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DropSend acquisition talks fall through with YouSendIt

By Ryan

14 December 2006 | Category: Business

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.

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