Aug 3, 2012

Tech News: Sparrow Sells to Google

If you are a user of the popular email alternative Sparrow, you may have been sad to hear that Google has purchased the company, and that the app will be absorbed into Google’s products. Quick translation – the Sparrow as we know it will no longer exist. Now, Sparrow was a popular app, and many are asking the question as to why Sparrow would sell. I am here to tell you, the answer is simple – it’s all about the money. Let’s take a look at the numbers. Strong Early Sales During the first four months of sales, Sparrow managed to pull in over $400k in sales. With this kind of revenue, and the exposure that it brought the company, things were looking great for all things Sparrow. It initially looked like the sky was the limit, and Sparrow was building towards the next version. Investment Round With such strong initial sales, you might expect that investors would take notice. And so they did, with Sparrow getting a funding round from those investors. Now Sparrow needed to not only make money for the company, but it needed to satisfy its investors. This is nothing unexpected or uncommon for any investment round, but there is one hard truth to keep in mind when it comes to investors – they want to eventually make money on their investment. Sales Stabilize After a bit, Sparrow settled into a comfortable groove with its market, and at the time of the sale Sparrow was expected to average around $30k a month. With 5 members on the Sparrow team, it is easy to see that this was not exactly highly profitable, but no doubt manageable. The Google Offer As the story goes, Google approached Sparrow, and they brought with them an offer to buy Sparrow completely. The offer was the tidy sum of $25 million. And, as we now know, Sparrow took the offer. And in my opinion, this was a very smart thing to do. After all, the figure $25 million was roughly the same as 50+ years of business at its current revenue level. Sure, Sparrow could have cleaned up its resources, cut back on the team, and continued to sail the independent seas, delivering a strong email alternative for its customer base. But do you remember those investors from earlier? Well, it is hard to wave 50 years of instant revenue under an investor’s nose without expecting them to want a bite. So, Sparrow did the sensible thing for its investors and team – it sold to Google. The Takeaway After the smoke clears, perhaps we can step back from the Sparrow tale and come up with one key factor to keep an indie company as an indie company. And what is that one key factor? Simple - don’t go the investor route. If you do find success, and get an offer like Sparrow received, then it would be almost possible to look at your investors and say no to such an offer. After all, the investors are often the ones that believed in you when others would not. For their part, this is exactly the kind of thing that investor daydreams are made of. Their belief in your company and/or capabilities has been rewarded, and things will naturally follow to the sale. So, if you have a great alternative app for users, and it becomes popular, expect that users may applaud your sense of independence. But if you do have investors, you have to respect them if the big offer comes in. Your users may accuse you of being a sell out, but in the end it is just good business. Otherwise you may want to rethink the funding rounds.