It is becoming alarmingly apparent that Foursquare is strongly considering a sale to Yahoo. As of the end of last week they had put the venture capitalists vying for their attention on ice. Those VCs happily provided term sheets valuing the company at $80 million or so. But in the meantime, Yahoo and maybe others expressed interest in the company, and are reportedly offering way above that $80 million.
There are so many reasons why this deal shouldn’t happen. Here are just a few:
1. It’s bad for Yahoo: Yahoo’s senior team is grasping at straws, and they desperately want to find a way to stay relevant. But this is not it. What the heck is Yahoo going to do with Foursquare that will somehow turn around their business? Absolutely nothing, that’s what. M&A for PR purposes is not what savvy executive teams do. Whatever tech cred they think they’ll get by buying Foursquare is in their imagination.
2. Yahoo is a horrendous choice for Foursquare. It’s where startups go to die. They’ve bought so many companies that were so promising, only to see them wither on the vine. And the founders always leave in disgust (see Flickr, Delicious and the rest in the left sidebar on their CrunchBase page – how many of these were successful?). And sometimes they buy companies just to shut them down entirely a year later. See Yahoo Kills Maven: From Acquisition To Deadpool In 17 Months Try to imagine what Facebook would be today if Yahoo had successfully acquired them in 2006.
3. You only sell now if you think your business doesn’t have legs. Aardvark did it because of very slow user growth and the founders got nervous. They were in a similar situation as Foursquare – lots of VCs ready to put in money at a great valuation, but they took the sale to Google instead. Now we’ll never know what Aardvark could have become had it stayed independent. Guys like Facebook and Twitter stayed independent despite outrageous acquisition offers. If the Foursquare team believes in their product, they should stay in the game.
4. The Dodgeball/Google debacle should have given founder Dennis Crowley enough of a taste of what happens to most companies when they get acquired. Dennis, remember when you wrote this – “It’s no real secret that Google wasn’t supporting dodgeball the way we expected. The whole experience was incredibly frustrating for us – especially as we couldn’t convince them that dodgeball was worth engineering resources, leaving us to watch as other startups got to innovate in the mobile + social space.” You sold your startup too soon once before. Why do it again now?
5. You can hedge. Lots of startups take money off the table in a venture round instead of selling outright. The WordPress guys did it, for example. The Aardvark team had the option of doing it. You can ask your VCs to redo their term sheets and double the amount raised. Take half off the table and you, your children and their children will never want for anything material in their lives, even if Foursquare goes south right afterwards.
Foursquare has a destiny. It may be to go out of business. It may be to go public and be a huge force in our culture. It may be something in between. But selling out now is like dropping out of college to take up drugs. Whatever you would have become, that isn’t what you’ll become once you sell out to Yahoo. Call Caterina from Flickr and ask her if she wishes she hadn’t sold to Yahoo. Call Joshua Schachter from Delicious and ask him the same thing. My guess is both will privately tell you NFW would they have sold to Yahoo knowing what they were stepping into.
Facebook and Twitter hitting the geo space must be a scary thing for a small startup to contemplate. But there’s real momentum and that intangible buzz behind your product right now. Play this out. In ten years, you’ll be glad you did. Unless you’re broke then because Foursquare failed, of course, and bitter that you didn’t take the money from Yahoo when it was offered. But there’s a reason why you became an entrepreneur and didn’t just stay a mid level developer grunt at a variety of large organizations. You have the fire to change the world. So go do it.