July 9th, 2013 Twilio Tech Talks: War Stories from an Acqui-hired Startup w/ Brian Krausz
On Tuesday July 9, 2013 OLC attended the Twilio office in San Francisco, California where Brian Krausz, the founder of GazeHawk came in to speak about how this particular startup failed and talked about the horror stories of failure—and then being acqui-hired by Facebook.
GazeHawk was on track to be a typical startup story. They were part of a Y-combinator, raised money and were growing in size then ran out of money all in the span of about two years.
GazeHawk is essentially eye-tracking software so you can see where your customers are looking when they are on your website or web application.
“There are two kinds of startups that you hear about,” Brian Krausz said. “The incredibly successful ones with a co-founder, money, iterating, customers and then someone buys you out. You make money and go travel to an island. A failed startup—the more common one—where the business grows, raises money and hires more people, but then fails and runs out of money.”
The latter is essentially the GazeHawk story in a nutshell.
GazeHawk started in April 2010, and by March 2012 had been acqui-hired by Facebook. One thing that Krausz is stern to note about is that Facebook did not buy their technology, but part of the talent that GazeHawk had to offer.
When things are going good, it’s easy to say that an investor would be a good fit and really help out. Krausz had to speak to 36 different investors before raising capital.
One thing that’s not expected on the entrepreneur’s end is to have to do is tell investors the company is failing.
“I called up every single investor and said, ‘look, here's the situation, here are our options and you might lose your money,’” Krausz said. “I had to tell 18 people, ‘I lost all your money.’”
Luckily, for Krausz, he had understanding investors who had already assumed they’d never see their returns again.
“Almost all of the investors told me, ‘We appreciate your call and after knowing you, you did what you could to make things work and if you ever create a new startup please contact us,’” Krausz said.
“Be careful of who you hire,” Krausz warned. The first six people hired help define the company culture. “You’ll know who’s a good fit when you see it. Also, don’t hesitate. Fire fast,” Krausz said.
Before entrepreneurs can move forward, they need to understand the product and vision. Krausz admitted to not doing both.
GazeHawk was building a usability testing product, then tried to transition to an advertising company. They did not succeed. “If you want to do something in a specific industry, do it soon or you’ll be left in the dust,” he said.
“Business development sucks! And business development sucks for engineers! It is a very hard and very draining job,” Krausz said. “But, a nice thing about business development is that it’s easier to hire for that position than an engineering position. When you hire a salesperson, if you don’t see results in three months, you can fire them and find someone else. The risk is less for a sales person than hiring an engineer.”
Around August 2011, Gazehawk was about to run out of money. They tried to raise the next round and held roughly 30 meetings to try and raise series A. Needless to say, none of them worked out.
Despite not getting any money from VCs, they got some great feedback as to why they chose not to invest. What GazeHawk was doing was not considered great and they lacked a weapon of a business development guy.
“When you walk into Y-Combinator and you ask startups how things are going, mostly everyone is going to say ‘It’s going well,’ but if you dig a bit deeper, you’ll find some issues. It’s just their canned response,” Krausz said. “We didn't really do that at GazeHawk. We were honest with people, but you do not want to tell your customers you are doing bad,” he continued.
GazeHawk was collapsing and what Krausz looked to next was trying to sell their technology and patents. There was no success with this either and it is still currently ongoing. They then had a meeting with Facebook where a deal was finally struck—although not the deal they wanted.
Facebook did not buy the technology, because they did not want it. Instead, Facebook bought the GazeHawk team. In the end, Facebook had the final say so on who they wanted to bring on board and not everyone from the GazeHawk team made the cut or even wanted to work for Facebook.