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Todd is joined by Ben Lewis, a special guest and great friend. Ben has had two substantial exits, including one to Facebook just hours before they went public in 2012.
The Wise Exit is an open dialogue with fellow founders and former business owners sharing real stories and offering honest advice around selling their companies to some of the top acquirers in the world.
Beyond the entertaining and educational exit stories, host and M&A Advisor, Todd Sullivan is here to help demystify the Mergers & Acquisitions (M&A) process. For example:
- How much is my business worth?
- What is Net Working Capital?
- When should I get a Quality of Earnings analysis
- Should I hire an Investment Banker, M&A Advisor, or Business Broker?
- When do I talk to my Key Employees about a possible transaction?
We hope you enjoy... and learn a few things along the way!
Cashing Out Podcast | Episode 1 | Ben Lewis | Sold To Facebook
Todd: [00:00:00] Welcome to the cashing out podcast where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve.
Today, we have a special guest and great friend, Ben Lewis. Ben has had two substantial exits that we're going to cover today. The first was Tapjoy, a really successful mobile ads platform doing over a hundred million in revenue, which Ben sold to offer pal in 2010. Now there was big internal debate, whether Ben and his co-founder should sell the business when they did. So I'm excited to hear how they made that decision.
Ben's next business was called karma science, which was a social commerce app focused on helping people give great gifts from their mobile phones. Karma was acquired by Facebook just hours before Facebook went public in 2012. So, you know, there's some great stories and great learnings there. I hope you enjoy my [00:01:00] conversation with Ben Lewis.
Ben, thank you for doing this. This is awesome. So we've been friends a long time, right. And we've been really part of each other's entrepreneurial journey over the years. And I know we've talked about your exits, but like, I, I don't know that I ever had real insight maybe on, we talked a little bit about Tapjoy when you were, you know, thinking through.
But, um, I think this is gonna be really informative to people because inherently I think that any M&A process is private, right? And so there are only certain things that you can say, but now you're, you're a few years out of these. And so maybe there's something we can say that we weren't able to long time ago.
So, I'm excited to learn. Thank you very much for helping me do this.
Ben: Of course, you know, happy to be here, uh, really excited to be able to support you and, uh, be part of the Exitwise podcast,
Todd: Awesome. Well, you are first. I had to [00:02:00] bump Cuban to get you in there. Right? I needed, I really needed a household name. Ben Lewis from San Francisco, or actually not from San Francisco anymore, but built the companies in Silicon valley. Yep. You want to maybe start with, because I thought this was funny. How I first met you or at least knew of you. Do you remember when we first met?
Ben: I do. We first met at the beginning of our second year of business school.
Okay. And we were told that we had to meet each other, because we were both really into startups and. I forget what the exact context was of our meeting. Okay. But I, I do remember, like we immediately hit it off and decided to work on a business plan together.
Todd: Perfect. I do remember a slightly different story.
Okay. Okay. so, okay. We have just all got to business school first day, first year, and it's [00:03:00] orientation and it's 400 of us in an auditorium and there's professors coming up and talking to us about, you know, what the experience is gonna be like. One professor says, ah, we're gonna go through cases and we're gonna look at the inner workings and strategy and competition between Xbox and PlayStation.
And then he drops a couple of facts out there about how Xbox thought of PlayStation and then in the middle of this room, like dead center in the middle is this guy that says, “ah, that's actually not right”. And you got all these type a personality people on their first day of business school going, who the hell is that guy.
And immediately the professor engages like, this is exactly what business school is about. Tell us about it. And you went in to talk about what you did at Xbox, right? and I could see all these eyes on you. And I'm like, I, I gotta meet this guy. That guy is gonna be my buddy.
And that was like day one. So I don't think our paths crossed because we [00:04:00] weren't in the same section at University of Michigan. And then you're right. It, it was the second year that people were basically like you two have to get together, right? Yeah. And, uh, yeah, we had a great, great time in business school.
Ben: We did, we did have a great time in business school.
Uh, that it's been fantastic. We've known each other for now. 17 years. Yeah. Oh my gosh.
Todd: 15 years. Oh my gosh. You were in my wedding. That's right. Yeah. Well, um, alright. Since, this is really about trying to help people get insight into M&A transactions can you maybe tell me a little bit about the first company.
Tell me about the company and then we'll kind of go from there.
Ben: Uh, yeah, I mean the first company you're probably referring to is Tapjoy. Yes. It's not my first exit nor my first company, but the first real one, we'll say. Okay. Uh, like I I've always been entrepreneurial. We were like starting businesses when I was in high school.
That's right. Um, You know, the first real exit was Tapjoy and Tapjoy started, [00:05:00] uh, mainly because in business school, a friend and I won some money in a business plan competition, and we just saved it and eventually decided to use it to build an iPhone game. This was right in 2008 when the app store had just launched.
So, for those of you who weren't around back then, the iPhone had been out for about a year. The iPhone when it launched, uh, it was incredible. Uh, you know, it was the first mobile device that truly let you browse the internet. Thanks to the interface, the, the way that you managed the data. It, it was phenomenally better than what was out there.
And it had, by the time the app store launched, built up at least a million users of the product. Um, and then Apple's like, developers, if you want to bring your software to our phone, you can do that. Now, before that you could only really make websites like these tiny new mobile web pitches. So, you know, a number of comp people thought that this would be a really good opportunity [00:06:00] to create a viable business.
