This sounds like the story Jessica Livingston mentioned at Startup School 2012 <http://news.ycombinator.com/item?id=4699862 >, if I remember correctly -- business in Texas got a term sheet, moved to California, investors pulled out when their user acquisition metric changed. Anyone have more color on this?
The real lesson is that the money isnt there until the check clears. Selling your house and moving on a promise is risky. Even trying to raise money is a huge drain.
It's charitable to say that the title is a bit disingenuous. I agree that the story (as well as the ongoing discussion) is very much worth reading. The unnecessarily provocative title is only slightly distracting.
We went back to other investment firms that we had also received term sheets from prior to committing to Benchmark, but after Benchmark pulled out, the news spread and we had the scarlet letter, or maybe the scarlet zero.
This is why VC-istan is dead. (Not actually dead, but "Microsoft is dead" dead.)
Our service was free as we were working out the business model. We actually had a genius business model but hadn’t implemented it yet. We wanted more users so we spent money on marketing.
They would have been in a much better position if they had actually turned on the revenue model before asking for money. Without that, the only metric they had to impress investors was user acquisition which was dropping.
Or he'd be in a much worse position, because his cost of customer acquisition was high and the money he'd earn from charging wouldn't come close to covering his operating expenses, and charging would slash his new user signups, which were probably the only realistic lead gen he had to work with. Which is, you know, the situation that gets most people to consider venture capital.
Sure, if the "genius business model" was "charge everybody money for it", but the way that was phrased implied they had something more devious in mind. By going the VC route and asking for $7 million straight up, they bet big and lost big.
The real problem was they had no business model; spending money to get users when you don't even know what your return is? That's ludicrous. That's a core business issue from day one.
That depends on what kind of business you want to start. I'm a fan of growing slow and not taking outside capital. It worked pretty well for me, and working with VC, not so much. But the fact that bootstrapping works for some products doesn't mean it works for all of them. In particular, a product with serious operating costs and high cost of user acquisition is hard to bootstrap.
It's one thing to sell products to, say, every freelance developer in the world. Freelance developers are (relatively speaking) wealthy and interested in products that improve their practices. Parents are not generally in an ambient state of seeking products to secure their kids Internet connections. That makes them hard to reach and sell to.
We did have a business model. Jason didn't talk about it much, but if you look at my original post and Brandon's more in depth post it's there.
Was it a billion dollar business? Probably not, unless we owned most of the space if not all the space. This was inconceivable when you looked at the players.
I think it's not uncommon for companies get volume this way. I even saw on the recent PBS special "Silicon Valley" that Fairchild Semiconductor (then it was FCI) sold actual real-life transistors below cost, wagering that it would allow them to scale up their manufacturing. Ingenious, risky move. But, it worked.
hell, many years ago, I gave people "first month free" VPSs.
Good god, that was a bad idea. I got lots of users, ended up buying a bunch of hardware, and worse, signing contracts on more datacenter space. I got a whole lot of abuse complaints, and had to get a larger bandwidth commit, too. (my provider at the time had the very common business model of having very high overage charges, but you could get out of the overage charges by signing a long-term contract at the new 95th percentile.)
Of course, many left when they got the first bill, leaving me about where I started revenue-wise, and with much larger monthly bills.
several years later, vastly increasing the resources I gave per dollar, /then/ getting featured in a blog[1] many months later, brought me up to a reasonable scale. I do think that the lower prices were necessary (but not sufficient) to start that growth.
I suppose that might be more like the transistor situation than anything else; Yeah, the company was "Profitable" but only because my time was free. I was selling at a huge loss if you counted market-rate for my time.
(I owe that one post so much; revenue more than tripled in just a few months, and I was able to go full-time. I should probably do something for that guy.)
My takeaway was, if you're going to buy non-paying users and then hunt up VC money to keep the engines firing, you'd better count on being able to go viral, because that's what the VC want to see.
