LearnDropSend acquisition talks fall through with YouSendIt

Ryan
writes on December 14, 2006

Here’s the latest on the DropSend sale

YouSendIt, one of the big buyers, has dropped out. Here’s the whole story.

It started at Web 2.0

I received an email from Khalid Shaikh, one of the founders of YouSendIt, asking if we could meet up at Web 2.0 and chat about DropSend.

I obviously got excited as YouSendIt seemed like a great fit for DropSend. It would help strengthen their offering while also making a powerful statement to the industry that they’re serious about dominating the large file sending industry.

I sat down with Khalid in the hallway at the conference and we had a nice chat. I broke out my laptop and showed him some of the stats from the backend of DropSend. He was impressed and it was looking pretty positive. (By the way, there’s a great lesson here: potential buyers love quality stats. The fact that we had very detailed reports and graphs on DropSend impressed Khalid quite a bit.)
I figured I’d cut to the chase so I asked “Do you want to know how much we’re looking for? We might as well get it out into the open!”. He smiled and said “Sounds good. Hit me.” (or something like that). I said “In the range of $1M US. What do you think?” He was said he was relieved as he expected me to say something crazy like $5M – $15M.

We chatted for a little while longer and he said he’d make a presentation to the board and get back to me. He didn’t promise me anything but said he liked DropSend and he’d let me know what they said.

Waiting …

And then the waiting began. Khalid emailed some facts to the board, including Ivan Koon, the CEO of YouSendIt. I asked if I could blog about our conversation and Khalid said the board wasn’t comfortable with it (Damn!). I had a couple quick chats in the hallways of the conference with Mike Arrington (TechCrunch) about the possible sale and I said I’d let him know first if they make a solid move.

Well, that didn’t happen right away. Khalid said that if they board was interested, they’d let me know and I could head out to their office in Mountain View for a quick meeting before I got on the plan back to London.

For whatever reason (Khalid didn’t tell me), that meeting didn’t happen. I think things were busy over at their office and they just didn’t have enough time to prepare for the meeting.

Khalid said he’d be in touch and let me know what happened.

Phone meetings

Once I got back to the UK, I received an email from the personal assistant of Ivan Koon, the CEO of YouSendIt, requesting to setup a phone call. Of course I got excited about it and we set up the meeting.

Ivan and I had an interesting chat. He’s a very smart man (ex-Adobe) and I respect him very much. He basically said that he didn’t need DropSend’s technology. Their system is very impressive and the number of paying customers that DropSend would be offering just wasn’t big enough to warrant an acquisition. At that point, my heart sank.
However … they were very interested in our access to the creative market. DropSend has made large in-roads to the design and moving image industry. We have a ton of clients on the Business Plan that are designers, motion artists and creative professionals.

Obviously YouSendIt wants to dominate this market as these are the folks that are willing to pay for sending large files. If you are creating large PDFs, JPGs, QuickTimes, etc, then it’s worth your money to pay for a reliable system to deliver these to your clients.

Acquiring DropSend as a marketing move

So what it came down to is that they were interested in buying DropSend as a statement to the creative industry that they are the market leaders.

And this is where the talks started to break down. They just couldn’t justify spending $1M on a marketing move. It’s just too much. If they needed the technology and the paid customers, it would’ve been a different story.

The final phone call

We setup one final phone meeting with myself and about five of the YouSendIt folks. It was pretty intimidating, actually. Thankfully everyone on their side was super friendly and easy to talk to.

At the end of the conversation, we all basically agreed that the only reason they would acquire us was to make a strong marketing statement – and that’s just not worth $1M.

What’s next?

Well, we’re still in talks with two large buyers and we’ll see what happens. I’m still hopeful that we’ll sell it, but even if we don’t we’ve got two great things going for us:

  1. We’ve learned a ton about how to sell a web app / business. It’s been fascinating, scary and exciting.
  2. DropSend is still profitable (and continues to increase in revenue)!

We’ll keep you updated.

32 Responses to “DropSend acquisition talks fall through with YouSendIt”

  1. I find this a particularly interesting read as I created a simelar system a few years ago and I know just how tough the market you are in really is.