In fact, uh, Kleiner Perkins, one of the premier venture capital firms at the time created a hundred million dollar I fund dedicated to investing in companies. I remember that. Yeah, just to build software. Yeah. The iPhone. And so there were gaming companies, a lot of gaming companies, but there were messaging companies and other, other companies out there that all started, um, fantastic founders across the board for these companies.
And then they, you know, raised millions of dollars from Kleiner and I'm sure other investors to create software. Um, and you know, uh, my friend and Eileen and I, we, we built, we decided to build. Know, he had worked, uh, for Kleiner as an intern, getting his MBA and we thought this is a great opportunity.
We have, you know, about 20 grand in cash that we won. Used it to build a game. And between the two of us, we also had engineering abilities, uh, game design abilities. And we knew that we could outsource the remaining pieces of what we wanted to build for roughly the amount of money we had in the bank.
And that was about right. So we decided to build a [00:07:00] tower defense game because I had been playing a tower defense game on my computer and that they were really fun. And that would be great for the mobile format. And so we did, we, we found outsource developers, outsourced artists, outsourced sound to create this game.
Uh, I designed it, uh, I remember going and, and spending a lot of my time. Uh, I was working at Google at the time when I got home from Google, I would go and build my spec and design this game. And, you know, Lee took care of a lot of the other stuff, but, uh, the game design was definitely something. I spent a ton of my time on, uh, including how the game worked, all the values, et cetera.
Long story short, we did launch it right around Christmas time. So it was about November and we launched this game right before we launched it. We were gonna charge $5 for the game. And back then, I know this sounds crazy, but everyone was just charging for their games. Okay. You, yeah. So you charge, you know, $3, $5, $10.
And it sounds crazy today, but back then, that was sort of the standard. And right before we launched our game, this other game called field runners. [00:08:00] And field runners was really good. It looked better than our game. It was a tower defense game with better graphics. Like, well, we can't compete with this.
They were charging $5. We said we should be free and have ads. And we'll probably make as much money from ads as we would from charging. We did, we did the math. We're like, oh, we'll get about a penny for every time someone used an ad. And that led up, uh, did not know enough about ads at the time.
Definitely didn't know enough about mobile ads and we, so what, what happens, but we also didn't know about. And so we launched our game and it turns out that free is way more popular than paid way, way more popular. So within like a week, we shot up to the number one app in the app store, which meant by rankings, like literally like the most popular game was ours.
Most popular app was ours. Uh, we were, you know, before we a millennia gameplay was under a belt and it turns out because people wanted free and we were showing these ads and what we found out that a, our, our estimates and how much money we would make from ads were [00:09:00] vastly too high. Uh, we were making like maybe one or 2% as much as we thought we might make.
We also learned about this thing called fill rate. So if you remember, fill rates are when you request an ad. How often is an ad actually returned because they need like for the ad agency, in this case, we were using a company called ad mob to supply us with ads. Well, if ad mob hadn't sold ads to their customers, then there were no ads to fill for our display.
And so we were only getting was a 35% fill rate. And so. Well, we had at our, our hands, we were like, this is about Christmas time. We were number one, the app store. And like the app store is locked over Christmas. So as everyone was getting the new iPhones for Christmas, the first thing they would do is open the app store and download our game.
So we became even more popular. So we had this very popular game and we were just not making that much money from it. Uh, the, at least as much as we thought we were making. Yeah, we should have been making.
Todd: And you were still at Google at the time.
Ben: I was still at Google, but over Christmas Lee and I decided that we were going to make this a reality that I would get [00:10:00] back in January. I'd quit Google. Uh, we would do this full-time he would finish up business school, but we would make this a full-time business. And we said, this is there's something here, right? It's the start of something. And if it doesn't work, it doesn't work. Uh, and, and, you know, I've always been entrepreneurial just like you Todd.
And that I knew was gonna do a startup. And so this was a great opportunity to do a startup, right. We had a game with. Thousands, if not millions of users at that point and plenty of data to work with to get something started what we decided though, as, as we were making decisions that we needed to make more money from our ads.
And so we built out a handful of tools to help us do that. One of those was a tool that helped us, um, rotate ads from different ad networks to make sure we would always have an ad show. That was like a tool we build. The other thing we built was, uh, it was an incentivized ads platform. Essentially. We said, if you, um, you know, buy this other app or engage with this other service, uh, we'll give you a new [00:11:00] tower in the game.
And that's the concept of incentivized ad was not new to us. Yeah. But the concept doing a mobile was so we were really one of the first companies to do that. And so we built this in and we obviously, this is not my full-time job by the time that thing launches, but I distinctly remember, um, you know, building out that incentivized ads product and, you know, we submit our, you know, tap defense, our game, we submitted the app store for an update, you know, takes back then took two, three weeks at least to get through.
Yeah. And I remember being literally on a, a ride with, uh, my family. We taking a trip to Yosem. I remember getting the email as I'm sitting next to my father on the car, like, oh, cool. Our, our, our app is approved. and I, I wonder how it's gonna work because, you know, ultimately when you're, you're doing something new for the first time, you're really trying to understand is how will people respond to this new concept?
Right? The question was will, a lot of people decide to engage with our ads in order to get new towers [00:12:00] in the game. And it turns out the answer was a ton of people. It worked really, really well. And that was, I remember very distinctly thinking. This is like gonna be a fantastic opportunity for us. Uh, and so what we did was like, we found this thing, it worked really well for us until we opened it up to third party developers.