If they had simply charged a reasonable fee, maybe they could have grown the business the old-fashioned way. It would have meant smaller sums of money all along, but maybe they wouldn't have experienced this explosion.
It looks like failure to get D&O insurance prevented them from suing a top-tier VC for breaking a term sheet, but it's unclear how wise it is to sue a VC over something like that, anyway.
BTW, if anyone needs commercial insurance for their (California based) business, I've had pretty good experience with http://www.alliedbrokers.com/ Allied Brokers in Palo Alto, so far. Prof liability, D&O, etc. are all things which are probably worthwhile after a >$1mm seed, depending on how litigious your sector is (b2b, particularly).
I suspect people who really want to "protect kids" find a way to do it that doesn't involve greed, lawyers, stupidity, and liberally cursing. Maybe there wouldn't be as much need to protect kids were there fewer people who talked about "getting f*cked" or screwed when talking about kids. Jerk.
As a parent of two middle schoolers, I am a lot less worried about adults using adult language to talk about business than I am about the people who can't tell the difference between that and actual threats to my children.
Please describe these actual threats to your children that you claim. As the first public internet provider in my country we encountered many of these 'actual treats' claims or 'child pornography' witch hunts but we never found a shred of evidence to support them.
What a shitty situation. But why, oh why, would you sell your house and move from Houston to California before the check cleared? We started Matasano when my kids were pre-K and a a full-day every-day handful, and I had to spend a couple months away from my family while we worked out the move (mine from Ann Arbor to Chicago). I know I'm not the only founder to deal with that situation. Was there some additional circumstance involved here, some other pitfall people should be on the lookout for?
I know directly of one case in which one of the terms of the acquisition was that in case of the founder's death within the retention plan, his family wouldn't get the remaining part of the money (which would be given at the end of the retention plan only if he was still alive). This founder, rightly so, thought that it was an awful concept, since his kids needed to be protected exactly in the case of his death. The purchaser said they would have not changed the contract since that was a standard clause and that it was unconceivable to consider changing it.
The startup called everything off the day before the deal (even after it was announced), because of this.
The clause that was impossible to make disappear suddenly disappeared overnight.
P.S.
Congrats for Matasano, I am a fan of your company.
was a standard clause and that it was unconceivable to consider changing it
The clause that was impossible to make disappear suddenly disappeared overnight
Oh, if I had a nickel.
Younger readers (and older ones, too) should be aware that this is one of the easiest lies to slip from someone's lips: "oh, that's standard, we can't get rid of it."
You need someone experienced on your team -- even if not working for you, a friend you can call -- to find out just how "standard" these things are.
EDIT: even terms that really and honestly are "standard" can be changed
While you made a lot of mistakes here, it's also pretty frustrating that there's a good deal of VCs who are basically only looking for the next Twitter. Why would anyone think viral growth would be realistic for this product? How does one acquire that much capital while knowing so little about business?
A good deal? From what I've heard, every single VC in Silicon Valley shares this unhealthy obsession over "the next Twitter" (Just read pg's definition of "startup").
And as long as Twitter, Google and Facebook keep paying 8 figure (or 10 figure) sums to acquire "startups" without a business model, VCs don't need to know anything about real business.
Wow that really sucks. In hindsight, could you have hit up your current investors for the bridge round before shopping around the Valley, or would that have put VCs off too?
As one of my favorite private equity friends likes to say, "a bridge to nowhere is a dock."
We were offered some additional capital but it wasn't enough and our conviction was smashed. Until you've been in this sort of situation, you can't know how you will feel or react. Experience is a great teacher.
We received email after email from parents thanking us for saving their children’s lives, literally.
Yes, please tell me more about all these children whose lives your service saved. Just like To Catch A Predator's ridiculous premise (that digusting, fat 50 year-old men who live in their parents' basement are hooking up with hot teenagers), yours reeks of trumping up a problem that only exists on the extreme fringe. Literally.
one of the partners installed our software. He tested it, he used it, it worked. He got it. He called us and said he wanted to invest as soon as possible.
