Spreets: How I sold this Startup for $40 Million
The group-buying industry has exploded over the past year, and a small group of entrepreneurs control the Australian market – Spreets chief executive Dean McEvoy is one of them.
In just over a year, McEvoy went from starting his group-buying venture with barely any cash, to last week selling the company to Yahoo!7 in a $40 million deal, highlighting just how hot this market is right now.
McEvoy says his example shows that start-ups can attract acquirers if they simply focus on growing as quickly as possible.
What were you doing before you started Spreets?
I started Booking Angel, which was an online reservation system for restaurants, and I actually owned a restaurant and bar too. I went over to the United States, and was doing my own thing over there, raising a little bit of money, doing some business and talking with entrepreneurs. I was sleeping on friends’ couches.
And what made you become interested in the group buying model?
This is actually the idea for where Spreets came from. I owned a bar, and a restaurant, and that’s how Booking Angel came about because getting online reservations was a difficult process.
But the problem was that you had a lot of time between when you did a deal, and when the restaurant saw the impact. They never really recognised the impact we had on their business, and we were always trying to work that out.
So how did you find out about the business model?
An investor told me while I was over there about the group-buying concept. He mentioned this start-up in Chicago called Groupon, and the model was exactly what I was figuring out how to do. It was the silver bullet I had been looking for, and so I came back here looking for business partners.
In about September or October of 2009, I went around talking to people, and in early December Phil Morle from Pollenizer was having a Christmas party and I was chatting with him. I told him about the business, and then convinced him to do the deal.
That’s an extremely fast turnaround for a new project.
After that point, we knew it was going to be a competitive market. We knew people were launching versions of it and we knew we had to raise money. I got a pitch together, and went to an innovation dinner in Sydney and got connected with Oliver Yung. We spoke, and I was on a plane to Switzerland that weekend.
I met with him and his business partner, Klaus Hommels, who was an early investor in Facebook and Skype and very well connected. We did the deal, had the money in the bank, and it all moved along very quickly.
He also introduced me to Justus Hammer, and we thought we would make a great team together.
Spreets is barely a year old and it already has hundreds of thousands of customers. Why the need to grow so quickly?
We worked out very early that the business is viral, so we concentrated on putting out quality deals that would build a good database of quality users. We really thought that was important from the start, because this model is so easy to get businesses to sign up. It’s an easy pitch, but it’s hard to sign up quality businesses. But we knew if we did that, we would get a quality audience.
It’s cyclical, because good customers give you good deals, but you need good deals to get good customers. But after you get some traction it spreads to other merchants and it becomes better to do those deals. We focused on that in the beginning.
Our investors introduced us to Deals Exclusive. This is high-end fashion brands, so the quality user audience was used to buying higher ticket price items and name brands and so on. But we did a cross partnership, and that went really well.
You also gained some investment extremely quickly as well. Is time a factor in group-buying?
You can waste three months talking, and then in this industry another competitor has launched. We set a goal for ourselves, and said we’d decide by the end of the year. Who do we want to move forward with? Who will fit into that timeframe? Those were the questions that we wanted to have answered.
So when did Yahoo!7 come on board?
We started talking in November last year. We were getting approached by people both here and overseas. It raises a lot of questions about what direction you have for the company. Do you want to raise money, start spending and marketing? Or partner with someone?
What made you decide?
We were having an internal debate about what we would do, and that just started us thinking about this whole process. We were approached by a few different people, and Yahoo!7 was the best option in terms of the ability to reach people in multiple areas, including online, television and so on.
They talked about their ability to crunch data, and we thought that would be the best way to move forward.
What was specifically important to you about making any sort of deal?
One was that we didn’t want anyone to change us, and I think that’s what was great about the deal. They realised we were successful already, and that we had done all the work. They have that attitude and it’s something a lot of media companies do – come in and stuff the business up.
But they acknowledged up front that they wanted us as we are and there was a lot of shared vision about what the business can do. They see it as a much bigger opportunity in terms of utilising local business.
For other start-ups, how should they decide who to ultimately partner with when and if the time comes?
You’re ultimately getting into bed to live and breathe, and work with the same company for at least a few years. You don’t want to it pulled apart or destroyed. You want a shared alignment of vision and culture, which is extremely important.
It’s a bit like raising money. The analogy I use is like dating – you don’t want to be desperate and ask everyone you can see. You need to be the coy attractive person in the corner doing your own thing.
And lastly, you obviously have quite a stake in Spreets. Can you reveal how much you’ve personally gained from the acquisition?
I can’t really say, but we’re certainly happy with the deal.