We made an SDK, we went to these local Palo Alto meetups and for other like mobile developers, uh, and we worked with all the I fund, uh, portfolio companies. We gave them tools to either monetize their games really well with the incentivized ads or tools to help distribute their games or other apps really well as, as ads on our, our network.
And the fact is ad platforms are nothing new ad tech is nothing new. It's been around since the beginning of the internet. We've had digital ads. And so there wasn't like anything earth shattering here, but for us, it worked really well. And over time, like we started out making like, you know, thousands of dollars a month to tens of thousands dollars a month to, uh, like over, uh, millions of dollars a month.[00:13:00]
By the time I ended up leaving, actually we were making 10 million a month in top line revenue coming into this platform because it worked really, really well. And so a lot of it was just getting lucky, having like a need that we had to solve ourselves. Yeah. Part of it was having access to fantastic individuals who were able to hook us up with proper partners, including a lot of Lee's friends from Stanford business school.
They were really influential. Um, but we were, you know, in a position where we were making a lot of money coming in, but we're also paying it out when you're an ad network. You know, most of the money that comes in is getting paid out to publishers. So it's not like we were massively profit. Um, we're also unsure of the future of like how like successful this sort of ad could be and the platform could be, cause a number of things could have gotten away.
And in fact, over time, they, they certainly did, uh, prevent that from working, uh, forever. But the big question right is from an exit perspective is, you know, a year in. To the platform being live. Uh, we were doing, if I remember correctly, about a half, a million dollars a month in [00:14:00] top line revenue, which is really good for two people, we had one, we had one employee, my friend, Steven, who's a fantastic engineer.
And then I, I love working with Steven, uh, good friend of mine. And then we had two interns, uh, from Stanford. One of them ended up founding the company pocket gems, the other founded Bayview labs, um, which, you know, has had a fantastic exit of its own. and like, so we're a small company and we were making this kinda money and we had an opportunity to exit or raise more cash.
Todd: Let, yeah, let me, let me stop you there. So, okay. Awesome story. Right. You guys, that kind of pivot to that distribution network was gold. You solved the problem for yourself. Now you're opening it up to everyone else in that ecosystem. So that's amazing. And so do you have, uh, other, do you have investors, board members, like who else is part of this that's a stakeholder?
Ben: We had one investor who had a small piece of the company.
Todd: And was that Kleiner? Was that the Kleiner Group?
Ben: [00:15:00] It, it was an ex Kleiner investor who started his own investment firm. Yep. And. So it is TBO ventures, I believe. And they put, I think it was half a million in roughly. Okay.
Um, after we had the game, like, all right, we're gonna take a small investment to help scale us out, uh, a bit as we had the game coming in with some ad revenue, but it wasn't a ton of ad revenue at the time and maybe a hundred grand a month, but like you're spending money on like developers and all these other things.
So it's not like we had a ton of pay ourselves or anything, which was okay. Part of being a startup, you know, I'd made some decent money at Google, so we were okay. Going without a salary, uh, for a while. But we wanted to raise a little bit of money anyways, so we had to, but it was just be and one investor and that was all.
Todd: So really the three of you, those are, you guys are gonna make this decision when the opportunity arises to exit, right?
Ben: Yes. Right. And we weren't planning on an exit. We weren't really planning on it. Okay. How did it come about? So, how it came about is we were doing a partnership with a company that did basically what we did, but on the web. Yep. So we had this partnership going with [00:16:00] them to like share ads and stuff and they decided they wanted to do what they were doing on mobile.
So they, they said, we, we wanna buy you. And we're like, oh, that's interesting.
Todd: So they wanna take their business from web to mobile. Is that the idea? Yes. And they were a big kind of customer or third party vendor to you already.
Ben: They were doing exactly what we were doing, but they were on the web.
Todd: I mean, because I know, I know the story of offer power. Right. And I feel like that's offer power. A lot of kids were signing up for Netflix to get like points or something like that. Their network.
Ben: Yeah, exactly. They were huge. So back then Facebook games were the thing. Yep. And so they basically were the ad network for Facebook games and you could sign up for Netflix, whatever, and you'd get some extra stuff for your farm in Farmville.
Right, right. Yeah. They were doing really well. They were making a lot of money. Yep. And like, Hey, we, we see mobile as the next day thing. We wanna buy you guys and, and like take this partnership and really make it go on mobile.
Todd: So how did that start? Was it the CEO that calls you guys and, and makes this offer, was it really important that you [00:17:00] had some kind of partnership beforehand that got them to a comfort level or, or they just saw you growing outta the weeds, getting big and going, these guys are the mobile leaders we need to…
Ben: No, the partnership, the partnership was like huge.
Todd: Okay. Cool. So they approach you, right. And what what's that? What's that like?
Ben: So they approached and they said we wanna, you know, make an offer to, to buy you. And I, I don't remember the specific it's been so long. Yeah. It's been, uh, almost 15 years, but I don't remember exactly. They gave us numbers at the time or not.
But they said they wanted to buy us. And at the time we were thinking, well, maybe we should be raising a round from investors. And so we, we approached Kleiner Perkins and they said that they would be willing to, to lead around. Um, and it was, we. So now we have these two options.