Who is this investor? I want to know because anyone who would vote money on an anecdotal experience like this is an idiot.
Your story is interesting, but only when it sticks to the parts about you rushing into an investment without due consideration or self-protection.
If you wanted funding, you should've asked Congress for it. They love to exaggerate child sex exploitation as much as your service did.
Indeed, tell us more about these children's lives you saved. I've done extensive research on these occurrences when my first startup internet provider first encountered these claims in the nineties. We never found any evidence whatsoever. We did find an overwhelmingly large number of people ready to go on a witch hunt or lynch these so called perpetrators, but that's been going on for thousands of years now.
Has anyone claiming child pornography online ever actually found something? Again, please show us, they would be my first datapoints ever in our assisting of the police in investigating these.
The business model of the OP is itself predatory on the fears and underbelly feelings of uninformed parents. Better to explain to those parents how to raise children so that they are cautious about anything they encouter online.
I used to work for a content filtering company. Yes child porn exists, and it's one of your worst days when these sites start popping up in what you're reviewing, no, we can't send the links to others to "prove" it exists. I no longer work there and I'm glad I don't have days like that anymore.
It's a good lesson on how not to make poor business decisions, but the number of times the writer repeated the 'protect kids' phrase turned this into a really tough read. This wasn't a noble mission thwarted by evil VCs - simply a cautionary tale of how not to make startup decisions.
I can add a bit more color to this story as I was intimately involved in it.
I worked at the company that was bought by HP in Oregon and then later in Texas. It was called RLX technologies and created the first blade server. After it was purchased by HP I stayed on for a few months before moving on to a startup in Oregon. It seemed like a great idea as they moved me back to Oregon.
My best friend, who got me on at RLX after my first startup (NEI: high speed telecom startup) had crashed and burned, had taken a position at this startup in Oregon (we both were from there and had met after graduating from Oregon State). It seemed like a way to continue the work we had started at RLX and would get me back to Oregon. So win-win.
Long story short: the startup had issues and he moved on to found IMSafer. I would of liked to but needed to stay on for another 6 months, so I wouldn't have to pay back half of my moving expenses.
Once I finally moved on to IMSafer the company was still small with only 6 of us. It was a great time and we built something truly exciting and helpful. We had a wonderful time at the Techcrunch 40…, but that's a story for another time. :) I believe Paul knows this story too, as it was one of the big reasons we got into Ycombinator!
I will skip to the end as Jason supplied much of the interesting info and the color to that debacle. But, I will add, just as you don't count your chickens before they hatch you never, never invite your new 'partner' (board member, investors…whatever) to a board meeting until the money is in the bank.
Once the assets were sold only 2 of us stayed on with the new company that bought us. It was a trying time, but my best friend did get to move back to Oregon and it was just us, keeping a rather complicated site up and running while working on creating the 'new' product that was to make all the money.
While, at IMSafer we had realized that there could be big money in using this software in a more enterprise fashion. We realized that many virtual worlds for kids were popping up and they had use for software like this. He, I and another one of our friends from our old RLX days set out to create a real-time piece to the software that was much better at moderating less dangerous content like curse words, etc. It would quickly mark words they found objectionable and pass the text on to the more complicated software outside their enterprise to look for the truly dangerous things.
From the point that IMSafer crumbled to when he and I decided to leave or got fired…depends on who you are asking, we had grown the business to a million dollar run rate in 8-9 months. But, we had been bought by a startup and we had very different opinions on how to run it with the purchasing company…and we lost!
About that time we left/got fired we decided to do something new. Both of us had vary different experiences buying a new car and decided we wanted to fix that. After getting in a small fight with our former employees we got them to relinquish all rights to CarWoo! and proceeded to build it. At the time it seemed a bit crazy to fight for something that wasn't much more than a landing page and a bunch of crazy ideas, but in hind sight…seems like genius….I have decided to tell it as a stroke of genius!
