Frugalo, a daily deals aggregation platform that emerged from AngelPad’s third group of startups last fall, is being acquired by social video site TwitVid. As you may have guessed, the move was more about bringing Frugalo’s founders on board than it was an indication that TwitVid is now interested in the daily deals market. However, some of the personalization technology in use at Frugalo will make its way over to the social network as a part of the deal.
Frugalo’s founders, CEO Mike Cieri and Scott Reynolds, say they discovered a shared passion with what the TwitVid team is doing, given both companies’ focus on the creation of social experiences to help users discover and share. But finding kindred spirits at TwitVid wasn’t the only thing that pushed Frugalo in this direction – the changes in the daily deal space also influenced the founders’ decision, they admit.
As explained via a company blog post, Frugalo was doing fairly well for a new startup, having initially launched in December with a product that helped people manage all their purchased deals, as well as find great deals with their friends. The company has seen nearly 3,500 users sign up, and 20,000 monthly visitors to date. Those may be low numbers compared with other consumer startups, but Cieri tells me that he and investors felt like the company was off to a good start.
However, over the months as Frugalo went from idea to launch, the daily deals market changed significantly, he says.
“The number of major deal sites is shrinking, the ability to share purchase information through Facebook and Twitter got easier, and many consumers are buying fewer deals,” explained Cieri. “With a consumer internet product, mass adoption is required to be successful, and while our solution worked well for a niche of hardcore deal buyers, we questioned if the market was big enough to get us where we needed to be without a major pivot.”
Cieri also spoke of the consolidation in the deals space as influencing the company’s decision. “There are less players today than there were nine months ago when we set out,” he adds, “there are a lot shifts going on in the space.”
And another big issue for a deals aggregator such as Frugalo? “Most people are just buying from Groupon and Living Social,” Cieri admits. “Some of the initial problems we set out to solve became less painful for a lot of consumers.”
The company was already considering pivot ideas prior to the acquisition, he says. But joining TwitVid looked more appealing.
TwitVid, which got its start as a repository of videos on Twitter, recently transformed itself into a social network for sharing videos, composed of videos from not only Twitter, but also from sites like Vimeo and YouTube. The videos are organized into channels and can be shared back across social networks. The social video space is very hot these days, with a number of companies taking part, including startups like Shelby.tv, Showyou, Squrl, and many others getting involved.
Says Cieri, TwitVid has built a “very strong team” (now 15 folks) and he believes the founders (Mo Al Adham and Adil Lalani) have “a big, yet focused vision for the company.”TwitVid has founders who have been at this for over four years, he also notes. And the company raised $6.5 million in funding this past fall, which helps, too.
“We can separate from the fray in creating an experience for video that’s different from YouTube, different than Hulu, and that’s much more raw, user-generated and social,” Cieri says of his new home. “A lot of these startups that are just jumping into video are brand-new at it, and are going to be learning a lot of lessons these guys learned three years ago.”
He also notes that both he and Reynolds, both of whom left Digg prior to starting Frugalo, have been deeply interested in media and video-based businesses. In the end, they say they were more excited about joining TwitVid than continuing on with Frugalo.
As part of the move, Cieri (Frugalo CEO) will become Head of Product at TwitVid and Reynolds (CTO) will become Head of Backend Engineering.
As for Frugalo’s investors, AngelPad, InterWest, and Sierra Ventures, Cieri says that closing Frugalo was the best chance at producing a strong return for them, as well. Frugalo had raised $120,000 in funding, $100K which was convertible debt, and $20K that went in equity to AngelPad.
AngelPad founder Thomas Korte says that this is acquisition is one of many involving small companies combining forces, noting that they have a handful of sub-$5 million acquisitions in the works right now.
“We’ve started some many companies over the past two years. Some of them come to the end of their life in terms of funding, but more often and not, it’s actually more that they come to the realization that joining forces with another company makes a lot more sense.”
When you’re a founder, you have three options, says Korte. You build a big company, you end up in an aqui-hire with a big company like Facebook or Google, or you join forces with another early stage company. With the latter option, everyone is pretty happy – the founders get to continue building something they’re excited about using their same skills, the new company gets the benefit of the founders’ experience, and investors get a stake in a company that has a stronger trajectory.
While Korte admits that financial outcome was “OK” (it’s not one where he can say it returned the fund’s money, however), he says he’s happy with the deal. “Anytime you see a team in a good place and you have a stake in another great company, it’s a good outcome,” he concludes.
As part of the acquisition, Frugalo will be shutting down the service in 30 days, but the company notes that Groupon and LivingSocial now offer deal expiration notification services, and services like CityPockets and DealRadar offer deal wallet functionality for tracking all your purchased deals. An email is being sent out now to Frugalo’s users.