Like we, like Kleiner could lead a round and then it was a series a or we could take this acquisition. Yep. And so there was just a ton of back and forth at this point. Yeah. Took months of back and forth to Lee myself, um, to make the right decision. And I'll be honest in [00:18:00] the end we made the wrong decision.
The crazy part is we, we like spent so long on this. Yeah, and we made the absolute wrong one.
Todd: Okay. So hindsight 20, 20, right. I remember these moments, right? Cuz you were calling me. Yeah. And saying we could take money, we could take the exit. What should we do? And you know, maybe you should never ask for my advice again, but I was about, “Ben change your life”. Because we are serial entrepreneurs. You're gonna do this again. And again and again, like get your family straight, no debt coming out like, you know, right. Change your life. And that was, that was my pitch to you. Right. And I think you had some competing opinions, right?
Ben: We had competing opinions and the fact is like ultimately the decision to.
Ultimately was the right call for sure. Uh, my life is way better off having sold the business. Had I waited three months. Yeah. We would've made more money. Little more the time. Six months. Yeah, for sure. Like, and the thing is you never know the timing and like this story continues for sure. Yeah. Um, [00:19:00] it turns out like the, the story of Tapjoy, because what happened is.
We ended up surpassing them and they took our name so tapped and it became an entirely mobile business. So it was just our business. Yeah. It recently sold for $400 million, but I know they were worth a lot more, they were worth a lot more, yeah. 10 years ago. So basically like went up and then of course, and especially when you look at the value of individual shares yep.
Dropped a lot over the time after that, because like the whole ecosystem changed there's competition. There are a lot of rules about what you can and cannot do in part of ads go. So the fact is like, you never know the right time to. What we, the reason we made the decision to sell and why it wasn't so bad in the end.
Yeah. Is personally for, for Lee and myself, um, in that exit, we made a lot of money. Yeah. And more money. The theory was this is very like MBA speak, but the utility to us of more money goes down dramatically. Once you have a certain amount. So that was, that was Todd's [00:20:00] advice and it is correct. And the fact is like, if you're talking about a difference between having say $3 million or 5 million or 10 million, or even a billion dollars, honestly, it's not that different.
Okay. It really isn't much different as far as like your overall level of happiness. We looked in, we did all the research on what drives happiness and stress and everything else in life. And the fact is it was enough money for us personally, that we would be in fantastic shape.
Todd: I think that's really important, because I was gonna ask you, you know, not specifically asking about the number, but how did you come to a number.
Made it that's enough. That's enough for me to feel really comfortable, to solidify a future, allow me to continue to do what I love to do, be an entrepreneur. So you kind of answered that. Was there any, yeah, like I know there was disagreement, so I've had investors that are pushing me to do one thing and others pushing to do another and fights and board rooms.
And so it was just three of you. So you and Lee really are making the decision, but the third party are they [00:21:00] happy with the exit
Ben: ultimately. As an investor, he got a return. Yep. But he would've gotten a bigger return. Had we stayed independent sure. For another three to nine months. Okay. And like, like the fact is it would've been, and, and the utility to him and his fund would certainly be higher yes.
Than it would stress individually. So like, these are always the considerations. Like there was, and you know, a lot of stories come out about companies that are worth a billion dollars and then go down to nothing. So like, you need to take those exits, uh, in our case, you know, had we known what the future, like the next six months would've looked like sticking around independently.
We would've made three times as much. Okay.
Todd: So you make the decision, you change your life. Yeah. And now you gotta go work for somebody, right? Yep. And you know, my guess, cuz I know myself, right. I'm not the best employee. So what's it like, obviously I don't wanna project that on you because you were, did, did fantastically at Google. Right? You won some engineering prizes. Like you were [00:22:00] clearly great there.
Ben: I did. Okay. I did. Okay. I, I didn't like, I'm not a corporate guy either. Okay. Like I had to, I, I like, I started some projects that did very well. That's just. But I also didn't get promoted a lot or, you know, that sort of thing.
Todd: Actually one of my favorite things about you is how exceptional you are as an entrepreneur and how self-deprecating and humble. You are never kind of looking for the limelight, right? Your name wasn't splashed around in the exits very much, um, that you've had. And so, uh, you know, I, I appreciate that. You're never kind of looking for that attention. So you're going to work at OfferPal that soon renames themself to that joy. Yeah.
What's that like,
Ben: it, it was a lot of fun. Um, I really enjoyed that time. So a, you know, when, when you're acquired, you are working for the, the acquirer. Yeah. That's fact of life. Yep. However, it's not like you just got a job. There is a gigantic difference between coming in off the street as [00:23:00] an employee versus being acquired as a founder.
Okay. When you're acquired as a founder, you're not looking for a promotion, you're not looking for a raise. You're not looking for a good performance interview. So the stress level of being that employee is way lower. Yeah. Ultimately, there are restrictions about what you can and can't do. So you can't just start another business.
And that's why a lot of founders wanna leave the inquiry company. So they wanna start another business. Yeah. And so you start take for few years or whatever, and then you, you make your cash and then you start something new is, is a super common story. I enjoyed it. Honestly. I enjoyed it very much. We, um, a, because like our business was doing so well, we had all these resources Lene and I were.
We weren't the CEO of the new company, but we were still essentially in charge because all the employees were working on our thing. And if we wanted something to happen, it would still happen because they're not gonna overrule us and then like lose their employee. If we were doing something stupid, I'm sure that would've happened.