After we got into Ycombinator we told Paul about this story and at the time he said it was the worst 'pulled funding' story he'd ever heard. It's possible he's heard worse since, but somehow I doubt it.
5 of the 6 of us were married at the time and 4 of us had children. As we were in the tussle over CarWoo!, which was almost nothing at the time my wife had our second child.
Tommy and I got our call that Ycombinator had accepted us while sitting in benchmark's parking lot in the spring of 2009. We had come full circle i guess you could say.
We moved down to Palo Alto, left our wife and kids behind for the time being and the rest is history.
Quite a story, one of the best and most revealing ones I've ever read here, and I've been here since the beginning. Thanks for sharing, and letting us see "behind the curtain" a little.
Thanks. It's pretty cathartic to talk about it. I haven't thought much about it in a long time. I skipped a lot of the details around CarWoo! too...at some point we will get around to posting that.
We had a business model. We knew when we would start charging. We were already testing pricing when the VC round was underway.
We did not get the D&O. That was as much a legal representation screw up than my own failing. I was the CEO, so the ultimate blame lays at my feet.
Term sheets don't matter, but one thing that is getting lost in all of this is that we had definitive docs. We had been given keys to the VC office to take up positions as residents until we had office space. Money from other investors was already in escrow. It's not like we got a signed termsheet and moved. We signed the termsheet in Sept, moved through definitive docs until Nov, and it all fell apart in mid-late Nov. It sucked.
I really enjoyed reading this article. More articles like this need to be on HN, rather than the run of the mill startup success stories. It's refreshing and visceral to hear how a startup can fail, being so close to success.
I know how you feel exactly. I had a business in the same position except in the payment industry: we were processing roughly $1m a day until one day we had a frightening call from the bank. Two weeks later we were in liquidation and I was facing bankruptcy. Like you are saying (in an essence): the rug was being pulled from under you.
Thank you for sharing your story - by sharing, it it helps the whole startup community :)
Age? Sex? Location? That’s how predators started their hunt.
It's also how teenagers started conversations with each other in chat rooms a decade ago. It may still be, but I haven't been a teenager in a while. I imagine predators open with the same question, but actually using it as a filter would produce an unacceptable amount of noise.
This is a useful story about some of the mistakes one can make dealing with VCs, but it sounds like the product itself was a little questionable.
Not really. The default mode is to be skeptical today of anyone online, and that there is no need to provide this information in an online conversation.
In reading the article and thinking back to being a kid who'd create free-trial Juno accounts and dig through drawers to find the Post-It notes that my parents' AOL accounts' passwords were on just to spend hours talking to strangers on the internet because it was exciting, I have to agree with the notion that this software rubs me the wrong way.
This is an issue of parenting; you can't just turn on an app and expect it to do your job for you. Kids won't be dumb if you treat them with respect and show them what can happen if they don't keep their eyes peeled.
Like the ridiculousness of the Dateline conversations, it was always very obvious when someone was creeping on me and it only took one click to block them. Allowing my already-fearful and ignorant parents to read random snippets of messages I was sending and receiving - particularly because a lot of our ASL?? comments were jokes to begin with - is a violation of my privacy and trust. Growing up in an environment like that would have completely shifted not only the way I use the internet today (especially if they'd gone ahead with their plans to implement it in social sites for kids), but would have affected my relationship with my parents in ways that would have left me hesitant to be myself at all.
Worse, when my cousins reached those ages at around the time this company was starting, social mediums had progressed and their problem wasn't talking to people online; it was posting very promiscuous photos and embarrassing YouTube videos showing the inside and outside of their homes and not putting any privacy barriers up. Those are much bigger concerns to me than knowing how to deal with stranger danger in text communications.
You are absolutely correct about the photos. Explicit photos were going both ways on chats. We were working on a solution to that, and had licensed some pretty cool tech from a small firm in DC.
re: the notion that _you_ would have known about a creep online, that's awesome. It's great that you were so self aware. Not every child can say the same. A favorite quote of mine applies here. No matter how you cut the math, and no matter how much you don't like the answer, 50% of the population is below average intelligence.
