment of 800K$ when the company sold for 4 million? Thanks in advance.

pavlov 6y ago
The founder had the guts to tell the investors that there’s a deal on the table, but he’s not going to do it unless the VCs walk away from the investment. It wasn’t a growth story, so from that point of view it was dead money for the VCs anyway. But why would they agree to the founder’s payout at their expense? Either the VCs are very impressed with this founder and plan to participate in his next company, or they’re fed up and just wanted to be rid of him.
nemothekid 6y ago
It's not that they weren't able to. It's that the 800k isn't worth the legal fees and the possible PR damage (Bessemer doesn't want to be known as non-founder friendly because they made a fuss over 800k). It's been repeated a couple times in this thread, but VC make money by 10x-100x their original investment. They invested 800k expecting to make back 8M-80M. Anything less than that isn't worth the additional time, especially for a seed stage investment where they might have 50-60 of these per year. I think, for anyone trying to start a company and take VC funding to understand how the VC business model works. A VC incentives are much different than a founder's much of the time. In this case, the best case for the VC is for the founder to continue working on the company.
- jariel 6y ago
  It is absolutely not 'non founder friendly' for a VC to go after their 'participating' value especially when there is actually money on the table. There would be zero negative PR fallout from that. This founder basically ripped off his investors, it's completely unethical - and he'll never get a dime of VC money again. If VC firms didn't care about getting their 1x money out then the terms wouldn't be there in the first place. It's normal to do that, and a $500M firm returning 10% a year takes 20% of that, so 2% which is not really a huge amount of money for a team of people.

deleted 6y ago

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pm90 6y ago

> also realized that the same people who are good at starting companies aren’t always the same people who are good at growing or managing them. The company itself has so much more potential than I have the ability or interest in offering and on top of that, I just wasn’t enjoying myself anymore. I thought this was a key insight, and I'm happy the author is frank about it. Some people enjoy building things from scratch, others enjoy taking a good idea and scaling it. IMO, both are hard problems and its good that he bailed before trying to go down that route.

simonebrunozzi 6y ago

Jonathan Siegel is mentioned in the article (his company acquired Baremetrics). I dealt with Jonathan in the past, and I could only say good things about him - not just his business acumen, but his integrity and generosity. Years ago Jonathan was in a position where we needed to buy back his shares in a company in which he invested early. He could have asked for a much higher price, and instead he graciously agreed to a different outcome - he understood the situation and did the right thing. Glad to see that General Catalyst did the same in relation to Baremetrics, writing off their investment. These things don't go unnoticed. Sometimes reputation is way more important than a few more bucks for your LPs.

a_band 6y ago
I've had a similar experience with Jonathan. He's one of the most founder-friendly people in the VC industry.
brettcvz 6y ago
Likewise re. Jonathan - we sold filepicker.io (now Filestack) to Jonathan and Xenon Ventures in 2014 and it was a very positive experience. For companies with solid revenues but not venture-scale growth looking for a clean exit, I would highly recommend reaching out to Jonathan and team. Happy to make an introduction if helpful.
- andymboyle 6y ago
  Just wanted to say, I used filepicker.io years and years ago on a project and it was wonderful. Thanks for developing something that was easy to use and intuitive, especially when I was still learning the ropes.
itsderek23 6y ago
+1. Jonathan is great to work with if you are in a similar position as Baremetrics.

kgog 6y ago

> As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence. I have never seen this before. Guaranteed outcome regardless of DD. Is this an outlier company?

ponker 6y ago

Extremely gross that he pocketed $3.7m but asked his investors to walk away from their $800K, because he needed to meet his financial "goals." This is the flipside of all of the VC deals that completely fuck over the founders.

sequoia 6y ago
Do you imagine the VCs had to sell all their clothes and are now walking around wearing barrels held up by leather straps, before they retire for the evening to a cardboard box over a steam vent? You really think they had to cut back their Dom Perignon budget over this loss? Do you think they were "strongarmed" by this investor? There is what is for them a teeny tiny pie, and rather than demanding their small slice back they said "you know what? Go ahead without us. Bon Appetit :)"
- ponker 6y ago
  If I stole your TV you likely wouldn’t be moving into a cardboard box either. Does that make it ok?
  - sequoia 6y ago
    If you borrowed my TV and later I said "you can keep it" that would make it OK, yes.

