Another startup funded by YCombinator is acquired

[Peter Gibbons]

280 North is bought by Motorola for $20 Million.

$20,000 funding by YC
$250,000 first round VC funding

$20,000,000 liquidity event

If I am not missing something - this looks pretty good.

I think PG is correct - these days startups don't need much money and this helps the founders.

[Peter Gibbons]

PG mentioned that YC funds mostly B2C startups.

"Young people fresh out of school don't understand B2B ..."

So I guess experienced people should do B2B ?

[The Gorn]

PG mentioned that YC funds mostly B2C startups.

"Young people fresh out of school don't understand B2B ..."

So I guess experienced people should do B2B ?

...without Paul Graham or YC, I take it.

[The Gorn]

280 North

So if I get their product right, it is an LGPLd implementation of a scripting language and environment similar to Cocoa but for the web.

Basically you can display teh pretty pitchers moar easily on teh web.

I'll be damned if I can connect the dots on how you get from a new language parser and a display system to $20 million. I just don't see where the product or the $20 million in value is.

Frankly, it sounds like a presumably useful Sourceforge or Freshmeat project. Not a source of wealth.

I've seen too many small companies bust a collective nut and kill themselves (sometimes almost literally) over some product line and it's been nothing but expensively developed abandonware.

I believe that I am absolutely incapable of correctly attributing "risk" or "economic value" to any SW development enterprise. I may as well get out of the field.

[Peter Gibbons]

You got the basic idea. It's not a new language - it's an implementation of Objective C on top of Javascript. ( Well at least the syntax is Objective C )

I'll be damned if I can connect the dots on how you get from a new language parser and a display system to $20 million. I just don't see where the product or the $20 million in value is.

We can't just check the web page and determine the value.

If you believe that 'rich' Web apps are the future and do some research you will probably find that the most popular options are YUI, GWT ( both free ), Sencha and Cappuccino. GWT for example is pretty spartan looking and Sencha is selling complementary product Ext GWT.

http://www.sencha.com/store/gwt/

The platinum edition is $2,500 / year. ( They even have 'Diamond' - "Call us for the price Edition".

So $20,000,000 / $2,500 = 8000 installations over the years will pay for the 280 North's acquisition.

Of course this is not what Motorola is thinking. Most cell phone companies ( except Apple ) truly suck in the GUI department. They are acquiring a company that have nice polished product - that means proven skills in that area. This team could help Motorola design some nice looking interfaces on top of Android - helping the company differentiate themselves from the Android crowd.

I think this is much better acquisition than the Intel's purchase of McAfee for 7.7 billion.

I may be very wrong about that ...

Other opinions on both acquisitions?

[lorb]

I'll be damned if I can connect the dots on how you get from a new language parser and a display system to $20 million.

My problem is that I can't understand why people pay for what they pay for.  I watch "Pawn Stars" on TV sometimes and the stuff that goes for thousands of dollars, I would either give it to a little kid or throw it into the trash or give it away to somebody else every time.  There is always some story in the news about how someone got somebody's bicycle or Michael Jordan's whatever and sold it on Ebay for tens of thousands and I can only shake my head and think it would be junk to me too unless I could use it.

The only way I can rationalize this to myself is that it's an international market and somebody out there must think almost anything unusual is worth a pretty penny.  But even that is not quite true, as it usually does still have to be useful or something really old.

[The Original Henry]

But even that is not quite true, as it usually does still have to be useful or something really old.

Not really:
http://www.abc.net.au/news/newsitems/200412/s1260505.htm

What is missing from the story about 280 North is how much money the founders made in that deal versus how much time, effort, and opportunity cost they spent to get it. I'd be willing to bet they saw very little of that $20 million payday, and when amortized over the life of the project they probably just escaped with an above-average wage.

[lorb]

Unfortunately, as a kid I never looked at my grilled-cheese sandwhiches as a "Rorschach test" (Oh wait, no internet back then anyway).  I did do that with my chocolate pudding, but it was always a 'field of grass' at the bottom.

I can see the "power-point" type web product as a money-maker (now if only they would do that with the rest of 'Office').

Yeah, somehow I don't think 5k per founder is what got that product off the ground, nor was the intention of going to PG.  It's almost like just accept the fact that he is a VC middleman in a way.

[Peter Gibbons]

What is missing from the story about 280 North is how much money the founders made in that deal versus how much time, effort, and opportunity cost they spent to get it. I'd be willing to bet they saw very little of that $20 million payday, and when amortized over the life of the project they probably just escaped with an above-average wage.

We could only guess. What would be the worst case scenario?

YC got 10% and the $250K got the other 90%.
The three founders work for 2 years ( 14 hours a day ) for $40k/year.