All of the content on our site explicitly suggested to parents that they should talk to their children _before_ installing our software. Talk about why they were installing it, and show them how it works. Every kid hated it. Of course they did. I would have. Unfortunately, kids have plenty of time to think about ways to circumvent protections their parents put in place. Parents have jobs, multiple kids, schedules to maintain, etc, and in general were outgunned on the technology front. They are all screaming for help, or suffering in silence, throwing up their hands because they cannot solve the problems for themselves.
When we started IMSafer, we were all in our late 20s or very early 30s. We were all hacker types. We also had young kids. One of our advisors was a police officer (personal friend) who spent a ton of time with us talking about the realities of the bad people out there. It's not Chris Hanson crazy, but there are really, really bad people out there. More often than not, related to the harmed minor.
I'd actually be really interested in reading about some of those scenarios if you have any links/blogs available.
Perhaps I was a little more aware of my online surroundings, but as children and pedophiles become increasingly technical and able to overcome these barriers I still think something like that has the potential to do more harm than good. Like you said, I had all the time in the world to figure out how to get around the rules and would have gone out of my way to find ways to bypass your software, potentially finding myself using avenues that were even shadier than the already-risky chat methods we all use and opening up my system to attacks or more in-depth tracking of my/my parents' online activities.
Although the likelihood for abuse/noise is high, the ability to report questionable conversations to support avenues rather than parents and law enforcement (who may try to take things into their own hands too soon without the appropriate amount of proof) seems like it would be the most effective at this point. Maybe something like this already exists?
Anyhow, many thanks for the response and for trying to find a solution! It will definitely be interesting to see what the future holds for online safety.
I don't think it's really unfortunate that kids can circumvent technical measures. It's unfortunate that parents want a robot babysitter.
The primary danger comes from breaking the barrier between online and in-person. The best solution seems to me to be parents being understanding and supportive. Want to meet someone you talk to online in person? OK, fine. The parents come along and meet in a public place. If, instead the rule is "no meeting people from the internet ever", teenagers will do it anyway in a much less safe manner.
Lol totally evil product based on making people lives awful through fake fear.
But I guess that's many successful products, make people feel bad or their lives are missing 'something' and give them the solution for the $
Myself and friends have often talked about it. Be unethical but make money. Individual vs Herd mentality. And in the first world is it really that evil to fool the people who fall for it? I find it hard personally but maybe that's a weakness I should train to get over, not sure. I do give a % of my wage to 3rd world charity so would I still be up positive ethics wise.
Interesting article to see into that world anyway, something to think about.
"For almost two years they had been personally liable for what me and my friends were up to."
I don't understand this part. Shouldn't the investors have seen the insurance through themselves? It seems mad to rely on other people for that kind of thing. Sure it would have been nice for the startuppers to organize it, but really, it's a no-brainer that for such things you have to organize it yourself (because the people tasked with it have no real stake in it).
Doesn't sound like they had any idea how to make money off this thing. Since for whatever reason they decided they didn't want to charge any money for the service.
What could they have done to make money from children's internet chat logs that would not be in some way shady?
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[ 2.4 ms ] story [ 160 ms ] threadAnything is better than what's up there now.
This is why VC-istan is dead. (Not actually dead, but "Microsoft is dead" dead.)
Our service was free as we were working out the business model. We actually had a genius business model but hadn’t implemented it yet. We wanted more users so we spent money on marketing.
Maybe the real problem wasn't the insurance?
A lawsuit wouldn't have fixed anything for them; it'd have taken years to resolve.
It's one thing to sell products to, say, every freelance developer in the world. Freelance developers are (relatively speaking) wealthy and interested in products that improve their practices. Parents are not generally in an ambient state of seeking products to secure their kids Internet connections. That makes them hard to reach and sell to.