maxekman 6y ago

Really cool to see the details of the sale presented in the first paragraph. I wish more companies would be similarly transparent, even for running metrics about ARR etc.

vmg1 6y ago

thanks Josh for sharing this info

alex_c 6y ago

I was incredibly confused to read "Investors are writing off their $800,000 investment". Sure, $800K isn't huge money for a fund, but it still seems... odd... to be so nonchalant about it? Then I checked General Catalyst, they manage multiple funds in the $500M - $1B range[1]. In that context the $800K really is a rounding error, around 0.1% of a single fund's size. It never ceases to amaze me how money stops being money past a certain amount (which would be life-changing for most people), and just becomes numbers to move around. [1] https://www.crunchbase.com/organization/general-catalyst-partners/investor_financials https://www.crunchbase.com/organization/general-catalyst-par...

cj 6y ago
I imagine there must be a bit more to the story. It's not common for investors to write off $800k out of good will (doesn't seem like something in the best interest of their LPs). Edit: > It’s a really exciting day here at Baremetrics! I’m stoked to announce that General Catalyst has invested $500,000 in Baremetrics, as part of a new fund they’ve created for businesses on Stripe. Turns out there is more to the story. Baremetrics got their cash from a fund specifically intended to promote companies integrating with Stripe. In other words, the goal of the fund was to promote Stripe moreso than to generate returns for LPs
- alex_c 6y ago
  Ahh good find, and according to CrunchBase that Stripe fund was $10M total. That makes a bit more sense now.
- csomar 6y ago
  So they invest in a company and then they invest in a bunch of companies to raise the turn-over of the first company. Seems legit.
- pkrotich 6y ago
  Interesting - I truly expected Stripe to buy Baremetrics.
PeterisP 6y ago

deckard1 6y ago

Maybe I'm hopelessly naive here, but $4M cash @ 2.65 ARR, so ~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? Then there is the mention of running at breakeven most of that time. There are solo founder SaaS businesses making more than that with 80%+ margins. As others have mentioned, you'd be better off working at a FAANG. So, did something go wrong here? What is it about this analytics business that makes it so expensive to operate? Were all the employees necessary? Was the pricing or marketing wrong? Or is this just the reality of most SaaS? I gotta say, this really puts a damper on what I always thought was a fairly lucrative business model, if you could make it past the early bootstrap/product-market-fit period.

jaredhansen 6y ago
>~$1.5M ARR. Isn't that a bit low for SaaS at 7 years? The median and modal ARR for SaaS businesses 7 years after founding is zero.
- deckard1 6y ago
  Of course. The vast majority of all businesses fail. That's not what I'm asking. No one gets into business to just breakeven after 7 years. Most people are looking at this as a success story when it just seems like Xenon and their other investor that took a loss were doing them a favor.
- texasbigdata 6y ago
  Across all businesses across all industries in North America a reasonable guess (with a wide confidence argument) would be 1x revenue as a baseline valuation.

mv4 6y ago

I applaud the author's transparency. Congrats on the deal!

hiimtroymclure 6y ago

All I can is congrats and im jealous. This is the exit ive dreamed about

tinyhouse 6y ago

Wow, such a great read. I love people who are so open and honest. btw, how does tax work in the US for acquisitions? is the money he's getting is taxed the same as income?

bingdig 6y ago
He'll likely pay no federal taxes. If the business is >1 year old, it's treated as capital gains. Since the company is >5 years old, he can likely take advantage of the Qualified Small Business Exemption up to $10m and pay no federal taxes. https://www.investopedia.com/terms/q/qsbs-qualified-small-business-stock.asp https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...
- tinyhouse 6y ago
  Thanks for the info. That's pretty amazing.
  - texasbigdata 6y ago
    To be specific, since it might help someone and it’s important to get the technicals right, dig into the IRS portion of the federal code, section 1202, or QSBS. Note, doesn’t apply to LLCs ... so you eat double taxation if cash flow positive but it’s less burdensome now with the Trump tax rule. Decent link here: https://www.svb.com/blogs/svb-private-bank/understanding-qualified-small-business-stock-the-capital-gains-exemption https://www.svb.com/blogs/svb-private-bank/understanding-qua... I believe, but can’t find, that you need to trade cash for the shares to qualify, so if your basis isn’t zero, it might require writing a check into the entity to cleanly qualify.... moral of the story here is pay someone to help you on this :)
  - killingtime74 6y ago
    it's only amazing because he spent so long making so little

rexreed 6y ago

Thanks for actually giving real numbers here. I hate startups that spin fire-sale acquisitions into something more substantial than they are. So I am super happy to see some real transparency with real numbers and a real talk about the earn out.

