I met entrepreneur Crick Waters last year after hearing just a portion of his story and his road toward Ribbit’s $105 million exit during an event in Silicon Valley. Soon afterward, I felt confident that I could learn from him and that his experiences building Ribbit would be valuable for Vidquik and our team. I finally got a chance to interview Crick and hear his full story, so I thought I should share this with other entrepreneurs working to build world-class companies.
Bernard: How did the idea for Ribbit start?
Crick: Ribbit started out as IDP Communications in 2004, started doing business as Duality in 2005, and finally become Ribbit in 2006. It was mid-2004. I had noticed that companies needed phone features for individual, company-specific, use cases that couldn’t easily be met with traditional telco infrastructure. These features were inaccessible for three reasons: they required purchase of racked equipment and telecom connections, were sold in bundles at very high per seat prices, and they could not be triggered or accessed via web services.
I realized that if the features of telephony services could be disaggregated, hosted as a cloud service, and be made accessible via web services; then these phone features would become “software” to developers making possible a whole new market of high-value applications.
The first application was conceived of late in 2004 around the idea of “never miss that [buyer’s] call.” I put together a PowerPoint of the product idea, cold called several newspapers (this was, after all 2004 and people still used classifieds), and convinced the San Francisco Examiner to introduce “never miss the call” as a feature built into all of their classified online and offline ads. The Examiner would pay IDP Communications five dollars per ad. They loved the idea and a contract was drafted up and sent to Philip Anschutz’s CFO in Denver for approval.
At the same time, Anschutz created a new national marketing VP position to oversee all the Examiner properties across the country. I got a heads-up call from the consulting firm in Florida that was helping me with introductions in the newspaper and advertising industries warning me that the person who had been tapped for the job was old-school, unlikely to understand the technology, and would probably kill the deal. Sure enough, he was and he did, and the two executives I had been working with at the SF Examiner both quit within weeks.
Bernard: Wow. Horrible.
Crick: It was pretty devastating, the loss of momentum was a definite setback. Worsening the setback was that the co-founding CTO I had been working with, Bruce Young, got a killer job offer to go work for a company called LignUp. The opportunity for him was really too great to turn down and though I understood and supported his choice, the double-whammy had me counting sheep logarithmically. I was without customers and without a CTO.
Bruce, though, had introduced me to John Appler. John had been helping me on business development with the Examiner. John, in turn, introduced me to Ted Griggs, who was founder and CEO of a company called Syndeo, where John had previously worked.
Ted and his team had been funded by Redpoint and a consortium of cable industry companies to the tune of $98M. Syndeo, at one point a 150-person company, had built and deployed a DOCSIS-based voice over IP soft switch for the cable industry.
Though Syndeo had developed award-winning technology and had international operating deployments, the market had moved on without affording Syndeo an exit. The company had trimmed down to its founding team and was looking for ways of leveraging its intellectual property with its remaining funds.
Syndeo’s technology was much more advanced than what I had anticipated having to work with to jumpstart IDP Communications, and the Examiner deal had left me free to pivot. So when I was introduced to Syndeo, Ted and I were able to put our heads together over a potentially faster-bigger-stronger plan. “Okay,” we thought, “let’s see if we can take the IDP Communications concepts and re-apply them with the more powerful soft switch rather than using Asterisk or LignUp (where Bruce Young was).
We spent nine months iterating on a whole set of ideas. From April 2005 onward, we took a number of turns. One of which was pursing an enterprise peering exchange for MCI, another was pursing a dual-mode phone strategy using intelligent call routing to seamlessly hand-off calls between mobile and fixed endpoints. It was this idea that led us to file a dba form as “Duality” and IDP Communications became Duality Inc.
The Duality team eventually arrived at a revised business model and a product that we would call Mobi-Link. Mobi-Link converged your cell phone number with your fixed-line number (we still had these in 2005) allowing calls to be made from and received with home or office phones, VoIP phones, instant messenger clients, and with any Internet browser.