Was it a billion dollar business? Probably not, unless we owned most of the space if not all the space. This was inconceivable when you looked at the players.
Good god, that was a bad idea. I got lots of users, ended up buying a bunch of hardware, and worse, signing contracts on more datacenter space. I got a whole lot of abuse complaints, and had to get a larger bandwidth commit, too. (my provider at the time had the very common business model of having very high overage charges, but you could get out of the overage charges by signing a long-term contract at the new 95th percentile.)
Of course, many left when they got the first bill, leaving me about where I started revenue-wise, and with much larger monthly bills.
several years later, vastly increasing the resources I gave per dollar, /then/ getting featured in a blog[1] many months later, brought me up to a reasonable scale. I do think that the lower prices were necessary (but not sufficient) to start that growth.
I suppose that might be more like the transistor situation than anything else; Yeah, the company was "Profitable" but only because my time was free. I was selling at a huge loss if you counted market-rate for my time.
[1]http://uggedal.com/journal/vps-comparison-between-slicehost-...
(I owe that one post so much; revenue more than tripled in just a few months, and I was able to go full-time. I should probably do something for that guy.)
If they had simply charged a reasonable fee, maybe they could have grown the business the old-fashioned way. It would have meant smaller sums of money all along, but maybe they wouldn't have experienced this explosion.
BTW, if anyone needs commercial insurance for their (California based) business, I've had pretty good experience with http://www.alliedbrokers.com/ Allied Brokers in Palo Alto, so far. Prof liability, D&O, etc. are all things which are probably worthwhile after a >$1mm seed, depending on how litigious your sector is (b2b, particularly).
The clause that was impossible to make disappear suddenly disappeared overnight.
P.S. Congrats for Matasano, I am a fan of your company.
The clause that was impossible to make disappear suddenly disappeared overnight
Oh, if I had a nickel.
Younger readers (and older ones, too) should be aware that this is one of the easiest lies to slip from someone's lips: "oh, that's standard, we can't get rid of it."
You need someone experienced on your team -- even if not working for you, a friend you can call -- to find out just how "standard" these things are.
EDIT: even terms that really and honestly are "standard" can be changed
And as long as Twitter, Google and Facebook keep paying 8 figure (or 10 figure) sums to acquire "startups" without a business model, VCs don't need to know anything about real business.
We were offered some additional capital but it wasn't enough and our conviction was smashed. Until you've been in this sort of situation, you can't know how you will feel or react. Experience is a great teacher.
Yes, please tell me more about all these children whose lives your service saved. Just like To Catch A Predator's ridiculous premise (that digusting, fat 50 year-old men who live in their parents' basement are hooking up with hot teenagers), yours reeks of trumping up a problem that only exists on the extreme fringe. Literally.
one of the partners installed our software. He tested it, he used it, it worked. He got it. He called us and said he wanted to invest as soon as possible.
Who is this investor? I want to know because anyone who would vote money on an anecdotal experience like this is an idiot.
Your story is interesting, but only when it sticks to the parts about you rushing into an investment without due consideration or self-protection.
If you wanted funding, you should've asked Congress for it. They love to exaggerate child sex exploitation as much as your service did.
Has anyone claiming child pornography online ever actually found something? Again, please show us, they would be my first datapoints ever in our assisting of the police in investigating these.
The business model of the OP is itself predatory on the fears and underbelly feelings of uninformed parents. Better to explain to those parents how to raise children so that they are cautious about anything they encouter online.
Can't tell if serious? This happens all over the valley all the time. You show investors something they would use many of them would invest.
I have heard "oh, that's cool I would use that," many times for a lot of bad ideas. VCs have egos that cloud their judgement all the time.
I worked at the company that was bought by HP in Oregon and then later in Texas. It was called RLX technologies and created the first blade server. After it was purchased by HP I stayed on for a few months before moving on to a startup in Oregon. It seemed like a great idea as they moved me back to Oregon.
