Could someone experienced breakdown what a transaction like this looks like for everyone involved? I'm super curious. I've never been acquired, so I really have no insight into the process other than what I've read.
Here's the facts as I see them: Crunchbase says Hunch started in September of 2007 and had 23 employees on LinkedIn when they exited. (TechCrunch calls it a 20-person team, so I'm presuming that's all the employees.) They've gotten $19.2m in funding, let's just say $20m. TechCrunch claims the sale was "around" $80m.
So what does the breakdown look like? Who gets what? What are the likely investor terms?
My totally naive guess would be that the investors got at least a 1x liquidation preference, maybe more. I mean, did Hunch have any revenue? So there was at most $40m to go around to the people at the company. Of course, most of that probably went to the founders. Would maybe 20% of that have gone to the 20-ish employees? So naively pretending that each of the 20-ish employees got 1% for four years, did they each end up with an extra $100k/year? What's the likely distribution of shares among employees?
What are the transaction costs (lawyers, taxes, etc.) for this sort of acquisition? How long will the employees have to be at eBay to get their earn-out, and will that earn-out be in addition to their common stock in Hunch? Will they end up being paid less to work for eBay during their earn-out than if they were on the open market?
Of course, their are many other reasons to do a deal like this (passion for improving eBay's recommendations, for example), but let's ignore that for now.
- Let's keep it simple and say that since this is an experienced team, the investors invested $20m at a $60m post, so they have 1/3 of the company. Since it is an experienced team, I'm going to guess no participation or anything else hokey. 1x liquidation preference is likely but won't matter in this scenario b/c preferred will convert to common.
- With a 20 person team, you've probably given away 5-10% of the company to employees. The later employees probably did not get much, but then again, they weren't around for that long. Let's be very generous and call it 10%.
- That leaves the founders with 57% of the company.
- Let's just not count transaction costs, they're probably in the $75-$200k range, and it's not super material to this discussion.
In that scenario, the founders make $11.4 million each pre-tax, or about $8.55m post-tax (assuming all founders are equal, which is probably also unlikely here). The employees make $8m pre-tax total, or ~$350k each pretax, or ~$190k each post-tax, but the distribution is going to be skewed towards earlier employees. Investors make $26.4m, which is a pretty poor return for a 3-year investment -- investors are mostly looking at IRR, which means the longer an exit takes, the higher the outcome needs to be to make it worth it.
This is just a wild ass guess on what a transaction like this might look like, but lots and lots of things are likely way different than I guessed here, and I can guarantee that I've over-estimated the amount of money everybody made, because as a general rule of thumb that always happens.
EDIT: > How long will the employees have to be at eBay to get their earn-out, and will that earn-out be in addition to their common stock in Hunch? Will they end up being paid less to work for eBay during their earn-out than if they were on the open market?
Probably 2-4 years for the earn-out. The employees might get more retention bonuses to stick around, above what they would normally get from the transaction. They will not earn below-market due to the retention package.
They were founded in 2008 and sold for $80m 3 years later. That is considered a "long journey" these days? Statements like this give me that "we're in a bubble" feeling.
I am somewhat disappointed since Chris Dixon has said Hunch would be in it for the long-term. (I've followed Hunch since it's early days* and always wanted to see it go big.) $80m is a nice pay-out though, the systems they've built have the potential to bring an immense amount of value to eBay's offerings, and a lot of that money will trickle down to other startups via angel investments.
Wow, this is like a knight in a white horse for Hunch.. I seriously doubt they were making any profit... This sounds like a talent acquisition. I mean this is ridiculous... but it goes to show you.. you gotta show up for the game (the startup game, I mean) to win it... $80 m for a site that doesn't even get 1 million uniques (per Compete) a month is a STEAL. I mean.. seriously, everyone who has a CS background should just start something on the side if a deal like this is possible.
> everyone who has a CS background should just start something on the side if a deal like this is possible
Chris Dixon is a veteran investor and entrepreneur, with enormous visibility in the tech world. Contacts with potential acquirers are a non-issue for him.
A poor CS fellow could have created a version of Hunch that was 100x better and they still would have 1,000x less of an exit opportunity as compared to any startup Dixon founded.
> you gotta show up for the game (the startup game, I mean) to win it...
This type of thinking is why the valley is so full of zombie companies pumped up with capital, but with no real traction or any way of ever being profitable
PG and many speakers at startup school repeatedly said that its easy to spot the ones who are just doing it because they want to be "that guy" like Zuckerberg - the ones who want to play the game. Instead of starting a company to figure out what customers want.
What motivates you to start a company is really important. Especially during the downswings that kills most startups (google "trough of sorrows").
I would agree, and it's a damn good talent acquisition. Hunch's team is made almost exclusively of engineers who (a) went to some of the best CS programs in the world (CMU, MIT, Stanford), and (b) really really really know their shit (just have a 5-minute convo with one of them).