But the fact is we had a ton of autonomy. We hired a bunch of our friends, so a bunch more B-schoolers and friends of ours came over and joined. Yeah. [00:24:00] Uh, joined at that point, uh, we started out like six of us working in this small Regis office. Then we established this huge San Francisco office and all OfferPal ended moving up there and it was like this really fun, awesome time.
That's cool. And the business was going, growing like crazy. So a bunch of friends of ours started new mobile gaming companies. And we like funded those companies and we like worked. They were showing ads and we were giving them a credits and it was like, and these all became big, big businesses. And so like, it was just getting crazy.
It was a little intense from a, you know, people getting a little like overinvested in their work sort of situations. It was just getting a little full of themselves or whatever it was sort of, if you’ve seen the show Silicon Valley. Yeah. Yeah. It started to feel like that. Yeah. um, but the numbers kept growing up.
Like we went from 500,000 a month, like 10 million a month, top by revenue. Wow. And the business. Blowing up and it, like, I enjoyed it. I was working with my friends. Yeah. And we were hanging out and this was before I had kids. So we would be like, stay in work late and grab dinners and go to like bourbon and branch and have all these like fun times and fun drinks.
And, and it [00:25:00] was really exciting. So I didn't find that like, ultimately not being in charge didn't. Change much, or you're never like, even as an entrepreneur. Yeah. If you start company, you're never in charge, you have investors. You have employees, you've got partners. You're never calling the shots.
You don't ever get to do everything you wanna do. And, and Todd, you know, this as well as anybody else. Um, so it's a different experience when you're working for the acquirer. Uh, but for that year, I, I really loved it, but ultimately we knew Lee and I, that we had an opportunity in front of us after about a year to start a company and raise money from whomever we wanted to raise from. Yeah. And do whatever we wanted to do. Like, we knew that like Tapjoy was as big a thing as like in ads right now. Yeah. That point. So we also knew like we wanna start something new and we knew that we didn't have a big skin in the game left.
Todd: Yeah. That's what I was gonna ask in that exit. Right. So you get a checkup front, but there's some kind of earn out component to it. Right. They want you, they gotta keep.
Ben: There was earn out. Yep. [00:26:00] They had to keep you get paid over time. And we got some stock in the company as well. But ultimately it was, it was a small piece.
Like we could, like, we could start a company right now. Yep. And own 50% each and then give a little bit to an investor. Yep. And, and do something new. And. Actually be in charge again,
Todd: One thing that I've found is that if you put a win on the board, right, that's another reason to sell for a first time entrepreneur, you put a win on the board, getting up to bat again.
It's a little easier the next time. Now you you're hitting home runs. So yes, I remember. With Sequoia and Kleiner and a few others. They're willing to write a check before you even pitch an idea because you are, you know, you guys are the guys at the time. So I think that's not a small point that putting wins on the board, not just filling up the bank account.
And if you're truly a serial entrepreneur, this is what you're doing as a career. Huge, huge benefit to selling a business.
Ben: A hundred percent agreed. It made like the Tapjoy sale. Initially, even though [00:27:00] like waiting, would've made me more money. The decision to sell, ultimately set up the rest of my career.
Yep. And we made far more spoiler alert with business number two. Yeah. Than we would've made, even in business. Number one, had we waited.
Todd: All right. So that's like, that's a great segue. I want to hear about number two. And then one of the things I did want to get to is like emotionally, ready to give up your baby on the first one.
Right. You'd done this before. Right. You've had smaller exits, but you know, were you prepared? It sounds like you kind of shifted right into that kind of quote unquote employee role really, really.
Ben: I did shift really well. Cause we were still in charge, but like yes, giving it up did hurt a little bit.
Yeah. Um, harder was leaving. I remember we left on a Friday. Um, and I was like, you know what? It's gonna be tough to leave this behind because Tapjoy is doing great. It, it was crazy. Like literally we left on a Friday, Monday. Like the whole ad space sort of took [00:28:00] a big hit. Actually that Monday, it was a really crazy story. We were literally in Sequoia's office pitching the next business and Tapjoy’s main model was getting kind of crushed by Apple. Ugh. And so that's a long story, but we were gone.
Todd: So, but when you left, right, you had so many people that you were part of starting those entrepreneurial careers too. Right? Cause they were on the ship with you. So, and now that's right. You're not just leaving the business. You're, you're leaving a lot of. You're obviously they have access to you and their friends, but you don't, you're not working yeah. With them on a day to day basis in the battle.
Ben: Right. And that's also part of life. It's one of those things where if you, if you feel like you have to stay somewhere for other people, like you're never gonna be happy. And I always tell my employees never feel bad about leaving a business, including mine. Like, if you wanna leave, like you need to do what's best for you. Don’t feel bad about leaving.
And I, you know, it was hard at time because these were my friends and I was working with them and I wanted their careers together. Ultimately the, the early chapter people have all done. Fantastic. Uh, they started multiple businesses. Uh, a handful are way [00:29:00] bigger than mine combined. Yeah. Yeah. Uh, and are doing very well, uh, and their careers and, and, you know, they got a great opportunity.
They learned a ton and by me leaving it also opened up some leadership opportunities for folks by Lee and I had taken off. Yep. And that was important, but we, yeah, we wanna do something new and, and so we.
Todd: Tell me about karma. This is awesome. I love this story.
Ben: Okay. This was Lee's idea. He's like, Hey, we need to make it so people can send gifts from their phone.