Mobi-Link came with a networking platform, call diversion and re-direction features, a graphical UI, contact management, and a whole bunch of stuff that we take for granted in many applications today — but in 2005 were kind of radical. In December of 2005, we started getting nibbles from the venture community. Recurring interest.
Bernard: You told me that you started fundraising in March of that year, and then you stopped at the end of the year?
Crick: Right. We were working tirelessly at fundraising throughout 2005. Toward the end of 2005, now a year since Ted and I had started talking to the finance community, we were still unfunded. Fortunately, Ted was able to reign in some money by licensing a portion of Syndeo’s technology to another firm. Those licensing fees gave us the runway we needed to fund development of Mobi-Link.
Bernard: Did that work? Did you actually use this Mobi-Link beta product to attract funding or did you find funding through some other means?
Mobi-Link was a functional demo and was a very useful proof of capability and concept, but it wasn’t the driver behind our first funding. We had never really released Mobi-Link into the wild. Yes, we had a website up and one could register for the service, but we’d done no marketing or launch activity. We were pretty much in private beta mode. A few investors were following our progress, but none stepped up to the plate based on Mobi-Link.
It was social networking and serendipity that were the origins of Ribbit’s funding. Even serendipity has a path and the path to Ribbit’s first round of funding started when my son was a year old. My wife made plans for our family of three to have breakfast with a friend of hers with whom she had worked at Excite @Home. Her friend, who also had a one-year-old son, would be bringing her husband, Gilman Louie.
I asked, “Do I have to go?” and my wife said, “Yes, you have to go.” Gillman, who was the CEO of In-Q-Tel (CIA’s venture capital arm) at the time, is rumored to have asked his wife the same “Do I have to go?” question. Neither of us, apparently, saw the latent potential of the pancake breakfast.
We met at the Millbrae Pancake House sometime in late 2003 or early 2004 for an uneventful breakfast of one-year-olds and their parents. It wasn’t until halfway through 2006 before the pancake potential started to play out.
In 2006, Gillman left In-Q-Tel and together with Stewart Alsop who left NEA, formed a new firm called Alsop-Louie Partners (ALP). As the two of them were starting up ALP, Stewart, whom I didn’t know, blogged about how he couldn’t find a phone system that met the needs of small businesses. Stewart had been with NEA. He knew technology and he knew the Vonage guys. So if he couldn’t figure out how to get a phone system that would work for him then he was a guy I needed to talk to.
So I wrote to Gillman reminding him of our pancake breakfast of two years prior and asked if he and Stewart would meet with me about Stewart’s blog. Gilman and Stewart were game, so I set up a meeting at Gilman’s brand new office in Levi Plaza. Ted was focused on code writing and asked, “Do I have to go?” I said, “Yes you have to go. Even though this is a market research thing, who knows? Maybe they’ll raise a round and fund us some day.”
So we drive up from Mountain View and snagged a clutch parking space right along Levi Plaza. It’s all metered street parking up there with aggressive parking police driving around all the time. So we waited until just before our meeting start time to go in so that the maximum one-hour of parking time would cover our hour with Stewart and Gilman. We went in entirely focused on what Stewart saw as the problem needing to be solved in small office phone systems. ALP, remember, had just formed and had no fund yet. They barely had furniture back then.
So we interviewed Stewart and debated Vonage as an investment. Before long, Stewart and Gilman turned the table on us – challenging us with “are you good entrepreneurs?” They’re both smart, connected, and were pretty aggressive with us. Even though they had no funds to invest, we told them what we were up to and showed them Mobile-Link. A few minutes before the end of the hour, I started packing up since our parking meter was about to run out. Getting a parking ticket wasn’t something I could go for – my second child had just been born and neither my wife nor I had an income – and since APL hadn’t yet any funds to invest… So I thanked Stewart and started to make a polite exit.
Stewart said, “You can’t leave yet.
I’m like, “My meter’s running out – and you know how aggressive the parking police are here. I’ve got to go.”
