When last we left Troy Tyler, the hardworking, super-stressed, never-say-die entrepreneur faced some tough choices for smartRay Network Inc, the company he had started with Andrew Playford and David Kidder. As described in the article in Fast Company’s August 2000 issue, Tyler was up against a fast-closing window of opportunity: He had to sell his startup to a bigger player — and fast — or risk fading into commercial irrelevance.
Today — finally — Troy Tyler can relax. On August 8, Tyler sold his company to LifeMinders Inc, an online direct marketing company, for about $32 million.
Tyler’s situation had worsened when the crash of tech stocks on April 14 scuttled one proposed deal, intensifying the pressure that the young partners felt to repay the faith of their investors and employees. Tyler was wrestling with the question of how to cut the best deal, the right deal.
Many entrepreneurs struggle here: The time comes to sell your company. You need scale and a partner with resources you couldn’t possibly get on your own. The financial markets seem ripe.
But how do you do the right deal?
SmartRay’s search holds important lessons for entrepreneurs who may someday find themselves in a similar situation. The April stock implosion lowered prices — but not the interest in smartRay’s product, a Web editor for cell-phones and other mobile-communications devices. A big part of smartRay’s success, though, came from the hard-nosed thinking Tyler, Playford, and Kidder put in over the summer. They assessed their business and the market. They identified their personal and organizational objectives and then, given the market realities, found the deal that came closest to meeting those goals.
Their first goal: Sending their investors home happy. “You need to be getting paid an amount that’s rewarding, in a currency that’s valuable,” Tyler says. Of the $32 million, most of it in LifeMinders’ stock, a bit more than half — perhaps $20 million — will go to the angels who sank a total of about $4.3 million into the company since January 1999. The purchase price is lower than that offered in the April deal — but Tyler says that, after adjusting for the decline in that would-be acquirer’s stock, his investors are considerably better off.
Second goal: Giving smartRay’s product broad market traction. In a year and a half of guerilla marketing — Tyler spent train rides, for example, handing out information cards to everyone he saw with a cell-phone — smartRay managed to attract 50,000 users to its free service. Now, the smartRay editor will be made available instantly to some 3 million LifeMinders customers who have indicated they want such wireless content. Outsourcing arrangements could expand smartRay’s reach to as many as 40 million consumers. “No other suitor had greater synergy with our business model and our technology platform,” Tyler says.
Final goal: Rewarding smartRay’s 22 employees. Their smartRay stock options now are in the money — and Tyler says that he, Playford, and Kidder all “gave up some (financial) consideration” in negotiating the deal to ensure that employees would have incentive to stay with the company. Remarkably, 18 or 19 of those workers have elected to make the move to LifeMinders’ Herndon, Virginia headquarters.
“I feel great relief,” Tyler says. “I feel very successful. There’s a big shock you have to get over, but people are happy.” Not least, Tyler, Playford, and Kidder, who will each collect LifeMinders stock worth several million dollars.
They’ll also make a difficult transition, from owners to employees. All three will become vice presidents at LifeMinders in Herndon, reporting to the president of the bigger company’s wireless unit. Surprisingly for a man who likes to compare his commitment to risk with the Vikings’ tradition of burning their boats upon landing, Tyler expresses relief, for now, at the prospect of his new role. “I feel like a tremendous amount of pressure is being lifted from my shoulders,” he says. “The past year and a half has been like trying to lift a B-1 bomber and throwing it into the air. Now, I’ll have space to repair a number of things in my life” — finances, relationships, and his health among them.
Tyler, Playford, and Kidder all have expressed their desire to start their own companies again — this time, with better reputations, more money, and less struggle. For now, though, they’ll content themselves with a corporate breather. “I’ll be a hardworking employee for some period,” Tyler says. “Then, I’ll reconsider.”