fred_is_fred 6y ago

Oh I didn't connect the dots that this is the "job hopper twitter guy". As someone who's last 4 companies have been acquired - I found him to be extremely frustrating to follow.

mrisoli 6y ago

I interviewed for Baremetrics a while ago and a major reason for this was because I am a fan of Josh and its openness culture. Ended up not following through the process as I got a job offer in the mean time. I enjoyed even my first impressions at the interview process and I'm happy Josh got a nice payout, congrats! I do hope Baremetrics transparency continues in some fomr as its a big inspiration.

NelsonMinar 6y ago

Did his 10 team members get zero? Is he proud of that?

jariel 6y ago

The bit about $3.7M seems really odd - how is that even legal? Conrad Black literally went to jail for selling newspapers and taking a personal commission on the side. [1] When you're selling company value, but taking the money yourself in the form of some kind of arbitrary comp, that's defrauding investors, it's a form of embezzlement. That the investors 'didn't care' is fine, but I don't see how it could have been arranged in the first place - the acquirer does not get to decide how much the 'founder' is going to get. Also - the $800K write off seems odd. A million dollars is not nothing, and there would definitely not have been $800K in lawyers fees, far from it. Something here doesn't seem quite right. Also - folks - if he is negotiating comp outside of share value, that's not only hosing the investors - but any employee equity as well. A small team where some other guy has 5% of the company, that's $150, not a lot, but not nothing. If the package was dealt outside of equity, those equity holders were screwed, if in fact there were other shareholders/equity holders. [1] http://news.bbc.co.uk/2/hi/business/6897991.stm http://news.bbc.co.uk/2/hi/business/6897991.stm

simook 6y ago

Amazing

fairity 6y ago

Everyone's talking about how the founder got lucky that his investors let go of their $800K liquid preference. My guess is that this wasn't all luck. The VC's in this case knew how transparent this founder was being in reporting his startup journey. They knew that this decision would get publicity. With this knowledge, the VC firm probably made a calculated decision to forego their liquid pref in return for the good will generated by the founder's transparent PR. It's cool to see the founder being financially rewarded for his transparency.

taphangum 6y ago
Long term thinking. I can't think of a better advertisement for these VC's. Calculated or not, it is a great move
GoRudy 6y ago
yep and good chance these two VCs are the first check in his next business in 24 months.
sonofaragorn 6y ago
If letting go the $800k was purely PR, then that's some expensive PR. Who reads these blogs, a couple thousand people maybe?
- exolymph 6y ago
  10k+ people will read the post, probably more. HN alone can send that much traffic (I speak from personal experience). And it's more about who than how many.
- fairity 6y ago
  If they do this 10 times, they will establish a well-known reputation for being founder friendly. This would cost $8M. They are investing $1B over all their funds. Will the impact a founder-friendly reputation has on deal flow and close rate increase their fund's ROI by 0.8%? Almost certainly.
  - 6y ago

g3houdini 6y ago

I support Josh and his healthy approach to showing others what is possible when you share and contribute to the internet.

victop 6y ago

> This (No time-based or performance-based earnout) was the greatest limiting factor on acquistion price. For those who have gone through an acquisition, how much more Josh could have netted if he accepted to stay 2-4 years?

gkoberger 6y ago
Depends on a lot of factors, but probably not much more. The company could have potentially netted more overall, but I’d say Josh’s take would remain about the same. If nothing else, he’d take on a lot of risk... the potential package could seem higher, but a lot can go wrong over 2-4 years (both personally and with the acquiring company).

lubos 6y ago

> We’re also a company that has purposefully operated right around breakeven for years. And here is the problem. Take VC money and now you are forced to run company at breakeven point. This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year. He could have met his family financial goals long ago and still keep the company. This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.

