Guy King founded Stateless Systems with partner Bevan Clarke in the hope of creating some interesting web applications for everyday users, but have ended up making millions in the process.
RetailMeNot, now one of the most popular coupon sites in the world, was sold to US online deals group WhaleShark. But King says the business was only attractive enough because the founders didn’t build with the intention of selling.
Did you ever build RetailMeNot with the intention of selling?
No, and in fact it was more of a hobby. We didn’t consider the possibility of it making money, so it was similar to BugMeNot in that sense. We never thought it had money making potential, but that kind of changed quickly after it become profitable pretty much straight away.
We had put Google AdSense units on there, and it was making a modest amount of money. Then we started getting commissions on sales and those sorts of links, and we saw the potential for it.
So why do you think it was an attractive asset?
When you think about where we sit in the purchase cycle, people know what they want to buy and when they come to us they’re just a few clicks away from buying it. It’s a good position to be in.
When did you start receiving offers?
It was probably about one year ago. We had an offer put in to us, and it was a big enough offer to give it some serious consideration. But we decided to keep going, and the intention was that no matter what offers we got, we’d want it to be a competitive process.
So then we got a second offer about six months ago, and that really started the ball rolling. The figures being discussed were compelling enough to make us pay attention.
How did you go about making the process competitive?
We selected an investment bank to represent us, and their name was AOBOR, based in Palo Alto. The main criteria was that they’ve done similar deals in the space, and they knew our business pretty well before we started with them.
Did they manage all the deals?
Yes, but at that point it was a matter of preparing a management presentation, which is kind of like a slideshow of data, numbers and so on, about the business. Then we went around contacting people that would potentially acquire us and seeing if anyone was interested. Then a system like a silent auction starts.
RetailMeNot started with a different approach from a lot of US start-ups. Would you change your approach if you could do it again?
Certainly in the US, what happens with start-ups is that you pump as much cash as you can into these things, and go through multiple rounds of financing. Then you spend money on advertising, engineers, trying to grow the bottom line as much as possible as quickly as possible.
But in the end, it’s hard to predict where we would be if we had taken that approach. We’re certainly not unhappy in the place where we have ended up.
Were there any deal-breakers you put on the table when negotiating?
Any deal we were doing, we’d get shares in the business. It was also important to us that any acquirer had the ability to grow the business, and then other factors were the raw numbers of the deal and a personal commitment for use.
We didn’t want to relocate to the United States, because this is home, and we have young families and so on.
Were there any considerations for staff?
We’re lucky in that we did have a small team here, and those guys will have worked within Stateless Systems, but if we had gone with that option of expanding to a bigger and bigger company, we’d probably be laying off most of those people at this point. It’s unlikely the acquirer would have wanted to move all of those employees.
What do you think businesses should keep in mind when dealing with negotiations?
I think one of the most important things I’ve heard, and know, is that you shouldn’t be selling unless someone is willing to buy. If the business isn’t interesting enough for people to be actively approaching us then it would be a much larger slog. So I think the key thing there is to keep growing the business and focusing on that until you have someone knocking on your door.
Do you think you would groom your business for selling straight away if you could do it again?
There are probably a lot of things that we would have done differently if we had our time again. For example, we probably would have hired a full-time accountant a couple of years ago rather than doing it all afterwards. But retrospectively this type of stuff is very different.
I think one of the other things you need to do is lock down as much IP as you can. Acquirers are looking for something that gives them ammunition, and they want to see patents and trademarks that add value to your business. Work on the business and move towards those things because those are valuable assets.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