Stewart, reaching into his pocket and pulling out a handful of quarters said, “You can’t go yet. Here. Go put money in the meter, and come back. We haven’t talked about the terms yet.”
“The terms?” I asked (politely laughing), “Don’t you need a fund first?”
He says, “Don’t worry about that, we’ll get a fund.”
True to his word, Stewart wrote up a term sheet for funding contingent on a partial close of ALP’s first fund. There were a lot of things that happened between then and funding, but in the end, Ribbit helped ALP close their first fund and ALP helped Ribbit by leading our series-A.
So it wasn’t until August 2006 that Ribbit was actually first funded.
Bernard: August 2006? So how long had it been? When did you actually leave AT&T to go on this whole journey?
Crick: The end of 2004.
Bernard: So it was a two-year journey until you got funded. Were there hesitations to throw down the whole entrepreneur bag and just go corporate?
Crick: Yeah. I had a one-year-old at the time and my wife was pregnant – I was a working stiff like everyone else. Even though I had always wanted to do my own thing, I agonized over whether to start Ribbit or not. David Krantz was very helpful and introduced me to a fellow named Dennis Haar, who was then CEO of Go Digital. I drove out to Go Digital and I met with him as a potential mentor.
It was Dennis that told me, “There are two good times to start a company. The first is when you’re young and have no family, you live off your family at home, and you can basically work twenty hours a day because you’re nineteen. That’s a great time to start a company. The second is when you’ve finished the corporate career path, you’ve got money in the bank, and your kids are grown and gone. You can downsize your property and afford to basically give all your time and wisdom to a company. Everything in between is a nightmare.”
Crick: These words weigh heavily on you right? They did me too. I was in the nightmare phase of life (and still am for that matter!). I wasn’t able to sleep for worrying about what I was going to do. I kept thinking about what Dennis (and so many other wise folks advised) and agonized over whether to go for it or to pull the plug.
It was my wife that tipped the scale. She is awesome. She said, “You were miserable at AT&T. It is not you, so I don’t quite understand what all this worry is. You MAY NOT stay at AT&T. Let me ask you a question. Let’s say we go through this, and things don’t go right. What does it mean ‘they don’t go right?’”
I said, “Well, you know, you’re out of work, we have two babies, we’re paying for Cobra, we have a mortgage, and we have limited savings. If things don’t go right, we’ll run out of savings.”
She said, “What happens if we run out of savings?”
I said, “Well, we basically sell the house, get the equity out of it and live off of that for a while in an apartment somewhere until I get a regular job. We’d have no house and no savings.”
She said, “You mean like where we were three years ago?”
And I said, “Uh, yeah.”
And she said, “Well, that’s not so bad. I don’t know what you’re worried about.”
Bernard: Really? That’s awesome! What a supportive wife.
Crick: She said, “All I want to tell you is that I don’t want to be with you if you don’t do this because you’re not going to be happy unless you pursue your dream. The worst case scenario is not a bad scenario.”
Crick: So that emboldened me, and I took the early exit from AT&T. Of course there were endless follow-on periods of anxiety. The turns and tumbles – like when the contract with the Examiner fell through and my CTO resigned. Endless challenges. What do I do? How do I resolve that? Where do I go for technology? How do I find people? And there was investor on every corner telling me my idea was stupid. The good news is that it only takes one investor to like and fund your vision. (laughs)
Bernard: That’s so true.
Bernard: Okay. So you got some money in 2006, you’re building your product, so what happens next?
Crick: So we’re building what became Ribbit Mobile. In February of ‘07, I realized that Salesforce.com was the perfect application for our solution. So we built, between February and September of ‘07, Ribbit for Salesforce.com that we announced at Dreamforce 2007. It was really exciting because we basically had a two-foot by two-foot pedestal in the farthest reaches of the Moscone center – at the back of everything. I mean we were literally the third-to-last exhibit in the farthest corner. We were tiny little guys, tiny little money, BUT we had a line at our table all day, all three days. People loved it. We actually won an unexpected app of the year award at the show.