Because people need to do that. And, and he's really good at getting somebody excited about an idea. Yeah, in retrospect, it wasn't the world's greatest idea, but he was so excited about it and, and he was so good at this, like yeah, of course people wanna send gifts to a phone number. You don't need to know their address and then they'll get a text message and they'll put their address in, and then the gift will ship and it. In retrospect, like putting in an address of where a gift should be shipped is not the hardest part about buying gift.
It's actually spending the money is the hardest part about buying a gift. Uh, but we built this thing. So Kleiner and Sequoia were like, “Hey, we believe mobile commerce is gonna be a big thing”. They co-led the round. [00:30:00] So we had millions of dollars to start off. They won, we ended up getting more money from a fantastic angel.
And we built out a team of 16 people. Okay. So we like, we found an office in San Francisco. We built out a great team and we, we took this vision and roughly a year after we started the company, we were able to launch a brand new mobile commerce, mobile gifting company. Yep. And. That was like a whirlwind year.
I loved that year. Uh, again, I didn't have kids at the time, so working pretty late. Uh, a lot of times we were all like in the office till midnight, one, two in the morning. And, uh, it was just a lot of fun. Yeah. You know, the Tapjoy era was behind me and I didn't really miss the influence over the mobile world.
And I really enjoyed like focusing on a single product to build. So it was brand new and it was a lot of fun. Clearly the success of Tapjoy opened up the ability to start Karma the ability because we sold the business and had a good, good exit and like had real, [00:31:00] like our names from the press. Yep. So we knew we could raise this money.
We knew we could hire a great team, right. The people we brought on. To, to early, early employees of Karma, uh, like Judy Lou, and I even like, like they would not have joined us if, if our names weren't out there. Yeah. So that was a major benefit. We started the company, we had a great team, great employees, and we built this mobile gifting thing.
And I remember we launched it and ultimately it, I don't think we were solving a top problem. Like we had, we were in like 40. Articles. Yeah. Across the country, we were in the news, we were all over. It was just like a blitz of press. Yeah. And I remember we got like 30,000 downloads, which like in retrospect is not, not bad, but at the time, like this is not enough downloads.
Like we could have gotten 30,000 downloads for a few thousand dollars of ad spend. The idea that we, we did all this press. And all this work, and then we didn't get that much user. We didn't get that many downloads. But it's like, all right, we got to figure that out. But after, as we launched, you [00:32:00] know, um, Facebook approached us, Lee was friends with a few folks over early Facebook employees.
This was like 2012. So it was pretty early on. And we had, we had integrated Facebook into Karma so that you could send gift to your friends on Facebook. And that's where we, we ended building some really cool functionality to show you when your friend's birthdays are coming up. Yeah. And other major life events.
And so Facebook was a pretty big component of what we were doing. and, uh, there was a person at Facebook like, “Hey, I wanna do gifts at Facebook”. And so they decided that they got their, their core dev team involved and they decided to make an offer to buy us. So
Todd: what happened is somebody on the product team?
Yes. That is thinking about. Social, you got, you call it mobile gifting. I, I think of it more as like social gifting and correct. They're they're like, okay, we gotta build this out. And they're probably got their own plans and they see, oh, there's a relationship with people I trust people that have been successful before.
Maybe I should take a look when they decide right. That this is something that we could acquire. They're pushing it [00:33:00] upstream to the corp dev group
Ben: Yes. When they say they wanna buy it, they go, they upstream and.
Todd: I get that question a lot. Yeah. Is, you know, how do I start a conversation with a strategic buyer, right.
And often it starts at product, right? Cuz product has to endorse, Hey, this is on our roadmap and this is something that we wanna do. And these guys do it better. They save, save us essentially time.
Ben: Yeah. I I'll be as, I don't think as the acquiring as a startup. Yep. I don't think you can start this conversation.
Honestly. This is what investment bankers are for, you know, and, if you want to potentially be acquired, like, you're not going to have access to the right people. Yes. And know who's going to be interested about it. Like, this is why there's an investment banking industry, because they know who might potentially be an acquirer.
We, at the time we're not looking to be acquired. Yep. And to be fair, like, I, I think we should have, once we got that offer, we probably should have engaged with the banker to see who else might be interested in acquiring us. Like we had, like, we ended up getting one or two other interested companies, [00:34:00] but ultimately I, think we should have.
Tried to work with professionals if we had seriously considered being acquired, because you don't, you can't make this happen organically.
Todd: Yeah. I think you got kind of hit two points that I've learned over time is that, you know, if you have an investment banker that is a true specialist in your industry, they are talking to the Facebooks of the world that are interested in you.
They know what they're thinking about for the next six months to 18 months. So if they see something they're bringing real value to the Facebook as, as a client, Hey, are you thinking about this? How are you thinking about it? And you're right. They absolutely know the people to start that conversation. And I think that I learned that over time. Certainly. And, and today we see that we see that every day now.
Ben: Right. It's a hundred percent true.
Todd: So they're calling you and then where'd it go from.
Ben: So we had really no interest in being acquired, uh, at the time. Okay. But so we, we said no, and like, we had a potential offer for a series A or B, or however you wanna call it back then [00:35:00] from Kleiner, they were giving us a decent valuation.
