Friday, September 17, 2021

Mailchimp's Miracle: How to Sell a Startup for $12 Billion Without A Penny from Investors

It is very likely that, if you do not work in the world of communication or advertising, Mailchimp will not ring a bell. It is an extremely popular platform in these trades. It began as a service for creating email marketing campaigns that allowed you to design them easily and track their effectiveness, and over time it has grown with dozens of additional functions and services. According to the company's figures, its success means that its 13 million active users send 1,000 million e-mails a day through its platform, which gains an average of 14,000 customers a day.

This term is used in the business world to refer to companies that have risen without external resources, only with their own. At a time when news is accumulating that even companies just a few months old are receiving huge checks and financing through venture capital funds, Mailchimp's founders never wanted to turn to outside investors. Not even when they reached 800 million in revenue last year did they resort to this route, which would have had, on paper, an effect similar to that of growth hormone on the valuation of their company. It mattered little, because this week they signed a sale agreement for which they will receive a total of 12 billion dollars from the software giant Intuit.

Having followed the mantra of having systematically rejected other people's money, Ben Chestnut and Dan Kurzius will hardly have to share the spoils of the sale with third parties. The company, unlike so many other startups, is owned solely by its co-founders. And this translates into a million-dollar reward for both of them. From the 12,000 million dollars, a small amount, 300 million, is reserved for distribution among the staff (they have 1,200 employees) as bonuses and extra pay. The remaining amount is split equally between cash and stock. It is estimated that Chesnut and Kurzius, after taxes, will each take home 5 billion. In other words, they have become millionaires.

Other transactions

"You have to think about the terms under which the transaction is taking place. If they invoice 800 million and sell the company for 12,000, we are talking about a multiple of 15," explains Ignacio Arriaga, co-founder of Acumbamail, one of the largest e-mail marketing platforms in Spain. "It is true that there have been acquisitions in the sector in recent months, such as Mailgun and Mailjet, but they are different, because of the amount that has been paid and also because they are very 'rounded' companies, which have received a lot of external financing," he says.

The transaction has marked a before and after in the history of technology companies. The sale price is 12 times higher, for example, than what Facebook paid for Instagram. Although 12 billion may seem somewhat minor when compared to acquisitions such as WhatsApp (Facebook paid 22 billion), Slack (Salesforce paid 27.6 billion) or Afterpay, for which Jack Dorsey paid 29 billion. However, never before had a 'bootstrap' company achieved a similar figure.

There are only a couple of similar precedents, such as the purchase of Mojang, the creators of 'Minecraft', by Microsoft, who paid 2.5 billion. The other case is when a company called Prudential Financial annexed Assurance IQ for 2.4 billion. There have been other similar cases of companies that have not resorted to funds to develop over the years, but they do not fall into this category, because in most cases they were spin-offs of already consolidated companies.

"This company is the benchmark in this market," Arriaga adds. "Anyone will recognize the monkey in its logo. Anyone. They are the most powerful and benchmark brand and service when it comes to mail campaigns," he explains. When asked about the reason behind this success, he is clear: "The key is how quickly they opted for the 'freemium' model, which when they set up the company was something like madness," he explains.

Mailchimp's 12 Billion Deal made it the largest bootstrap operation ever 

Behind this word is a now very classic model in digital services: that of offering a part of the service for free, charging for unlocking part of the functionalities or when a certain volume of usage is reached. "They started the company in 2001. At that time it was impossible to find companies that would let you use their tool at zero cost. That gave them wings and allowed them to gain a critical mass of users very quickly, especially small and medium-sized companies or independent professionals."

That is precisely what Intuit is pursuing with this purchase. This multinational company has usually been aimed at the professional world, with financial accounting and credit management tools. Its portfolio of solutions includes an app for the self-employed and SMEs. That is what they are pursuing with the purchase of Mailchimp, as Intuit's CEO explained, approaching this type of customer from a different perspective and with a much more global product.

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