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Pluck, three years later. . .

March 4, 2008

pluck-logo.pngTechcrunch is reporting Demand Media bought Austin-based Pluck for $75MM cash.  Frankly, I am fairly surprised.  I first wrote about Pluck after sitting on a panel at the McCombs School of Business (UT @ Austin) Web 2.0 Panel in 2005.  I compared VC-backed Pluck to bootstrapped Consumating, suggesting that to be considered a success Pluck would need to be sold for $100MM versus a $1-10MM sale for Consumating.  My thesis was that Pluck was using a Web 1.0 funding style to build a Web 2.0 business and it was very likely that the founders would see little, if any, upside when and if the company was sold.  Consumating, on the other hand, was a classic example of a Web 2.0 funding method coupled with a Web 2.0 business model providing the founders with a very nice upside.

I was dead on with my analysis of Consumating.  Within a few months Ben Brown sold Consumating to CNet for a tidy seven digit number and a cushyjob.  Ultimately Ben would leave CNet and the property is scheduled to be shuttered later this year.  Pluck was fairly quiet over the next two plus something years and I had assumed they were dying a slow death.  Fortunately for Mayfield and Austin Ventures, they were able to sell Pluck.  Assuming Techcrunch is correct, and the company was sold for $75MM in cash, the founders shared around $6.2MM:

  • Dave Panos: CEO and Co-Founder $1.75MM (estimated)
  • Andrew Busey: Co-Founder $750K (estimated)
  • Will Ballard: VP and CTO $875K (estimated)
  • Ken Nicolson: CMO $750K (estimated)
  • Rachel Brush: VP Operations $500K (estimated)
  • Eric Newman: GM $250K (estimated)
  • Steve Semelsberger: VP Sales $250K (estimated)
  • Stephanie Himoff: VP Sales UK $250K  (estimated)
  • Adam Weinroth: Director Marketing $125K (estimated)

I have heard that the deal was in the $50MM range with the ability to reach $75MM based on various milestones (you never get the earnout money, ever…).  If this is the case, the management team likely will get nothing, but a new employer out of this deal.  Why?  Learn about Participating Preferred Stock.

Written by Alexander Muse · Filed Under Blog, Startups 

Comments

5 Responses to “Pluck, three years later. . .”

  1. Jason Says:
    March 5th, 2008 at 9:22 am

    Isn’t that why they call them “Austin Vultures”

  2. just.a.guy Says:
    March 5th, 2008 at 11:32 am

    Your obvious disdain for and bias against venture capital as a financing mechanism is leading you to the wrong conclusion. That company didn’t consume anywhere near $50MM in venture money, so even with a participating security (unlikely), the management team would do fine. Not stellar, but fine.

    Even if the company HAD consumed that much money, they would still do at least OK, because of a phenomenon known as the “carveout” which is typically employed when the management team is underwater. It’s hard to sell a company with a management team that doesn’ t want to sell or isn’t cooperating.

    You’re a bright guy, but you’ve got obvious biases that lead you to the wrong conclusions on topics like this.

  3. Alexander Muse Says:
    March 5th, 2008 at 1:49 pm

    Just.a.Guy - I am not sure where you got the impression I indicated that the company consumed $50MM in venture capital. The company raised around $10MM (maybe slightly more that was undisclosed). Insiders in a position to know (i.e. they saw the term sheet) indicated the deal had 5x participation (i.e. where the first $50MM went).

    Mayfield and Austin Ventures had complete control and as a result management didn’t really have a choice. The deal is likely the best hope the company has to get to the next level. Many of the employees are getting pre-IPO stock in Demand and I suspect there is a lot of hope the new company will be able to do well.

    You are right that I am biased. Venture capital is perfect for certain deals. Pluck’s problem was that it had too much money. The money, in this case, WAS the problem. Had Pluck been able to morph more freely I suspect Dave and his team would have hit a home run. Ben had a neat idea with Consumating, but it was just that. I don’t think Consumating would have been the next match.com with venture capital, I think it would have been a failure. Ben; however, decided to sell instead of raise money. I think he made the right decision for his idea and for his lifestyle.

    I am involved (as an investor) in two venture backed deals and I am excited about their prospects. Without capital these two businesses would never make it. The venture capital partners in these deals are invaluable.

  4. Bhirdo Says:
    March 6th, 2008 at 11:38 am

    Question regarding a comment you made in this thread:

    “My thesis was that Pluck was using a Web 1.0 funding style to build a Web 2.0 business”

    What do you qualify as Web 1.0 funding model ? I understand the distinction between Web 1.0 & Web 2.0 business models but what is the distinction between the a Web 1.0 funding style and / or Web 2.0 funding style.

    Not sure if I missed a post on this topic in the past or if there is a link, article or book you can think of that explains the difference.

    Thanks
    PB

  5. just.a.guy Says:
    March 7th, 2008 at 4:35 pm

    Ahh — your presumption that there is $50MM of preference based on 5x a $10MM total raised is a wrong one. You’d be right on the money if that were true, though. Anyway, in the grand scheme Pluck was not a capital-inefficient deal.

    Demand stock isn’t all that employees will get, though. They’ll of course get cash for the bargain element of any vested options, plus their unvested options will probably roll into Demand stock like you said.

    I wholeheartedly agree with you that overfinancing an opportunity can, by virtue of changing the definition of success, impede the very success that the financing is intended to enable. I just know that Pluck isn’t a good poster child for that thesis.

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