In December 2007, we launched Ribbit. We flew around the country briefing the press and on December 17th, lifted the press embargo and pushed out our new web page. Don Thorson did a great job for us – we were even in the Financial Times – and still, Ribbit Mobile had not been launched. It was at DEMO 2008 on February 24th or something like it that we exposed Ribbit Mobile. There’s videotape of me on stage at DEMO. I look really serious, like a Borg, with my headset on and eyes squinting in the lights. It’s impossible to realize how hard it is to be relaxed on stage until you’re on stage and realize it’s impossible to be relaxed on stage (laughing).
Bernard: I’ve seen it. I was thinking Max Headroom.
Crick: So now we’re going to start getting into how the company was sold. First we need to roll the clock back and talk about how networking in 2004 led us to BT in 2008.
Crick: While I was still at AT&T in 2004, I was invited to an industry networking event by a company called Light Reading. Light Reading was a market research and publication firm. They invited a bunch of people to a Light Reading golf tournament down in Half Moon Bay in 2004 – which I attended with an AT&T badge, and made good connections with the Light Reading team. In 2005, I was again invited, but this time I was unemployed with Duality Inc. and the event was in southern California – not a simple drive over to Half Moon Bay funded by AT&T, but a personal investment in airfare, rental car, and hotel accommodations. This was a big commitment for me – and I struggled with the question of whether or not to go. One thing that tipped my decision was following through on an introduction to Tom Marcin who was Global Director of Telecommunications at DuPont. Tom had been supportive of Duality in many phone and e-mail conversations and would be attending the Light Reading event, so I decided to go to meet Tom in person and while making the most of the event.
The conference itself was good, though uneventful. Afterward, some of us found ourselves together at the Santa Barbara airport waiting for our flights home. Santa Barbara airport has a little bar upstairs and I went on up to find a boisterous, red-faced, Brit talking loudly and inviting me to join the table for a beer. I sat down, introduced myself, and discovered him to be a technology scout, Rob Hull, working out of the Bay area for British Telecom.
I eventually told him what we were working on and that we’d been funded. He took some notes and we went on about our businesses. When we released Ribbit for Salesforce a year later in September of 2007, I thought of Rob and called him again to meet for a coffee – something like, “Hey, I want to show you this thing. We’re going to need a distribution partner for Ribbit for Salesforce in Europe sometime and maybe BT would be a good partner.” We didn’t talk about telephony APIs at all.
In the meantime, BT had started a skunk works project building telephony APIs. By the time Ribbit announced its telephony API strategy at our coming out in December 2007, BT’s scouting team already knew about Ribbit, so this was only incremental news to them. What really got BT’s attention was when the BT API team started meeting with potential customers.
Joe Black was the business development lead for BT’s API group. As Joe described to me later, he would go to Salesforce, Oracle, and others to introduce BT’s API business. When he did, these prospects would say things like, “Oh, you’re kind of like Ribbit.” Joe was irritated to no end as you can imagine. Who and what is this Ribbit thing? So the BT API guys talked to their technology scouting team asking if they knew about Ribbit. And of course Rob Hull did.
So Rob set up a meeting. BT came to our offices, saw what we were doing, and grilled us. They sent architects and product folks to our offices over a period of weeks. We even met with the then CEO of BT Retail (now CEO of BT) and his direct reports – all of us thinking we were working toward a distribution agreement. At the end of one meeting with the API team, BT said, “We are either going to buy you or partner with you.” We thought, “Sure,” but didn’t believe that buying Ribbit was a BT-like thing to do.
We were wrong. Sure enough, BT came through with an offer to buy us – I think it was March or early April of 2008 – so only a couple of months later.
Bernard: Sounds like there were some difficult decisions to be made.
Crick: Right. There were: to sell or to grow the business. So now we do some math. We had $11M invested on a post-money valuation of $30M with ~$6M in the bank when BT came to us with an offer. We had no plans to sell the company.
