Boom, crash... what? A dotcom train wreck finds a remarkable second coming
One of my last meetings in Sydney was with Gour Lentell, co-founder of biNu, maker of a cloud-based app platform that lets feature phones behave like smartphones. I’ll be writing about his company in the next week or so, but in the meantime wanted to share this remarkable story from Lentell’s Internet past. As a crystallization of the high drama of the dotcom boom, crash, and then gradual recovery, it’s tough to beat.
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It was 1999, right in the thick of the dotcom boom, and Sydney-based ad-serving startup Sabela Media was just one day away from closing a $14 million venture round. Things couldn’t look much better for Sabela, which in the space of 18 months had become one of the top five ad-serving platforms in the world and had expanded to New York and London. In the bubble’s blur, it looked very much like its digital ad business would have a lucrative future.
But then it received a letter from one of its competitors, ad giant DoubleClick. The letter bore legal letterhead.
DoubleClick, which seven years later would be acquired by Google for $3.1 billion, claimed that it owned the intellectual property rights to the ad-serving technology Sabela was using and demanded that it “cease and desist” its business.
Regardless of the charge’s merit, it was enough to kill the venture round. In response, Gour Lentell, Sabela’s CEO and co-founder, got on the phone to investors in Australia and hurriedly raised $500,000 to keep the company going. A few days later, executives at DoubleClick were in touch again. They wondered if Sabela might be interested in being acquired.
With shallow pockets, its funding gone, and a lawsuit hanging over its head, Sabela didn’t have much choice. In early January 2000, Lentell traveled to New York to close the deal with DoubleClick.
But then came a surprise. At the last minute, digital ad network 24/7 Media offered to buy Sabela for 40 percent more than what DoubleClick was offering. Rallying for the challenge and working through the nights, the two companies managed to close an acquisition deal in the space of just four days. The price tag: $75 million. In Australian dollar terms, that made Sabela a $100-million company, a huge success story for an Aussie business.
Lentell remembers walking around New York’s SoHo neighborhood in a daze at 3 a.m., trying to mentally process the enormity of the deal. It was surreal, he says, still expressing amazement about the experience 13 years later as he sits in a quiet Sydney cafe. In his heart, he didn’t think the company, which wasn’t profitable, was worth A$100 million.
The companies hoped the announcement of the acquisition would lead to a big bump in 24/7’s share price, which was sitting at about $48 at the time. Sabela, in turn, would get its 15 minutes of fame. January 10, however, just happened to be the same day that Time Warner and AOL announced their merger. The Sabela news became a distant sideshow. 24/7’s share price did rise, but it peaked at $65.
Sabela didn’t remain a A$100 million entity for long. The 24/7 deal was to be paid mostly in stock, with only a 5 percent cut of the total coming in cash. That was restricted stock, too, which meant the Sabela founders couldn’t offload any shares until three months after the deal closed. By then, however, the dotcom bubble had burst and 24/7’s share price went into free fall. Horrified by the dramatic loss in value, Lentell and his co-founders held off on selling their shares, only to watch the numbers tick ever lower. Over the course of the next 18 months, 24/7’s share price crashed to as low as 10 cents. Lentell describes the experience of watching the precipitous fall as “a gut-wrenching feeling.” The company was as good as dead. Sabela’s founders were left with little more than lint.
To save itself, 24/7 sold off pieces of its business, including the IP on Sabela’s tech. To whom? Why, DoubleClick, of course. It got the tech for a bargain.
These days, Lentell tells the story with a smile. “My philosophical view is, ‘What an experience!’” he says. “And I wouldn’t have missed it for the world.”
It took Lentell and his co-founder Dave Turner a year to recover enough to consider doing something else. It was then they decided to invest in, and join, a Sydney-based company working in search engine optimization. Then in August 2001, Lentell did something he hadn’t done before: he attended a big New York ad-tech conference as an observer rather than a vendor. Instead of networking and building relationships, he sat in the crowd and listened to the sessions. He was particularly struck by Bill Gross, who spoke about GoTo.com’s new idea to sell cost-per-click search ads in online auctions. Google would later adopt and adapt the model for AdWords, the foundation on which it has built its business.
“It was like a light bulb,” Lentell recalls of his reaction to Gross’s speech. “I was like, ‘Fuck, that makes sense.’”
He returned to Sydney and turned the SEO company into a search engine marketing platform, letting clients manage their search-ad campaigns on Google and Yahoo through a unified interface and management system.
It turned out to be a smart bet. Google’s AdWords catalyzed the growth of a huge new ad market, and the new company, Decide DNA, had an important piece of it. This time, Lentell’s company was making real money and growing organically. It expanded to London and then scored a coup by helping Walmart substantially improve its return on search ads, ultimately becoming a de facto agency for the retail giant. At the same time, it secured a deal with Yahoo to be a “preferred vendor” for the Sunnyvale company’s “paid inclusion” product, which integrated paid links into the main body of Yahoo’s search results. Soon, Decide DNA had its own office in Silicon Valley.
It was only a matter of time until the company became an acquisition target.
Come 2004, Decide DNA got an offer too good to refuse. The sum was significantly less than what Sabela Media got, but it was also more rational: about $30 million. Having learned from their first misadventure, Lentell and Turner negotiated a sale that was split 50/50 between shares and cash. And the buyer? Well, it was a familiar customer.
It was a company called 24/7 Media.
When the deal was announced, 24/7’s share price spiked by 30 percent. At the time, 24/7’s share price was sitting at around $2.50. Three years later, it would sell to ad agency giant WPP for $11.75 a share. WPP was particularly interested in 24/7’s search arm.
Recalling that ultimate validation, Lentell leans back in his chair, his face smeared with a smile and both fits clenched in victory.
“I remember thinking,” he says, “‘Yes! We’ve arrived.”