fairity 6y ago
Agreed in general. But, in this specific instance, his outcome is probably comparable to what it would have been had he optimized for profits. Given your 500K/yr estimation, he's selling for 8x earnings - not the best, not the worst. I've taken the profit optimization route for my own business, and often wonder how much money I'm leaving on the table by not hiring a larger team and chasing (profitable) growth.
- orasis 6y ago
  I suspect in most cases you would have quickly hit a growth ceiling with that larger team. Fantastically fast growing companies have generally growth pulled out of them by the market. Yes, there are things you could probably do to grow faster, but those things are the spontaneous insights that occur in the shower.
- bigiain 6y ago
  Also, "not the best, not the worst" combined with "securing my families financial future" and "doing the right thing by my team/employees" and "relieving myself of a management and company ownership role I don't enjoy" sound like a totally better outcome _for him_, than spending another ~7 years managing something he's bored with and not starting new things. For a lot of other people, a half mil a year profit from a successful small company they'll own pretty much in perpetuity might be what they'd choose. I can see why he didn't. (I'd almost certainly have made the same choice myself.)
ignoramous 6y ago

mxpxrocks10 6y ago

hey Josh - just want to throw it out there that we love baremetrics.

abuehrle 6y ago

Congrats! Sounds like a good outcome. From what I've read (my understanding may be wrong), using a revenue multiple at all for valuation is surprising for companies A) under $5M total valuation and B) with lower growth rates (looks like Baremetrics grew ~11% in the last 12 months). Can someone who knows better than I weigh in on the valuation math here (in general -- no one knows the exact details of this transaction, obviously). I'm not questioning it, but I am curious to get perspectives on this real world example.

philjr 6y ago
The revenue multiple is probably not the metric they used to arrive at the valuation, but it's certainly a normalizer that people use to compare outcomes. Multiples of trailing 12 months net profit would be more common for a smaller entity.

question12322 6y ago

Nice outcome. Congratulations! Do anybody know how much Xenon Partners (te same buyer) paid recently for UXPin.com? I think that UXPin is 5-10x times bigger, but saw that their CEO after selling the company instantly joined Google as a senior manager. UXPin had a few investors and 3-4 cofounders. So probably different outcome?

bryanmgreen 6y ago

Great outcome for both sides. Josh gets the exit he really seems to need for his personal and financial well-being. Xenon gets one heck of a product for honestly quite cheap. Better marketing will actually go a long way here.

theptip 6y ago

> No time-based or performance-based earnout... Everyone on the team stays…or goes Curious about this one; are the acquirers not bothered about the possibility of everyone jumping ship? They have a new CEO and generalists on hand to take over the business immediately? And/or the business is basically in “runs itself” mode, with most of the work being done on growth opportunities? Normally I think of the golden handcuffs as a necessity to stop the business from imploding and being worth zero, but interested to know why this wouldn’t apply.

killingtime74 6y ago
you realise this is a $4 million business right? it's not 40 or 400.
- theptip 6y ago
  Yes, can you elaborate a bit more? Seems to me that with a small team, you're more likely to have N=1 bus-count processes which would be sensitive to someone leaving.

luord 6y ago

> "We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way." That is incredible and, as the author says, classy. If I ever find myself actually doing the investment rounds for anything I create or help create, I hope that people like General Catalyst take an interest.

ph0rque 6y ago

> 2.65x ARR What about gross profit (or more precisely, EBIDTA)?

astatine 6y ago

Thanks for sharing this. This has the kind of details that I would have loved to see and almost never gets shared in so public a manner. I respect the soul searching that you went through and the decision that you took. Thanks again. Wish you the very best in whatever you _start_ next.

barry27 6y ago

I read this whole post saying "barrymetrics" in my mind and only when the genesis of the idea was explained did I twig that it's probably bare-metrics.

lorthemar 6y ago

I'm really happy for Josh, I loved the blog posts. Always so honest and straight forward. Sadly, many SaaS companies hit a brick wall after initial investments and the first growth streak. Especially, analytics companies. I've worked with a mobile analytics company in the past and it was pretty much the same story. Only, they weren't as transparent and couldn't walk away with a profitable exit. So this really looks like the best way he could exit without burning himself out.