September 11, 2014
Foundation Capital
This week’s announcement of the acquisition of Ebates by Rakuten brings back memories for some of us at Foundation Capital. Some old memories. They start with our meeting two young former district attorneys introduced to us by a mutual friend, John Nirenstien. It was 1997 and these two guys, Alessandro Isolani and Paul Wasserman, wanted to start an Internet company. Everybody wanted to start an Internet company back then.
They had an idea and lots of piss and vinegar…but they weren’t technologists. They’d never worked in a company – their entire careers had been spent as lawyers in the San Mateo County prosecutor’s office. There was no site. No traffic. There wasn’t much to work with.
But, they were boiling with energy and they were scrappy. They would show up at our offices in an old squad car with holes in the body where the police lights had been mounted and large patches of paint missing where the decals had been stripped off. They’d bought it at an auction for less than $1,000. As far as we knew, it was the only car between the two of them. It was a good sign.
With a very small amount of incubation capital from us, they got a site up. A modest amount of traffic developed. (The Internet was a quieter place back then and a site offering cash back for online purchases was novel.) They met a reporter for USA Today at a conference and the next day Ebates was mentioned in an article about e-commerce. More traffic, and Series A capital from us.
Soon after that, they came bursting into our offices with an urgent request. They’d pitched a local TV station a story on online security and were about to be interviewed as experts for that night’s news broadcast. They’d given the TV crew our address — they didn’t have an office yet — and needed us to quickly set something up. My partner, Mike Schuh, was traveling that day so all his photos and other personal office decor were quickly tucked away and the team of Paul and Sandro sat at Mike’s desk and shared their wisdom about online security, mentioning a small site called Ebates in nearly every sentence. Like I said, they were scrappy.
They did one thing that ensured the survival of the company. After raising a series B from August Capital, Canaan Partners and us, they got to cash flow breakeven and didn’t let go of a very important idea: as long as they weren’t burning cash, they were in control of their own destiny. When the great Internet bubble burst in 2000, that was the difference between living and dying. For those who weren’t born back then, it was nuclear winter. The lights went out on everything Internet — unless you weren’t losing money and had cash plus the fortitude to weather the storm.
I’d have to dig through the archives, but I don’t think the company had a year in which it lost money since 2001 or 2002. It raised one more round of capital, led by August in 2012, to fund some growth initiatives, even as it was generating roughly $15M annually.
Paul and Alesandro did one other thing that was critical. They supported the hiring of Kevin Johnson as the company’s CEO in 2008. Kevin and the team he built deserve credit for much of what Ebates has become. They’ve worked tirelessly and have done a brilliant job scaling the company that Sandro and Paul started. We all owe him huge thanks. That company, sold this week for $1B, wouldn’t have existed without the scratching and clawing Sandro and Paul did early on. They deserve to be among the exclusive club of entrepreneurs who’ve started a company that generated $1B of real value. Scrappiness is a good thing…it might even be the most important thing.