A man who has made a ton of money selling tech start-ups to big companies — which is one of the main ways for start-ups make money — thinks "an acquisition is always a failure," which leaves a pretty narrow road to success in Silicon Valley. Jake Lodwick made a lot of money when Barry Diller bought up Connected Ventures—a sort of holding company that included College Humor, BustedTees, and Vimeo, the latter Lodwick created—for an undisclosed amount that some peg a little above $20 million. He admits that the move gave him a "fat bank account." And yet, he regards it as "the worst business decision of my life" because he lost all creative freedom when the big bad corporation paid him a bunch of money for a website that, as Gawker once uncharitably put it, "failed to become as popular or successful" as YouTube. Perhaps that is a sort of personal failure for Lodwick, but for most people running start-ups not dying a penniless death would be considered success, and rightfully so.
Three out of four start-ups fail, in a business sense. If failure means "liquidating all assets," that number goes down to thirty or forty percent. If it means, "no return on investment" for investors that ticks up to 95 percent. However you want to define failure, it happens all the time, though we don't hear about them often because the world prefers to champion success, for obvious reasons. Here's a list of 16 German internet startups that went under last year. If offered money from a big tech company — even if that meant a start-up's creation would get killed right away like the Google acquisition of Sparrow — who could blame these people from taking it, if the other option means a much less lucrative business death? Selling out is usually a great business decision.
Lodwick, however, finds that decision reprehensible because: "Either the founders failed to achieve their goal, or — far likelier — they failed to dream big enough." It's worth pointing out here that not "dreaming big" enough is the kind of failure that only people with money tend to encounter, as in: What have I done with all this money? People without money dream big all the time, mainly of having money. But by Lodwick's standards, then, Groupon is a success. It turned down $6 billion from Google because CEO Andrew Mason wanted the creative freedom Lodwick gave up. And look what happened to him and his company: his dreams turned out bigger than the business of selling deals online probably is and now he is gone.
Not all start-up CEOs get booted. By Lodwick's definition, Mark Zuckerberg, Larry Page and Sergey Brin are the ultimate successes since they dreamed big, didn't get bought up and now run their own companies. In addition to dreaming, Lodwick considers creating "a profitable, independent company beloved by employees, customers, and shareholders," another form of success. By some metrics those men did that. Though, Lodwick should note that once Zuckerberg took his company public he, too, lost that "mental freedom." Now beholden to shareholders, Zuck can only make his social network open and connected and full of ads. Google, like many other tech companies before it, has also made "moral" compromises for the sake of revenue. So, that's out.
Perhaps, then, Twitter and Tumblr's founders fall into the "success" category. But the more these companies succeed and the bigger they grow, the more inevitable an IPO, the business types, the meetings, the people who Lodwick resented at IAC. Twitter and Tumblr both have rumored IPOs on the way at some point in the far away future, though Twitter at least has already largely lost all of its founders.
So, that leaves what type of company then? It's hard to think of this ideal situation, other than a company started by someone who has unlimited capital to burn on their "mental freedom." And since that happens to be Lodwick's exact situation as a result of taking a nice pile of money from a corporation for a previous start-up, forgive us for not buying into his theory.
This article is from the archive of our partner The Wire.