    Hang in there… You have a superior product and above all, a good and fair working ethic. As a result I am sure that the right purchaser will appear in due course.

    Many thanks for the insightful details of the transaction.

  2. Hi Ryan,

    Interesting read, this site.

    You mention the value of quality statistics.

    What do you use for that? Server statistics, like AW Stats, or Google Analytics? Or something else completely.

    Thanks!
    Danny

  3. Well, if what you said about the cost is true, then you are really in a serious business when you could bring in $20k per month.

    You shouldn’t regret for missing this opportunity to sell DropSend.

    What’s next?

    Take on YouSendIt now!!!

  4. Ryan Carson on January 4, 2007 at 2:32 pm said:

    I guess there was no NDA?

    Nope.

  5. I guess there was no NDA?

  6. Ryan Carson on January 3, 2007 at 9:21 pm said:

    Thanks everyone for the kind feedback. If anything, we’ve learned a ton from the experience. I still believe it would’ve been a wise investment for YouSendIt – but that’s obviously their call.

    We’re on target for bringing in $20,000+ per month by Nov 2007, so if we start putting a bit more time and effort into marketing, I believe we could start to see some serious revenue. Only time will tell! 🙂

  7. The way I see this whole story is very positive; selling for only 1m$ would have been an error, in my opinion, since it’s common to see unestablished businesses (who only have a business plan) with valuations around 1m$.
    Remember there’s not much left after taxes, accounting and layers. Keep working hard and next time, ask for 10-15m. After all, didn’t they (Yousendit) received 5m in funding, for a similar service?

  8. If I were a venture capitalist, I would invest that $1m in this company. Half to Carson (retain 50% share) and the other half to invest in the company, make a big marketing push. Make it big enough to attract other big players and try to get a valuation of $8-10m.

    It would make a healthy return of 6-8 times within 12 months.

  9. I find this blog & the other one BNA very interesting to read.

    This story is a great read. Sorry to hear that the sale fell thru, but to be honest I find it hard to fathom how a valuation of $1m was reached. The number of clients & revenue is tiny. I was suprised that the number was so low.

    Dropsend is a great app – I’ve used it many times, although I’ve never paid for it. I think the free plan is just too wide in features. I would pay a few $ for that type of service but have never needed to upgrade. Sure those very low $ plans don’t have much revenue, but x 10,000 – it adds up.

  10. Thanks for the incredibly insightful post Ryan. I found this fascinating because I’ve worked with Khalid and YouSendIt back in the day before they got their hands on all that VC money — I designed their first site.

    My experience with YSI was usually frustrating — they didn’t buy into web standards nor Web 2.0. They also had some strange ideas about usability too. I’m actually surprised that he attended the Web 2.0 Summit — I had given him a copy of The Cluetrain Manifesto a while back and I don’t think he’s read it yet.

    Now that I’m re-reading my IM chats with Khalid, I realize that I’ve also done a lot of waiting myself, waiting on promises of getting hired by YSI — which of course didn’t pan out. You’ll also be pleased to know that had I pointed him to the Carson Workshop MP3s last year (6th of March, 2006 to be exact) and had asked him to pay special attention to the DropSend podcast :P.

    I’m sorry this deal fell through, but considering the differences in business philosophies and design approaches between DropSend and YSI, I would think that it’s for the best. Here’s hoping that DropSend gets picked up by the right company.

    Hang in there and keep up with the great work!

  11. This is sad, I have used both DropSend and yousendit, and DropSend is by far the better product.

    I hope DropSend receives what it’s truly worth.

  12. Ryan Carson on January 3, 2007 at 4:25 pm said:

    I wanted to extend a personal thanks to you Ryan for sharing these kinds of stories.

    Thanks Roj.

    Itâ€s better to find out who the board are, and then pitch them on the opportunity before your primary contact speaks to them again on your behalf.

    I agree. Lesson learned 🙂

    Hang in there Ryan, things usually happen for a reason.

    Thanks Dave!

  13. Yeah, why bother. You still have the other two companies that are interested, right?

    Besides, from a Swedish perspecitive, I knew about your site, but I had never heard of DropSend.com!

  14. Hang in there Ryan, things usually happen for a reason. One suggestion for next time, let the prospective buyer throw the first number on the table.

