Tinder has caned their CEO/Founder
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Exclusive: Sean Rad Out As Tinder CEO. Inside The Crazy Saga
In creating TInder Sean Rad changed how people mate, and how Wall Street Viewed Barry Diller. Too bad it wasn't enough to save his job.
The gist of the story: Do not ever give up too much, too early, when it comes to equity and voting rights. A good friend of mine was burned by this about 2 years ago.
Analysts who follow IAC’s stock estimate that Tinder is worth somewhere between $1 billion and $1.5 billion, but even they concede that’s a huge discount to the valuation it could garner from venture capitalists. One big-bank analyst told me that a stand-alone Tinder, given the crazed private markets, could top $5.5 billion—IAC’s entire market cap.
Where do they come up with these valuations? How can a subset of a company be worth more than the entire company's market cap? How is a company that has yet to make any damned money worth more than a pittance? I have been in the business world for a long time and these valuations never make sense to me. It always seems like Enron accounting.
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@Intercourse said:
It always seems like Enron accounting.
because it is.
it's gonna be real fun when the app bubble crashes and all those people start needing to find real jobs....
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Yeah, all of these apps follow a "Field of Dreams" concept of business.
If you build it, it will make money.
Yeah...no. We have a few projects that we have built in-house and they always start with, "This is how we will make money off of it." I know, novel concept. It has worked for us though.
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field of dreams... ruining more jobs and economies than any other movie in the history of ever.
i wish i was joking.
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It is easier for us though. We are entirely a B2B company, so our customers expect to pay for a service. It is an easier market to make money in.
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It really is sad how many tech companies business plans are:
- Build something cool
- Get users
- Spend a shitload of VC money
- Get more users
- Spend shitloads of PE money
- Get more users
- Years down the fucking road, then and only then, do you try to shoehorn in a way to make fucking money.
Also, I abso-posi-fucking-lutely hate the term "monetize". If you mean "make money", just say "make money". There is nothing evil about making money and saying "monetize" just makes you sound like a hipster, techy, douchebag who likes to think he is an entrepreneur.
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There is a local group of technology entrepreneurs here that meets monthly. I used to be on the leadership board but I had to divest myself from the association because it became completely overrun by people who could fill out this entire card within the first 5 minutes of it starting.
Scratch that, you could probably fill it in the idle conversation before it officially started.
Also, they insisted on meeting at 7am and I don't like getting up that fucking early.
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@Intercourse said:
We have a few projects that we have built in-house and they always start with, "This is how we will make money off of it."
Marketing says product should have a feature. R&D figures out it will take a certain number of people a certain amount of time to develop that feature; cost = $X. Manufacturing figures out it will cost $Y to make. Marketing figures out how much money we can make with the feature vs. without; ROI = $Z.
$Z > $X + $Y — Feature approved
$Z < $X + $Y — Feature rejectedA recent change is that R&D isn't allowed to even touch the feature until this analysis is done and approved; this was not always the case.
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@Intercourse said:
Also, they insisted on meeting at 7am and I don't like getting up that fucking early.
I'm lucky in that my "support" schedule has me officially unavailable until 9am.
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I do something similar.
Client: "Can we meet at 7:30AM on Thursday?"
Me: -looks at calendar on phone- "Oh, sorry, I have an early morning meeting on Thursday. Can you do 9:30AM?"
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I also have a recurring, daily meeting around lunch.
"Can we meet at 1?"
"Sorry, my schedule has me busy then."
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My reply would be something like: "That depends, where are you buying me lunch at?"
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A recent change is that R&D isn't allowed to even touch the feature until this analysis is done and approved; this was not always the case.
Yeah, now it seems like marketing and management make that decision and then R&D has to shoehorn it in to the hypothetical budget that they did not get to consult on. That is a recipe for WTF and disaster.
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I read the first page of that story and I think it's made me physically ill.
"Oh so unfair. I'm dating Michael Dell's daughter and I've been booted from my job, however will I survive?"
How about fuck off? I know it's Forbes, but maybe they could write about real events that affect real people, instead of drama bullshit for rich assholes.
I swear to God the current tech bullshit going on in the Bay Area is starting to convince me we need to nuke the whole fucking thing. Hey you know what Seattle and Portland has that San Francisco doesn't? People who aren't total stuck-up assholes! Imagine that.
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Seattle/Portland has assholes, if present company is included. Not apparently stuck-up though, so I will give you that.