Here in NY, Hunch had a reputation for opportunistic hiring. They had lots of funding and an incredible core team, so they'd only hire engineers that astounded them. That's a great way to set yourself up for a talent acquisition.
I dunno, their recommendation engine was scary good -- the technology Ebay's acquiring isn't anything to sniff at. They reportedly have a defensive portfolio of pending patents: http://www.formspring.me/hunch/q/169651283274266480
Ebay's been on a spending spree this past year and I'd say this is one of the better deals they've made, depending on how long they've locked in Hunch's team.
+1 on the talent acquisition, although much like Slide, About.me, this shows that once you're lucky, twice you know who to speak to if you've gotten to a sizeable exit before.
Also helps that eBay is looking for its second act to avoid the fate of a crumbling Yahoo!
I never used Hunch much, and I'm not sure if an 80 million exit with 20 million in VC funding is so great for the founders, but I suppose it gives eBay a footing in NYC - that's the part of the article I found most interesting.
15 million a piece. I don't know how long they were working on it but the very top billed actors tend to make, what, 20 million for movies that take ~3 years to make.
Chris Dixon talked a lot about "going big", growing big companies, etc. He talked a lot about a new "data tier" for the web and how Hunch would be an intelligent filter for all the data. I wonder what changed?
Something about Hunch's trajectory is utterly predictable and ever-so-slightly depressing. I suppose building to sell is a perfectly valid business model -- if you succeed -- but it makes me feel a little dirty. And if nobody buys you, you're well and truly f#%@$ed.
And if nobody buys you, you're well and truly f#%@$ed.
Really? If you don't have a 'building to sell' roadmap in the first place, why be depressed? If you're building a long-term, stable company with real value and profits, you're not for sale in the first place.
Hunch is like my divorced neighbor who couldn't work it out, so now they're giving up and short selling the house and bringing down the values for everyone.
I never felt the need to use Hunch on its own. Now that it can be more of a tool to supplement other objectives, it sure might be the right tool after-all.
No freaking kidding - only thing I saw the founder do was interview people on TC. Never heard anyone mention hunch outside of those interviews. What is ebay thinking?
Whatever Hunch is really good at, we haven't seen it yet. I assume Ebay has, and that it has everything to do with crunching customer browsing & purchase behavior to offer them products they're most likely to purchase.
I think their predictions were actually really good. A while ago I tested several movie recommendation engines and hunch was the only one that delivered.
On the downside, they really asked a lot of questions, which made me uncomfortable with using it.
There is a great play around the collection of data outside of just social space. Hunch has done a great job aggregating this data via a social means and displaying the data to the masses in an appealing way to drive more people towards their "recommendation" engine. I work for a site called Ranker and we're focused on a similar data play with much greater focus on SEO.
[+] [-] socratic|14 years ago|reply
Here's the facts as I see them: Crunchbase says Hunch started in September of 2007 and had 23 employees on LinkedIn when they exited. (TechCrunch calls it a 20-person team, so I'm presuming that's all the employees.) They've gotten $19.2m in funding, let's just say $20m. TechCrunch claims the sale was "around" $80m.
So what does the breakdown look like? Who gets what? What are the likely investor terms?
My totally naive guess would be that the investors got at least a 1x liquidation preference, maybe more. I mean, did Hunch have any revenue? So there was at most $40m to go around to the people at the company. Of course, most of that probably went to the founders. Would maybe 20% of that have gone to the 20-ish employees? So naively pretending that each of the 20-ish employees got 1% for four years, did they each end up with an extra $100k/year? What's the likely distribution of shares among employees?
What are the transaction costs (lawyers, taxes, etc.) for this sort of acquisition? How long will the employees have to be at eBay to get their earn-out, and will that earn-out be in addition to their common stock in Hunch? Will they end up being paid less to work for eBay during their earn-out than if they were on the open market?
Of course, their are many other reasons to do a deal like this (passion for improving eBay's recommendations, for example), but let's ignore that for now.
[+] [-] drusenko|14 years ago|reply
- Let's keep it simple and say that since this is an experienced team, the investors invested $20m at a $60m post, so they have 1/3 of the company. Since it is an experienced team, I'm going to guess no participation or anything else hokey. 1x liquidation preference is likely but won't matter in this scenario b/c preferred will convert to common.
- With a 20 person team, you've probably given away 5-10% of the company to employees. The later employees probably did not get much, but then again, they weren't around for that long. Let's be very generous and call it 10%.
- That leaves the founders with 57% of the company.
- Let's just not count transaction costs, they're probably in the $75-$200k range, and it's not super material to this discussion.
In that scenario, the founders make $11.4 million each pre-tax, or about $8.55m post-tax (assuming all founders are equal, which is probably also unlikely here). The employees make $8m pre-tax total, or ~$350k each pretax, or ~$190k each post-tax, but the distribution is going to be skewed towards earlier employees. Investors make $26.4m, which is a pretty poor return for a 3-year investment -- investors are mostly looking at IRR, which means the longer an exit takes, the higher the outcome needs to be to make it worth it.