My best friend, who got me on at RLX after my first startup (NEI: high speed telecom startup) had crashed and burned, had taken a position at this startup in Oregon (we both were from there and had met after graduating from Oregon State). It seemed like a way to continue the work we had started at RLX and would get me back to Oregon. So win-win.
Long story short: the startup had issues and he moved on to found IMSafer. I would of liked to but needed to stay on for another 6 months, so I wouldn't have to pay back half of my moving expenses.
Once I finally moved on to IMSafer the company was still small with only 6 of us. It was a great time and we built something truly exciting and helpful. We had a wonderful time at the Techcrunch 40…, but that's a story for another time. :) I believe Paul knows this story too, as it was one of the big reasons we got into Ycombinator!
I will skip to the end as Jason supplied much of the interesting info and the color to that debacle. But, I will add, just as you don't count your chickens before they hatch you never, never invite your new 'partner' (board member, investors…whatever) to a board meeting until the money is in the bank.
Once the assets were sold only 2 of us stayed on with the new company that bought us. It was a trying time, but my best friend did get to move back to Oregon and it was just us, keeping a rather complicated site up and running while working on creating the 'new' product that was to make all the money.
While, at IMSafer we had realized that there could be big money in using this software in a more enterprise fashion. We realized that many virtual worlds for kids were popping up and they had use for software like this. He, I and another one of our friends from our old RLX days set out to create a real-time piece to the software that was much better at moderating less dangerous content like curse words, etc. It would quickly mark words they found objectionable and pass the text on to the more complicated software outside their enterprise to look for the truly dangerous things.
From the point that IMSafer crumbled to when he and I decided to leave or got fired…depends on who you are asking, we had grown the business to a million dollar run rate in 8-9 months. But, we had been bought by a startup and we had very different opinions on how to run it with the purchasing company…and we lost!
About that time we left/got fired we decided to do something new. Both of us had vary different experiences buying a new car and decided we wanted to fix that. After getting in a small fight with our former employees we got them to relinquish all rights to CarWoo! and proceeded to build it. At the time it seemed a bit crazy to fight for something that wasn't much more than a landing page and a bunch of crazy ideas, but in hind sight…seems like genius….I have decided to tell it as a stroke of genius!
After we got into Ycombinator we told Paul about this story and at the time he said it was the worst 'pulled funding' story he'd ever heard. It's possible he's heard worse since, but somehow I doubt it.
5 of the 6 of us were married at the time and 4 of us had children. As we were in the tussle over CarWoo!, which was almost nothing at the time my wife had our second child.
Tommy and I got our call that Ycombinator had accepted us while sitting in benchmark's parking lot in the spring of 2009. We had come full circle i guess you could say.
We moved down to Palo Alto, left our wife and kids behind for the time being and the rest is history.
Also, now I wish I were in the market for a new car. I'll probably just get a Tesla in a couple years, which CarWoo can't really help with.
Anyway, a few comments:
- They paid for free users with no business model in place
- They failed to complete requirements of their previous investment deals
- Handshakes don't matter, term sheets don't matter; nothing matters until the check clears
We did not get the D&O. That was as much a legal representation screw up than my own failing. I was the CEO, so the ultimate blame lays at my feet.
Term sheets don't matter, but one thing that is getting lost in all of this is that we had definitive docs. We had been given keys to the VC office to take up positions as residents until we had office space. Money from other investors was already in escrow. It's not like we got a signed termsheet and moved. We signed the termsheet in Sept, moved through definitive docs until Nov, and it all fell apart in mid-late Nov. It sucked.
Thank you for sharing your story - by sharing, it it helps the whole startup community :)
It's also how teenagers started conversations with each other in chat rooms a decade ago. It may still be, but I haven't been a teenager in a while. I imagine predators open with the same question, but actually using it as a filter would produce an unacceptable amount of noise.
This is a useful story about some of the mistakes one can make dealing with VCs, but it sounds like the product itself was a little questionable.