British Telecom flew in to San Francisco and we met at the Starbucks in the lobby of the Westin St. Francis. They offered us $50M. The terms of the proposal were a little non-standard and amounted to essentially buying out the VCs and leaving the Ribbit team members as employees of BT with the potential of a bonus payout of some form, after three years, for those employees remaining.
Crick: The offer intent was heartfelt even though we knew that it wasn’t really going to work for our venture team. We also knew it wasn’t going to work for Ribbit employees who have a Silicon Valley view of employment and rewards. We told BT this and they took our feedback back to the UK. When we told our board that BT had made an offer to purchase us, the board wasn’t thrilled. They were, in some ways, very angry that we’d even consider an offer of purchase since we’d just closed our B-round and were on a valuable track. Expectations were rather high…
Bernard: Wait. They were angry that you were even considering…?
Crick: Yeah. Put it into perspective. They’d just funded us and we were doing all the right stuff. From their perspective, we should be aiming for multi-hundred million or billion-dollar valuations. But an offer is an offer. You have to entertain all offers.
We did some math on what I called the “buy it now” price. In other words, what would be a minimally acceptable and expected return to a limited partner (LP)? Typically an LP needs two and one half times their investment – minimum. With our recent $30M post-money close, that would mean $75M over our post-money value. So a minimum acceptable valuation of $105M was the threshold exit given where we were.
Meanwhile, our board was like, “No you’re crazy. You’re going to be a billion dollar company, why would you do this?” Ted Griggs managed all the stress of this sell-build dilemma. There was high stress on all three sides of the conversation – BT, Ribbit, and VCs. The only way this could work was if our board agreed to the buy-it-now price of $105M and BT met this price with an all-cash offer. There could be no monkey-business in any quarter of the deal.
The economy, in the mean time, was going kind of wonky. So we talked to the board and said, “If BT comes back at a hundred and five, we think we should take the offer given what it would take us to attain that same outcome, on a dollar basis, with subsequent rounds of funding.”
Our B-round funds were only going to take us through the fall of 2008. We knew that we needed to start raising a $20M C-round, including a global strategic investment partner, by the end of the year. And even with a C-round, we would still have to overcome all the execution and market risk to build a company valuation at hundreds of millions of dollars – and then again find an exit opportunity.
So we told BT, okay, our buy-it-now price was one hundred five million dollars. Al-noor Ramji, then CTO of BT Design, basically the second in command of BT, flew out with JP Rangaswami and met with me and Ted for a couple of hours up in San Francisco. Al-noor interviewed us on a very personal level. He wanted to know who we were; what drove us; what were our visions and personal passions. In the end he said, “I’m authorized to offer up to one hundred million and I’m not going to play games. I’m offering you the whole one hundred. We can work out the terms together or you can go to lunch and write them yourselves.”
So Ted and I went for lunch to talk over our dilemma. $100M was very close to $105 – but not $105. We’d worked hard to get our board to agree to the $105 price and were uncomfortable considering something just 5% short of threshold from BT – a company with nearly $40B in annual revenue. We had a long conversation and concluded that fundamentally, we couldn’t accept a one hundred million dollar offer because we, our venture partners, and our board, had been very clear that they didn’t want to sell the company and would only consider an offer meeting the hundred and five million dollar buy-it-now price.
After lunch, Ted and I went back and told Al-noor, “We really like BT, your vision, and we love the idea of being part of it, but we need a hundred and five. If you get to a hundred and five, here are our deal terms.” We went over our proposed terms. Al-noor listened, said he was very disappointed, then got up, picked up his brief case, and walked out.
I thought, “Oh no this is terrible.” Ted and I thought we’d blown it. We were worried we’d left the wrong message somehow and as we drove back down the Peninsula, called Al-noor while he was still at the SF airport and reaffirmed our desire to work with BT, asked him to consider our request, and assured him and that we would talk to the board about his offer.”