More realistic worst case:

The $250k got 80%. So the three founders are left with 10% - $2 Million.

I believe more realistic ( or optimistic - if you prefer ) scenario is: The three founders are left with 10% each.

[The Original Henry]

I believe more realistic ( or optimistic - if you prefer ) scenario is: The three founders are left with 10% each.

It would be really interesting to know...is there a way we can find out?

I know a high-stakes blackjack player who makes quite a bit of money on a good night. If I had to choose between gambling with him and hitching my wagon to Paul Graham I think I'd have better odds at the casino. It would certainly be more fun, even on a losing night.

[The Gorn]

My overall opinion on this is --- Paul Graham and cronies seem to be profiting from a desire on the part of investors and VCs to see excitement and big acquisition deals again, as we saw in the late 90s. The rest of the investment economy is sh*t so this is the one "safe" avenue with any excitement left. Housing, autos, utilities, and basic commodities are all played out and overvalued, and arbitrage has become a nasty swearword. This is what's left.

I just need to call up Jim Cramer and let him know this brilliant insight of mine so he can squeeze it onto the next Mad Money. Booyah! 

[Peter Gibbons]

It would be really interesting to know...is there a way we can find out?

http://news.ycombinator.com/item?id=1631002

2 points by _pius 4 hours ago | link

That's awesome! 80x return is pretty sweet ...
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9 points by rafaelc 3 hours ago | link

Just to clarify, it's not an 80x return or even close. I think you may have gotten that by taking the money in ($250k) and looking at the exit price ($20mln).
The truth is that if the round was priced, then the investors took call it 25% of the company, meaning the post-money was $1mln and thus at a $20 mln exit there was a 20x return... which of course is still pretty good.
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2 points by _pius 3 hours ago | link

Great point, I did some quick irrationally exuberant math and that's how I got the 80x.
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2 points by rythie 3 hours ago | link

Does anyone know what ycombinator got from this $0.4m to $2m (based on 2% to 10%)? or was it diluted in the later round?
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1 point by lyime 2 hours ago | link

Pretty sure YCombinator's stake would be diluted, unless the 250k was raised part of the YC round. Which is possible but unlikely.
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1 point by rythie 1 hour ago | link

Crunchbase says the 250k round was only 2 months later, so maybe no dilution? http://www.crunchbase.com/company/280-north
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[Peter Gibbons]

TOH

I know a high-stakes blackjack player who makes quite a bit of money on a good night. If I had to choose between gambling with him and hitching my wagon to Paul Graham I think I'd have better odds at the casino. It would certainly be more fun, even on a losing night.

GB

My overall opinion on this is --- Paul Graham and cronies seem to be profiting from a desire on the part of investors and VCs to see excitement and big acquisition deals again, as we saw in the late 90s. The rest of the investment economy is sh*t so this is the one "safe" avenue with any excitement left.

Guys, the way I see it you are kind of equating the VC role in funding startups to the role brokers and agencies play in the contracting market.

I am not going to disagree however the truth is that sometimes contractors get lucrative contracts that they would have never been able to get by themselves and there some founders of startups that end up making a lot of money that they would have never been able to make without the VC funding.

In ideal world you will be finding your own clients and funding your own startups.

[The Gorn]

Guys, the way I see it you are kind of equating the VC role in funding startups to the role brokers and agencies play in the contracting market.

No, not at all. My remarks were with respect to the desires of investors. Tech is still a bright spot. Most everything else in the investment world today simply isn't. I couldn't have been any clearer in my earlier comments.

I'm also not referencing any class-warfare geeks-against-suits thing at all. If the programmers/founders agree to it, then they certainly can do their own due diligence to determine where and how else they could use their time and talent.

The analogy to this is like the housing market going up when stocks are not moving much, like we had five or so years ago. Investors want a place to park their money where it is well utilized. This seems to be the case, to them. As to whether it is, in actuality - time will tell.

I consider this stuff - the matchmaking that Paul Graham is doing - to be a form of financial alchemy. I have no clue on it.

I'm not criticizing it, either. I just have no clue, as to risks, rewards, downsides, upsides. It reminds me exactly of IPO madness in the 90s. I didn't have a clue about that either.

[Peter Gibbons]

I couldn't have been any clearer in my earlier comments.

I was actually thinking more about comments in previous threads about YC and PG.
However if you are saying I am incorrect - I will take your word for it.

It reminds me exactly of IPO madness in the 90s.

YC funded startups are just so tiny compared to the whole economy - I guess 99.999% of the people have never heard about YC. ( Even though they may have used some of the web sites developed by the startups funded initially by YC. )

So this is definitely an order of magnitudes smaller 'investment opportunity' than the dot com boom.