Uh, we were pretty happy with it to like keep the business, to fund the business, allow us to really expand. Yeah. Um, in retrospect, I'm like, why would they do that? We had no metrics. Yeah. That show we had product market fit. Why would they put money in? But they, they liked the team and the founders, et cetera.
And, and ultimately, they think we'd figure it out. Yeah. But in the end, Facebook just kept raising how much they were willing to pay. Yeah. And I remember getting a call from, from Lee, when I was on vacation in, LA and like, “Hey Ben, Mark Zuckerberg wants to meet us. And like, I think this is getting serious.”
So I had to leave my vacation early. It was super worth it. Yeah. Flew back to Menlo Park and had a meeting with Zuck to discuss this.
Todd: Mark, who? Who was that? Mark? So, you took the meeting, you decided to take the meeting.
Ben: We decided to take the meeting. And they ended up buying us.
Yeah. For [00:36:00] far more money than we were worth. Yep. Far more money.
Todd: Far more money than the business maybe was worth. Right. But what you guys have been doing. Is is powerful and what you could enable for them potentially.
Ben: Yes, potentially. It was a deal where they bought our business for stock.
Yep. Which turned out to be great. It was right before the IPO.
Todd: Yeah. Yeah. Yeah. So we should have said that. So Facebook is a private company at this point. Right? And they're going public in 2012, right? And so you're in this discussion as they're planning their, IOP.
Ben: Yep. We were like, like there were a number of companies they were buying up through that point in time.
Yeah. But like, then we started, it must be February, 2012. Yep. And we ended up agreeing on numbers and our lawyers worked overtime. We got the whole deal done before the IPO.
Todd: So it was like hours. Right? You could count the number of hours before they went public and, and that's important, right? Because I'm sure getting stock before an IPO and after an IPO, there's a difference. Would you, would you feel like you would've had [00:37:00] to start that M&A process over once they were a public company or making no, it turned out.
Ben: No, actually, no. It was entirely the same either way. I would've been, but we wanted to be, we wanted to be there before the IPO. And so frankly, if you don't have a deadline, lawyers will take forever and charge you a fortune.
So if you don't have the right lawyers.
Todd: So talk about that. Like, what did it cost from on legal fees? If you can share that for as an example, right? Cuz you didn't use an investment banker, right?
Ben: We did not use a banker. We spent about $200,000 on lawyer fees.
Todd: Okay. And they, how long did that process take?
Ben: Uh, probably March through May. Say two months.
Todd: Okay. So engaging lawyers kind of, a lot of them for a couple of months, cost 200 grand.
Ben: Yep. And that was back then. Yeah. There's no way it would be that cheap anymore. No way every, everything has gone up in price.
Todd: Yeah. And, and was the firm that you used where they, they were specialists in M&A right? That is the group that you got?
Ben: We just use our regular corporate [00:38:00] attorneys. Maybe that was a mistake, but I dunno, there were, it's like, look, the deal worked out in the end and I don't begrudge the lawyers for what they were able to do, which is get the deal done.
Yeah. We were happy with the terms in the end and like things have very much worked out for us.
Todd: What we’ve seen, because I think this is really educational is when you have. A legal team on your side that really focuses on M&A. They often know the corporate development and lawyers on the buyer side.
So a lot of the stuff that they might argue about just goes away because they're not, uh, gonna try to obstruct the deal. They know. They know the soft points and the drywall to punch through. And so they, they get way more efficient. That's what, that's what we've seen at Exitwise for our clients. So we do things a lot less expensively because they're more efficient.
Ben: I mean, that would be great. Cause that money comes directly out of our pockets.
Todd: Yes. All right. So now you sell to Facebook and now you gotta go work there for
Ben: four years. Yeah. For four years. Okay.
Todd: So, so four year commitment to. Whatever the, the [00:39:00] purchase price was and it's in stock. Right. So you're riding the Facebook stock at that point.
So there's a ton of risk in accepting that. Right. You didn't know where, where it was gonna go.
Ben: I didn't, but there was a major tax advantages to, to taking a stock for stock deal.
Todd: So I think there's a ton of learnings here, but I wanna touch on like a couple things, so, okay. You come to my bachelor party, right? Yes. And by the way, congratulations again, for winning MVP of the bachelor party, we played tons of different, all different sports from skeet shooting to beach volleyball, and you were, uh, stellar and, and won that an award. Well, you didn't shoot yourself.
So I think we had our doubts. And so you came out unscathed and you won, but I do distinctly remember, no phones are allowed at the bachelor party, but we're in an elevator and you get a text and I'm like, what are you doing? Do you, do you remember this who it was? I don't remember [00:41:00] at all. So, so I'm not sure where your product at Karma was at that point, but clearly you were trying to release something and I'm like, “what are you doing, Ben?”
And you're like, “Zuckerberg is saying, blah, blah, blah. He won't release this product. I'm telling him it's good. I'm saying release it.” You're like all upset. Oh, yelling at Zuckerberg via text in the elevator. And the rest of us are looking around and like, who are we in this elevator with? Do you remember?
You showed us. I'm like, oh my gosh, he's actually doing that. So that was, that was a pretty impressive moment. To you, you're like, uh, on a daily basis. No problem. They put you in charge of Oculus at one point? Like weren't you bouncing around? What were you doing there?
Ben: So what happened was, um, anyway, the gifting thing failed. Yeah. Okay. Yep. Absolutely failed. Uh, people didn't wanna send gifts. Uh, companies will, I'm sure Facebook will launch it again. And, and there's other companies out there doing gifts and there might be ways to do, to make it work through like corporate or whatever, but ultimately [00:42:00] the margins never made sense.
