Founders at Work.pdf

26 Founders at Work
Livingston: Then you started to get into talks with Microsoft?
Bhatia: Talks with Microsoft started after our first anniversary, which was July
1997. In August or so, Microsoft contacted us and said, “Wow, this is really big.
Do you really have 7 million subscribers?” They knew that we were growing
and they wanted to find out how we provided email to 7 million subscribers
because they were having a hard time providing email to just 2.5 million MSN
customers. So we began talking of a partnership deal and that’s how we started
talking to each other.
We worked out a detailed business plan about how we would provide email
to their subscribers, and then they said they wanted a tighter relationship
between us and their company—that they wanted to invest in our company. So
they looked at our business plan and saw very quickly that we wanted to be
more than just an email company. We wanted to incorporate all of the other
functions as well, such as personalized news and those kinds of things.
We wanted to be a portal at that point in time. So that’s when they came to
us—they wanted to be a portal as well—and they said, “We cannot have one of
our providers of email be a competitor of ours, so have you thought of an acquisition?”
And I said, “I really haven’t thought of an acquisition, but at the right
price I can think of anything.”
Livingston: Tell me about the negotiation process.
Bhatia: They called us to meet with Bill on October 13, 1997, and we were
shown the Microsoft campus, headquarters, the whole works. We were taken to
Bill’s office, met with him, and then we were taken to a room with a gigantic
table, and there were about 15 Microsoft negotiators sitting on the other side:
business development people, lawyers, accountants, all of them.
They gave a presentation about how much they liked the company and this
and that, and they said they wanted to buy us and placed an offer of $160 million.
I knew that that was the opening shot and I said, “Thank you very much
for making an offer. We really, really like your company and like the fact that
you like us so much. We’ll go back to our board and discuss this and get back to
you.”
And the CFO said, “C’mon, is that in the right ballpark?” He wanted me to
open my mouth, but I was told beforehand that if I opened my mouth, there
was no way I could negotiate with so many people. It was just the three of us:
Jack Smith, myself, and our VP of marketing.
Livingston: The VCs gave you the liberty to negotiate, right? That surprises
me.
Bhatia: Luckily it was very early on; had we been burning through a lot of cash,
had we been around for a while, they probably would have put pressure on us.
But we were under no pressure at that point in time.
Livingston: What drove you to keep on negotiating until you got the $400
million?