The Better Billion
The tech world has experienced a blizzard of billions in the last few days. AOL has cracked open its IP vault and sold more than 800 patents to Microsoft for over a billion dollars.
Instagram was bought by Facebook for a billion bucks shortly after closing a $50 million Series B round at a $500 million valuation. (That’s what you call an ‘Insta-double.’)
And in a recent global deal, a J.P. Morgan investment in Conduit has valued the company at over a billion dollars, too. This makes Conduit the first Israeli tech company to reach the exalted billion-dollar level, thereby defying the predictions of many who claim that Israelis are good at launching, but not scaling, businesses. So there.
What’s particularly interesting to me is that these three companies got into April’s billion-dollar club by way of three completely different strategies. AOL essentially did the corporate equivalent of burning the furniture to heat the house. There’s no doubt that these patents unlocked shareholder value, and it’s always unlikely that AOL requires access to them as they shift from being a technology company (boy, that was ages ago) to a media company.
So even though it might make tactical sense – though it wasn’t enough to satisfy AOL’s dissident shareholders – I can’t think of a single example in which the wholesale fire sale of patents has been a positive signal for a company. (Nortel? Kodak?)
Then there’s Instagram. The tech blogosphere has been lit on fire, naturally, by this mega deal, with some arguing that Facebook overpaid and we’re in bubble territory, and others defending it. Meanwhile, others are just using the news to advance their own SEO, like this piece in the Atlantic on Instagram snobs who Instahate.
No matter what you think of the deal, though, it’s clear that Instagram started up to be sold, not sustained. It was a brilliantly-executed product that did one thing with extreme intuition and fluency by taking advantage of a pre-existing ecosystem: the iPhone. It made virtually no money, but didn’t have to because it smartly realized that its enormous user base – more than 31 million – would enable the founders and investors to generate enormous returns when the right strategic investor came along.
Instagram’s timing was perfect; no viable competitor had yet emerged, so there were no worrisome, innovative threats on the horizon. Facebook has buckets of cash to put to work on deals that extend their ecosystem. And whatever they spend now will only be amped up by the juicy multiple that their IPO is likely to create.
Now we come to Conduit. The Better Billion. I say that because this valuation was achieved in what I view as the healthiest way possible. Unlike AOL, Conduit did it by adding to their assets, not subtracting from them. Unlike Instagram, Conduit is a company built for the long road, not for the glory and profit of the sprint. Indeed, everything they’ve done has set the stage for an even larger company that’s here to stay. The founders control more than 50% of the company, so it’s their own vision that gets built and executed. And the company actually makes money – enough of it to have distributed an unprecedented dividend last year – plus give an extraordinary amount of equity to keep employees motivated.
Still, the media loves the Instagram story: a 13-person company is ignited by meteoric success, and 13 employees (plus investors) rack up a billion to split, almost before the paint is dry. If your plan is to go from startup to fast-sell as soon as possible, then this is the ultimate fairy tale.
But the Conduit story, not likely to reach a comparable level of media heat, is for me a far more meaningful saga. They are on a journey to build something substantial, to innovate their way to greater success, to risk mistakes in the service of a larger goal, to create something as permanent as anything can be in a world of impermanence. For J.P. Morgan to recognize the billion-dollar success of what had started as a tiny company in Israel in 2005 validates that path.
While there’s nothing wrong with insta, there’s something wonderful about endura.