  15. Hi there,

    thanks for the interessting post! I appreciated reading it. Also the posts…will keep that in mind lateron ;-).

    I couldn’t imagine, that a service like that would be a basis for a profitable business.

    Regs,
    Nils

  16. One of the oldest rules in the proverbial sales book is ‘Pitch the Loop’!

    In the case of a board of directors like this, giving a sales pitch to one director and then having him champion your cause to the rest of them will always be a bit of a long shot.

    It’s better to find out who the board are, and then pitch them on the opportunity before your primary contact speaks to them again on your behalf. You’ll do a far better job than he will!

  17. I wanted to extend a personal thanks to you Ryan for sharing these kinds of stories. I mentioned in a comment on the Techcrunch post that a lot of potential acquirers use an opportunity like this to gain insight into a company without real seriousness to acquire.

    As others have mentioned before, I’m curious as to what makes the service particularly difficult to operate and grow. It seems like it runs on its own with need of maintenance from a server admin side. Of course, this is just a 30 second analysis. 😀

    Roj

  18. Chris Hughes on January 1, 2007 at 4:28 pm said:

    I just had the need to send a massive file. So I signed up for free accounts on both DropSend and YouSendIt. My mini evaluation: Speed – about the same. Usability – Dropsend Rocks, completely outclassing YouSendIt. From my perspective YouSendIt totally missed the boat when they said that they didn’t “need DropSendâ€s technology”. Seems to me that they would have totally improved their site and user experience with DropSend’s Tech.

    Good luck in your sale!

  19. Ryan Carson on December 16, 2006 at 1:03 pm said:

    Honestly, Carl, I have no idea how you came out with the 1M valuation for dropsend

    Who’s Carl? 😉

  20. Honestly, Carl, I have no idea how you came out with the 1M valuation for dropsend. Although the growth is there, but large file sending sites are facing tremedously competition and Dropsend’s revenue does not really justify the 1M asking price. Videocodezone is listed on sitepoint for $800,000 and again, that is kind of overpriced too. I kind of agree with AndyToo that 500,000 sounds about right.

  21. Ryan Carson on December 16, 2006 at 12:13 am said:

    If the talks with the other firms fall through, have you given thought to bringing on someone to manage Dropsend instead?

    Yes, we’ve thought about it. Thanks for the suggestion anyway.

  22. Best of luck Carson. I really like your positive mindset. I’m sure you’re up for bigger and better things whether or not you sell this for $1m.

  23. Hey Ryan,

    Wow, interesting story. Thanks for opening the kimono in your usual fashion. That’s too bad, but, I’m sure that negotiations with similar levels of activity are happening with the two other buyers. Best of luck with them. My money’s on you making the sale.

  24. Ryan,

    Thanks for blogging on this, it’s very interesting.

    One question which harks back to previous posts – how did you arrive at your valuation? That is to say, maybe (maybe) if you valued your company lower, at say 1/2 a mill or so, YouSendIt would have gone for it.

    It’s still a sh*tload of money – mortgage paid off, holiday in the sun, happy days.

    Have you had restless nights about re-doing that valuation?

  25. James Deer on December 14, 2006 at 3:45 pm said:

    What a shame Ryan, i feel really sorry for you about that, but as you have said you’ve learned a lot about selling business’ which can’t be a bad thing. I hope everything goes well with the other potential buyers!

  26. @sj

    I guess it’s because $1M is more than a manager could make with DropSend in the next couple of years?

  27. I agree with SJ, it might be a better business decision to bring someone in, show them the ropes a bit, and just keep chipping away at it. This way you have a solid product that’s bringing in great revenue and if you want to finance any big projects in the future, DropSend is a great asset to have to help you do that.

  28. If the talks with the other firms fall through, have you given thought to bringing on someone to manage Dropsend instead? From what I can gather, you’re selling because you don’t have enough time to actively market the product and help it grow (more than the organic growth it’s already received.)

    If it’s performing as well as your statistics indicate, it could probably afford someone on staff devoted to it (if not now, at least in the near future.) Just a thought.

  29. Sorry it didnt work out for you guys Ryan but thank you for the great update.

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