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the current tech bullshit going on in the Bay Area is starting to convince me we need to nuke the whole fucking thing.
I object to this. Or at least give me enough warning to have my kids come visit me before you do it.
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You live there and want to wipe out the whole gene at once? Good man. I approve of your sacrifice.
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You live there and want to wipe out the whole gene at once?
No. You know (roughly) where I live — about 10 miles or so from you.
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Thanks. Your matter-of-fact reply, written with complete ignorance of the practice and in fact very concept of "humor" really increases the appeal of my joke.
Making jokes on this board is like explaining Gilligan's Island to the Galaxy Quest aliens. Sheesh.
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Ahhh. You suggest that you were making a joke. I find that notion humorous.
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Thanks. Your matter-of-fact reply, written with complete ignorance of the practice and in fact very concept of "humor" really increases the appeal of my joke.
I understand humor1 and recognized your post as an attempt at such. However, the premise on which your alleged joke was based is faulty. Or perhaps it is allegedly funny specifically because the apparent premise is known to be faulty. And I am now wrecking the joke even further by overanalyzing both the joke and my correction. I'll stop now.
1My sense of humor doesn't necessarily work the same as other people's, but if it did I probably wouldn't hang out here.
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@Intercourse said:
It always seems like Enron accounting.
Bubbles: the early years. It seems to be the VCs overvaluing stuff based on too much money chasing too little value. Simple inflation, but at a scale normal people can't really understand.
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I understand humor1 and recognized your post as an attempt at such.
I find it acceptable to respond seriously to "jokes" about killing your kids.
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@Intercourse said:
The gist of the story: Do not ever give up too much, too early
Rad never had anything to give up. He came up with the idea while working for the company, at an event the company organized.
@Intercourse said:
Where do they come up with these valuations? How can a subset of a company be worth more than the entire company's market cap? How is a company that has yet to make any damned money worth more than a pittance? I have been in the business world for a long time and these valuations never make sense to me. It always seems like Enron accounting.
I just feel that if you would have read the article, this would all be pretty clear.
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I read the article. I feel like if you knew anything about business, you would know what I meant here.
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I am on mobile at the moment, so I CBA to illustrate just how you are wrong as Discourse has issues with copy and paste.
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Same.
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How sad is it that "this shit has trouble with basic functionality" is a perfectly valid excuse for calling a truce?
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Maybe that was the plan all along. Civilized discourse by way of making it difficult to have an argument.
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THIS IS WHAT JEFF WANTED!
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Really? What company owns match.com?
We are not talking about Match.com, not really. The discussion starts before or in parallel to IAC as a consideration.
Rad had the idea for Tinder. He is obviously well connected, he is dating Michael Dell's daughter, that is all the connection you need if you have a good idea. He has also already brought several companies to market and sold them. So yes, he did have the idea for Tinder while employed by IAC, but IAC does not own his thoughts and ideas.
He seems to be a serial entrepreneur, so taking the position at IAC was probably a bad idea in the first place. But, as he was already there when he had the idea, if he truly believed in the idea he had the option of stepping down and bringing it to market outside of IAC. He was also given the option partway through to when it was still in early development to have it bought out, he also turned that down. Not to mention the fact that a contract is only as binding as those who wish to enforce it, you can always renegotiate. Or attempt to.
Now, if this had not been his idea and simply one that came in to the incubator, it would have been bad business ethics for him to take the best idea and go somewhere else with it. That would he shady as hell. This was his (and his best friend's) idea. They stayed in the incubator program because they apparently thought that was the best place to bring it to market. And maybe it was? Regardless, he obviously had the ability and connections to do it on his own. But he stayed there, so he gave up a lot of control because he had to give up equity and in this case, voting rights (the two are not necessarily mutually inclusive).
As for:
He came up with the idea while working for the company, at an event the company organized.
If you had read the article you would have read:
as Rad tells it, he and Mateen were kicking around an idea for a flirting app based on a system of mutual liking. When Hatch threw a hackathon during Rad’s first week, he, along with engineer Joe Munoz, built a prototype.
Idea first, hackathon next. He did not come up with it at the event, at least not the way the article I read is written*.
As for your assertion that if I had read the article the source of the valuation would be pretty clear:
I just feel that if you would have read the article, this would all be pretty clear.
The only thing I found in the article that pertains to said valuation is:
One big-bank analyst told me that a stand-alone Tinder, given the crazed private markets, could top $5.5 billion—IAC’s entire market cap.