Long story short, Al-noor was able to get BT to authorize the additional five million. When he came back with an offer of $105M, we accepted. By May 10th, we had accepted an offer and closed on July 29, 2008.
Bernard: Okay. And this is a little bit more for the benefit of entrepreneur’s reading this… So the size of that deal did it warrant any financial advisers?
Crick: Only as an insurance policy. We were being approached by other suitors at the same time that BT was talking to us. AT&T was literally in my office as the BT offer was being accepted.. At ten o’clock in the morning on this same day, we were going to sign the “no shop” agreement with BT. So I’m looking at my watch as the meeting progressed with the AT&T guys knowing that we had about fifteen minutes before we were supposed to sign the no shop. Of course, anything can happen – and there was still risk that the no shop wouldn’t be signed… so I waited out the hour.
Now the AT&T guy says, “So, we’re all set. You’re going to come to San Antonio on June 6th to meet with Randall Stephenson (AT&T CEO), his Vice President of M&A, and a few other execs. We’re either going to make an investment or buy you outright. You’ll fly out on June 5th for the meeting.” He senses my quiet and looks up at me for a response. I’m not responding because I can’t. The clock is ticking. Only minutes to go.
And he said, “So you’re going to be there right?”
I said, “I can’t come.”
There’s just this pause, this huge pause. He says, “I don’t think you understood me. You have a meeting with Randall Stephenson and his executive team and they are either going to buy your company or make a huge investment in you.”
He pauses and I say, “I can’t go to San Antonio to meet with your team.”
Recognition and awareness fill his eyes. He leans back on the legs of his chair and says, “No! Don’t tell me! (he was steaming) Don’t tell me it was the ‘G’ company!”
“All I can say, is that I can’t come meet with Randall and his team.”
Bernard: The “G” company?
Crick: Yeah, the “G” company was Google. Because Google had been on a buying spree and previously bought what became Google Voice.
Bernard: Grand Central. I see. And AT&T saw Google as a threat in 2008?
Crick: Yeah. There was enormous speculation in telecom that Google was going to enter the voice market and undercut the incumbents. Ribbit’s API model was a piece that Google didn’t have and AT&T thought Google was going to buy us up.
Bernard: Oh I see, interesting.
Crick: So when you add up that we had just closed a B-round, were still well ahead of the value creation curve for Ribbit, had one or more telco’s as potential acquirers, and that our eye had to be taken off of the ball to entertain the offer from BT, our board wisely insisted we hire an investment banking firm.
Bernard: Because you had so many people in play.
Crick: Yes. Because if something fell through with BT… You know if we were to set off one of the basic deal trip wires like failing to meet certain deadlines, not finishing due diligence on time, etc. we’d have already exposed ourselves and would have to act quickly on the momentum of the moment. The investment bankers were brought in to pick up the ball and go into motion if the BT deal faltered. If that happened, the “no shop” would be lifted and the I-bankers would be poised to shop the company.
Bernard: You had them on retainer?
Crick: Yeah. That’s how it worked. We paid an up-front retainer for them to be prepared and ready for a deal falter.
Bernard: And then they took what, five percent of the deal?
Crick: No they weren’t part of the BT deal economics.
Bernard: Really? They didn’t ask you for that?
Crick: To be part of the BT deal? No, because they weren’t involved with the BT deal in any way. They were in waiting, sort of guarding the door. They were basically back-up. Part of our strategy with BT was to be open about having I-bankers in the wings: that we were ready to take this deal to the market if anything didn’t work. The idea was to make sure all parties were focused on getting the deal done.
Bernard: I see. So if BT didn’t work then the I-bankers would…
Crick: Yes, so effectively an insurance policy.
Bernard: That’s great for fellow entrepreneurs to know. Inspiring and insightful story, Crick. Definitely appreciate your time.
Crick. My pleasure Bernard. I hope there are some nuggets here that help others as they create their own start-up stories.