Okay. It's not like we were making a fortune per gift. Sure. And the numbers weren't enough to justify like real estate or a whole team at Facebook. And Zuck said, “Hey, you know, I think if you guys spent six months on ads, you would make like, there's a certain dollar amount per day that we were trying to hit.”
Like, you're like you would make that in six months on ads and you could do way better than that. We're like, I don't think that's true, but we'll take a look. And we ended up realizing like the product database we were using for all of our. It would be a great way to like store the list of products that might be advertised on Facebook.
Like back in the day, you would advertise a product the same way you advertise everything else. It was a link in an image. And we said, no, what if you uploaded a list of the stuff you sell and advertised a product ID, and then all that data, we could do a much better job of deciding which products to show to which person and which time.
And it turns out that. Absolutely true. So we built this big database. Um, it has billions and billions and billions of dollars. Now, like if Facebook got their money's worth from us, like that product database is a huge deal. Um, we built this whole ads team and I remember because like [00:43:00] I was there, I'm like, oh, This is great.
Like this is very successful and I'm like, I could probably, I could, I could probably get exceeds expectations, uh, in my next performance review for, for building billion dollar, I think. And like, we, we started like Lee and I started it from scratch. Yeah. I like, we built the, the, the PowerPoint deck.
They use Microsoft products. We built a PowerPoint deck to ask for headcount like, Hey, we wanna do this thing. Here's why it'll be successful. I need eight engineers, like so and so forth. We, we did that. We from idea to like asking resources, which we got approved to making it happen, to launch the success. So like, I did, I got exceeding expectations.
Todd: Uh, so is that that's like a billion dollars a year every year. That, that for the, for at least a few more years, right.
Ben: Way, way, way more. Way more. Billions, billions and billions of dollars. Yeah. Yeah. It's huge. Awesome. But it's like, keep in mind. That doesn't mean they made it because of us, right?
Like ultimately the, like those ads are replacing other ads. Yeah. But a huge, like chunk of value grows because of the yep. Their advertising ideas rather next anyways.
Todd: Zuckerberg knew what he was buying. Right. It wasn't, it wasn't Karma [00:44:00] Science. He was buying you.
Ben: I'm like, oh, great. I'm doing ads again. Um, but it was, it was successful and the team was happy and like, some of them were the original Karma folks who also had a lot of new Facebook folks. It was a fun time. I enjoyed working at Facebook a lot more than I thought I would. I was there for over four years. I had a blast.
Um, I was in great shape working out at their gym and taking advantage of the amenities. I was meeting great, really smart people that were fun to work with. Yeah. I loved the environment. So I was, I was skeptical in, but I really enjoyed it. Um, in the end though, uh, Oculus got acquired by Facebook and I remember trying it for the first time thinking this is the most amazing technology ever. So I reached out to their, uh, head. I was not in charge of Oculus. I was ended up being.
Todd: But you wrote their first game, right? Didn't you write a game? I brag about you a lot. You do, and I never let the truth get in the way of a good story now. No, absolutely
Ben: No, absolutely not. No, I, was like, I was still able to code, I built a game in my spare time and I reached out to their, their head of product and listen, you're gonna need an engineering manager from Facebook at some point who knows how to manage engineers here.
When you do hook me up, [00:45:00] I've built a game for your platform. I'm super obsessed with this. I was doing VR when I was in college 20 years ago. And so like a month or so later, they reached out and said, Hey, you wanna be an engineer manager over here. And so I joined and I spent some time there before ultimately leaving to start Limbix.
Todd: I want to hear about Limbix. And then with a few minutes left, like, I want to hear about advice that you might, you know, give to our fellow founders around M&A.
Ben: Long story short, you know, the exits of Tapjoy and Karma gave me a ton of opportunities. I could start a business knowing two things.
One, I, I could raise money very easily from investors and two, we could build a fantastic team and execute on our product strategy. And so we did that things to the success. Uh, Jim over at Sequoia gets us our first seed round, uh, build a great team, a co-founders, uh, to, to get started with Limbix, which is a company focused on building software to address, uh, teenage mental health disorders.
And. I was able to, to focus on an area, which I was, was really impactful for myself and something. I was really passionate about building a team of people that are also really passionate about the subject. [00:46:00] And we're in an area right now where, uh, I'm, I'm hoping that Limbix itself can see true financial success, uh, in the near future.
Uh, but you know, I wouldn't be able to start this business at all or be able to do what I love doing now, if, if it wasn't for those previous.
Todd: I love it. I think what I'm hearing from the advice standpoint is, you know, creating, putting wins on the board. Like I said earlier, like, uh, being able to sell a business, enables you to go do the next one, makes it a little bit easier and you've done it over and over and over.
Man, thank you for being part of this, right? Of course. I know. Of course the Ben Lewis story is certainly not over and, uh, you are our opening episode. I think people are really gonna enjoy this. So, Ben, thank you. Thanks for doing this. Absolutely Todd.
Ben: This is awesome. Of course. All right. Good to be on, have a good one, Ben, to be the inaugural member.
Todd: All right, byebye. Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on apple iTunes, [00:47:00] Spotify, or wherever you listen to your favorite podcasts.
And please remember Exitwise.com and the cashing out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.