Italicized for emphasis. A crazed market is not a market that is accurately valuing entities. It is a market that is working itself in to a fever pitch, and also a bubble. This is fucking pets.com all over again. This is people throwing investment capital at companies that are losing money. It doesn't matter if you are selling dog food for less than you bought it for, or giving away a service without bringing in any revenue. The effects are the same.
As for the next little relevant bit:
One big-bank analyst told me that a stand-alone Tinder, given the crazed private markets, could top $5.5 billion—IAC’s entire market cap.
Conventional definitions of market capitalization is the total value of all shares outstanding. It is literally impossible for one entity, that does not make any fucking money to be worth more than its parent constituent. Impossible. (Not entirely true, it is possible under two possible circumstances: #1 if the parent company is massively undervalued, but no one could make that argument here. The VC and PE markets are just fucking retarded right now. #2, if the constituent part is making shitloads of money and the rest of the business is a cash sink, that drags down the valuation. The opposite is true here.)
For Q3 of this year, we can see that IAC's EBITDA is $134.6M. I am not going to go over all of their earnings reports, but it is readily available as they are a publicly traded company. There is no possible way that Tinder is worth more than the entirety of its parent because...it had not made any money yet.
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- Rad met Dell through tinder, hard to see how that connection could have helped him start it.
- As the owner of match.com, IAC probably did seem like his best bet for bringing tinder tinder to market, and probably still is the best company to know how to make money from it.
- If anything, the moral of the story is that if you believe you are going to get a certain deal, get it in writing, rather than relying on Ashton Kutcher to be able to lobby for you after the fact.
- No one ever said that tinder was actually worth that much; all they ever said was “that's how much we think you could get from crazy people”
Bottom Line: The guy's name is Rad, for fuck's sake. Firing him as ceo was a big mistake.
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Rad met Dell through tinder, hard to see hoe that connection could have helped him start it.
True. But he had already brought other companies to market, so it is beside the point.
As the owner of match.com, IAC probably did seem like his best bet for bringing tinder tinder to market, and probably still is the best company to know how to make money from it.
Probably, but for me that would fall under "contract renegotiation". If he truly believed that at the time it was a multi-billion dollar idea, he should have renegotiated. So my original point still stands. They probably would not have went for it, and just stolen his idea at that point anyway, which is why I think he should have brought it to market himself.
If anything, the moral of the story is that if you believe you are going to get a certain deal, get it in writing, rather than relying on Ashton Kutcher to be able to lobby for you after the fact.
He got it in writing, it was just a shitty deal for him.
No one ever said that tinder was actually worth that much; all they ever said was “that's how much we think you could get from crazy people”
Which brings me back to:
@Intercourse said:
Where do they come up with these valuations? How can a subset of a company be worth more than the entire company's market cap? How is a company that has yet to make any damned money worth more than a pittance? I have been in the business world for a long time and these valuations never make sense to me. It always seems like Enron accounting.
To which you replied:
I just feel that if you would have read the article, this would all be pretty clear.
So, I am still failing to see where you have a point?
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Either that or he was trying to imply that Dell's daughter is a "ho
e"?(Strikethrough does not work so well on a single "e")
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@Intercourse said:
So, I am still failing to see where you have a point?
I just thought it was funny that every question that you raised in the op was already trivially answered in the article eg:
@Intercourse said:
Where do they come up with these valuations?
It's because they are crazy, it says so right there in the article.I was thinking of doing a thing where I would juxtapose each question in the op with a line from the article that I felt answered it, but, you know, mobile.
hoe that connection
I noticed that typo before I sent it, but fixing an error in the first two lines of a post sent from my phone involves a lot of backspacing and retyping that I just didn't want to bother with.
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Civilized Discourse: Everything Is a Phone™
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It's because they are crazy, it says so right there in the article.
That answers the why which we all assumed. But it doesn't answer the how which was @Intercourse's question.
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You are really starting to sound like a moderator.
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@Intercourse said:
You are really starting to sound like a moderator.
If you say so. I was just having flashbacks to my corporate finance courses. Show me the cash flow!
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You had Jerry McGuire as a teacher?
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That answers the why which we all assumed. But it doesn't answer the how which was @Intercourse's question.
A few years ago I was exploring the possibility of purchasing a local business (a winery). After a few talks with the owner, I asked him his asking price ($550K). At that point, I knew I should just walk away because it seemed like an exorbitant price, but I asked to see a P&L, etc.