This is an issue of parenting; you can't just turn on an app and expect it to do your job for you. Kids won't be dumb if you treat them with respect and show them what can happen if they don't keep their eyes peeled.
Like the ridiculousness of the Dateline conversations, it was always very obvious when someone was creeping on me and it only took one click to block them. Allowing my already-fearful and ignorant parents to read random snippets of messages I was sending and receiving - particularly because a lot of our ASL?? comments were jokes to begin with - is a violation of my privacy and trust. Growing up in an environment like that would have completely shifted not only the way I use the internet today (especially if they'd gone ahead with their plans to implement it in social sites for kids), but would have affected my relationship with my parents in ways that would have left me hesitant to be myself at all.
Worse, when my cousins reached those ages at around the time this company was starting, social mediums had progressed and their problem wasn't talking to people online; it was posting very promiscuous photos and embarrassing YouTube videos showing the inside and outside of their homes and not putting any privacy barriers up. Those are much bigger concerns to me than knowing how to deal with stranger danger in text communications.
re: the notion that _you_ would have known about a creep online, that's awesome. It's great that you were so self aware. Not every child can say the same. A favorite quote of mine applies here. No matter how you cut the math, and no matter how much you don't like the answer, 50% of the population is below average intelligence.
All of the content on our site explicitly suggested to parents that they should talk to their children _before_ installing our software. Talk about why they were installing it, and show them how it works. Every kid hated it. Of course they did. I would have. Unfortunately, kids have plenty of time to think about ways to circumvent protections their parents put in place. Parents have jobs, multiple kids, schedules to maintain, etc, and in general were outgunned on the technology front. They are all screaming for help, or suffering in silence, throwing up their hands because they cannot solve the problems for themselves.
When we started IMSafer, we were all in our late 20s or very early 30s. We were all hacker types. We also had young kids. One of our advisors was a police officer (personal friend) who spent a ton of time with us talking about the realities of the bad people out there. It's not Chris Hanson crazy, but there are really, really bad people out there. More often than not, related to the harmed minor.
Perhaps I was a little more aware of my online surroundings, but as children and pedophiles become increasingly technical and able to overcome these barriers I still think something like that has the potential to do more harm than good. Like you said, I had all the time in the world to figure out how to get around the rules and would have gone out of my way to find ways to bypass your software, potentially finding myself using avenues that were even shadier than the already-risky chat methods we all use and opening up my system to attacks or more in-depth tracking of my/my parents' online activities.
Although the likelihood for abuse/noise is high, the ability to report questionable conversations to support avenues rather than parents and law enforcement (who may try to take things into their own hands too soon without the appropriate amount of proof) seems like it would be the most effective at this point. Maybe something like this already exists?
Anyhow, many thanks for the response and for trying to find a solution! It will definitely be interesting to see what the future holds for online safety.
The primary danger comes from breaking the barrier between online and in-person. The best solution seems to me to be parents being understanding and supportive. Want to meet someone you talk to online in person? OK, fine. The parents come along and meet in a public place. If, instead the rule is "no meeting people from the internet ever", teenagers will do it anyway in a much less safe manner.
But I guess that's many successful products, make people feel bad or their lives are missing 'something' and give them the solution for the $
Myself and friends have often talked about it. Be unethical but make money. Individual vs Herd mentality. And in the first world is it really that evil to fool the people who fall for it? I find it hard personally but maybe that's a weakness I should train to get over, not sure. I do give a % of my wage to 3rd world charity so would I still be up positive ethics wise.
Interesting article to see into that world anyway, something to think about.
I don't understand this part. Shouldn't the investors have seen the insurance through themselves? It seems mad to rely on other people for that kind of thing. Sure it would have been nice for the startuppers to organize it, but really, it's a no-brainer that for such things you have to organize it yourself (because the people tasked with it have no real stake in it).
What could they have done to make money from children's internet chat logs that would not be in some way shady?