This is just a wild ass guess on what a transaction like this might look like, but lots and lots of things are likely way different than I guessed here, and I can guarantee that I've over-estimated the amount of money everybody made, because as a general rule of thumb that always happens.
EDIT: > How long will the employees have to be at eBay to get their earn-out, and will that earn-out be in addition to their common stock in Hunch? Will they end up being paid less to work for eBay during their earn-out than if they were on the open market?
Probably 2-4 years for the earn-out. The employees might get more retention bonuses to stick around, above what they would normally get from the transaction. They will not earn below-market due to the retention package.
[+] [-] jnorthrop|14 years ago|reply
They were founded in 2008 and sold for $80m 3 years later. That is considered a "long journey" these days? Statements like this give me that "we're in a bubble" feeling.
[+] [-] hassy|14 years ago|reply
* http://hassy.posterous.com/my-favorite-startups-hunch
[+] [-] drusenko|14 years ago|reply
With some very notable exceptions (YouTube, Zynga, Groupon), built-to-flip and talent acquisitions dominate the 1-2 year exit companies.
[+] [-] bproper|14 years ago|reply
[+] [-] AznHisoka|14 years ago|reply
[+] [-] arturadib|14 years ago|reply
Chris Dixon is a veteran investor and entrepreneur, with enormous visibility in the tech world. Contacts with potential acquirers are a non-issue for him.
A poor CS fellow could have created a version of Hunch that was 100x better and they still would have 1,000x less of an exit opportunity as compared to any startup Dixon founded.
Get real.
[+] [-] dmix|14 years ago|reply
This type of thinking is why the valley is so full of zombie companies pumped up with capital, but with no real traction or any way of ever being profitable
PG and many speakers at startup school repeatedly said that its easy to spot the ones who are just doing it because they want to be "that guy" like Zuckerberg - the ones who want to play the game. Instead of starting a company to figure out what customers want.
What motivates you to start a company is really important. Especially during the downswings that kills most startups (google "trough of sorrows").
[+] [-] achompas|14 years ago|reply
I would agree, and it's a damn good talent acquisition. Hunch's team is made almost exclusively of engineers who (a) went to some of the best CS programs in the world (CMU, MIT, Stanford), and (b) really really really know their shit (just have a 5-minute convo with one of them).
Here in NY, Hunch had a reputation for opportunistic hiring. They had lots of funding and an incredible core team, so they'd only hire engineers that astounded them. That's a great way to set yourself up for a talent acquisition.
[+] [-] sunahsuh|14 years ago|reply
Ebay's been on a spending spree this past year and I'd say this is one of the better deals they've made, depending on how long they've locked in Hunch's team.
[+] [-] speedracr|14 years ago|reply
[+] [-] dr_|14 years ago|reply
[+] [-] danssig|14 years ago|reply
[+] [-] kennystone|14 years ago|reply
[+] [-] frou_dh|14 years ago|reply
[+] [-] dgurney|14 years ago|reply
Although who am I to argue with $80 million.
[+] [-] wyclif|14 years ago|reply
Really? If you don't have a 'building to sell' roadmap in the first place, why be depressed? If you're building a long-term, stable company with real value and profits, you're not for sale in the first place.
[+] [-] rokhayakebe|14 years ago|reply
http://twitter.com/#!/rafat/status/138633186300264448
[+] [-] beagledude|14 years ago|reply
[+] [-] Zirro|14 years ago|reply
Knowing how long it can take for a small company with a good idea and product to launch, I wouldn't really call that a long journey.
Still, congratulations to them. I hope eBay is able to make something good out of what they have created so far.
[+] [-] Brajeshwar|14 years ago|reply
[+] [-] jkaljundi|14 years ago|reply
[+] [-] vaksel|14 years ago|reply
[+] [-] charlemagne|14 years ago|reply
[+] [-] suking|14 years ago|reply
[+] [-] benhalllondon|14 years ago|reply
Seems Hunch has gone the 'Mega Machine' route (1 T RAM, 48 Core [1]), from 700k users (80m Total TTHY / 113THAYs [1]), make 250k API users
How do you scale that out to eBay numbers?
[1]http://blog.hunch.com/wp-content/uploads/2011/05/110509-HUNC...
[+] [-] bproper|14 years ago|reply
eBay is an interesting challenge because so many of the listings don't have metadata like product IDs.
The work Hunch has been doing on the open web is a good fit for this kind of unstructured data.
http://www.betabeat.com/2011/11/21/chris-dixon-ebay-hunch/
[+] [-] speedracr|14 years ago|reply
[+] [-] hswolff|14 years ago|reply
[+] [-] subpixel|14 years ago|reply
[+] [-] Tichy|14 years ago|reply
On the downside, they really asked a lot of questions, which made me uncomfortable with using it.
[+] [-] pepdek|14 years ago|reply
* http://www.ranker.com/
[+] [-] iampims|14 years ago|reply