P&L's for the past 5 years showed an average profit of $18K/year. No, that is not a typo. Then I attempted to politely walk away. The owner insisted on a meeting. Attempting to be a professional, I agreed. That was a mistake also. In the meeting I politely told him that I felt his valuation was way too high and that we were too far apart to even attempt to negotiate. He insisted that I make him an offer. As I had also taken an inventory during my due dilligence, I offered him $55K, which is what I estimated I could buy his equipment for on the used market.
He just sat there. And sat there. His face turned red. He was massively angry. I explained my rationale behind the decision but he insisted it was worth more than $550K because that is what he had spent up to that point. (This also shows that those P&L's were possibly optimistic, and did not account for other money that he had dumped in to the business) His 401K and Roth accounts were cleaned out, he owed his father ~$180K. He insisted that if anyone started a similar business, they would have to spend the same amount of money, etc. He tried to convince me that I would be ahead of the game by spending $550K to have a $18K/year job. Profitability was right around the corner! The business would be rolling in profits any day now! He was just saving me a few years of effort, and I could but it for the low price of $550K!
This game is not limited to big VC/PE tech startups. Valuation of businesses leaves the rails very frequently. For me, a business only has value if it is making money. If not, it is only a sum of the value of its parts: IP, equipment, inventory, etc. "Potential to make money" has no value to me. I take calculated risks, I do not gamble.
Tech companies pissing money away was illustrated for me by Facebook's purchase of Instagram. What did they gain by that? How did they come up with the valuation? They paid $1B for an application with ~30M users at the time. That is $33/user at a time when the valuation of users was at between $1-4/user. Also, most of these people were currently Facebook users. I would not have been surprised if the overlap was 90%+ in that case. As for the IP, Facebook could have easily developed their version of Instagram for well under $1B. There was also nothing proprietary and patentable there, to my knowledge. Applying filters to photographs through post processing is something that has been done many times over. Instagram had no intentions and no real way to work themselves into being a pervasive social network to compete with Facebook. And the kicker, Instagram had not brought in one single fucking dollar of revenue yet. It is not just that they were not profitable, they had no scheme to try and bring in revenue yet.
These valuations always just seem to be pulled out of their ass. There is no way they are worth what they say they are. We are seeing another bubble forming. It is pets.com all over again. Extreme valuations on projects that are losing money by the truckload. All of this is troubling because when that bubble bursts, a lot of people will again be out of work and we will see salaries and profits drop down again. It is not good for anyone except those few who make the short term gains, if they do not piss it all away on wrecked sports cars, etc.
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@Intercourse said:
Valuation of businesses leaves the rails very frequently.
While there are techniques and tools, it's still a bit of a black art. Especially since a lot of it relies on predicting hard stuff. Namely, the future. And in having a plan for doing something with it after you buy it.
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And in having a plan for doing something with it after you buy it.
Good thing you said that, it reminded me of something else. The owner of the winery kept insisting that the business was about to make money, I just needed to stay the course and riches were right around the corner. The conversation really broke down when I told him that the reason I only thought it was worth basically salvage value was because I was going to completely redo everything in the business plan. It was not making money, so I was only buying it for the equipment and licensing. I was going to change the name, change the entire line of wines, etc. I did not even want the inventory. I told him he could keep the inventory if he was willing to pay the taxes to get it out of bond, otherwise it was likely it would all get dumped. (the wines were all overpriced, and just not very good).
I hated to say it, I honestly did. But he needed a bit of a wake-up call. I was not going to throw good money after bad, etc. Less than a year later, the winery burned down. Hmmmmm.....
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@Intercourse said:
The owner of the winery kept insisting that the business was about to make money, I just needed to stay the course and riches were right around the corner.
That would lead me to the question "Then why are you trying to sell?"
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Exactly!
I get people all the time who come to me for advice about purchasing a business. My first question is always, "Is it making money?" If the answer is yes, then we always follow up with "How much? Debt/income ratio, revenue/expenses ration, etc." If the answer is no, my very next question is always, "What are you going to do differently?" I would guess, based upon my own anecdotal experience is that most people never even think about that.
Luckily a very good friend of mine is a lawyer who works in mergers and acquisitions for a very good law firm. He has taught me a lot over the years.
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After reading this article, it occurred to me that the Amazon series Betas is based on this guy.
