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Summary:

The team behind London-based photo app developer Lightbox are joining Facebook. But it’s a long way from Instagram’s billion-dollar deal: in fact, while the company’s employees are rejoicing, users and investors appear to have been left out in the cold.

lightbox

Updated: When London-based photo app developer Lightbox announced on Tuesday that its team was joining Facebook, you could almost hear the champagne corks popping.

Becoming part of the social Web’s most powerful company? Being moved out to Palo Alto? Joining a company on the brink of a huge IPO? No wonder they were pretty excited.

We started Lightbox because we were excited about creating new services built primarily for mobile, especially for the Android and HTML5 platforms, and we’re honored that millions of you have downloaded the Lightbox Photos app and shared your experiences with the Lightbox community.

Today, we’re happy to announce that the Lightbox team is joining Facebook, where we’ll have the opportunity to build amazing products for Facebook’s 500+ million mobile users.

But while the company’s seven-person team was no doubt pretty pleased, not everyone will be so happy about the deal.

Lightbox users, for example, are being left stranded. The service is being closed to new users before being shut down in a month, while the code is being open sourced — presumably in the hope that anyone who wants to keep the service alive can build their own version.

A number of users expressed their frustration: “This totally sucks,” said one.”Damn it!” said another.

Over on Lightbox’s Facebook page, meanwhile, a few users called them “sellouts” or said it was a “sad day”, but the general response was bittersweet: glad for the team, sad for the product. While not quite on the scale of Instagram’s user rebellion — a stampede of angry photographers that ended up boosting other apps — it still leaves a sour taste.

Still: Lightbox fans may be complaining, but the truth is that the app’s takeup wasn’t enough to entice Facebook. In fact, it was so unexciting that Facebook isn’t even buying any of the company’s assets — it’s simply doing a straight-up talent acquisition.

And it’s not just users, either

From the announcement again:

Facebook is not acquiring the company or any of the user data hosted on Lightbox.com. In the coming weeks, we will be open sourcing portions of the code we’ve written for Lightbox and posting them to our Github repository.

We’d like to thank the Lightbox community, our investors, and our families for supporting us during this journey.

So this is effectively just about hiring a team of smart mobile developers and putting them to work inside Facebook, perhaps alongside Instagram (at least, once that deal — now pushed back somewhere later into 2012, goes through).

But the fact that none of Lightbox’s assets were being sold left me with a question: are the company’s investors — who backed it to the tune of $1.2 million a little over a year ago — getting anything out of the deal?

And the answer, it seems, is no.

I’ve reached out to a few people linked with the deal, and while they are all staying pretty quiet, it seems that there’s very little upside to the buyout — possibly not even a little bit of pre-IPO Facebook stock.

The deal was made up of a large syndicate: Dave McClure’s 500 Startups, Ron Conway’s SV Angel, big venture firms like Index and Accel, and seven angels.

Most of those I spoke to effectively shrugged off the flat-as-a-pancake nature of the deal in simple fashion: that’s the way it goes. Facebook does this. It’s sensible for them.

And sure, if Facebook is making a talent buy, there’s a lot of sense in ditching all the assets: they can be sure they take on no responsibility, no ownership of old products, and no potential for complicated legal situations to arise further down the line. And, of course, it means the company can probably drive a harder bargain too.

But that’s not all that happens here. Remember, Facebook’s got form: When it purchased Gowalla in a similar fashion last December — effectively cutting a deal with the team that was much better than it was for those who had supported them — there were plenty of eyebrows raised.

At the time, Michael Arrington pointed out that deal pitted founders versus investors, investors who had stuck by the company were getting pennies on the dollar.

in 2010 I dove into the topic, noting a trend of startups being acquired for not much money, but founders and key employees were being given rich stock deals on the side.
This goes way back to Parakey, acquired by Facebook in 2007. Parakey investors got their money back and a little more, but stock grants were given to the founders that are probably worth hundreds of millions of dollars today.
I was more blunt in 2010 when Facebook acquired Hot Potato – and noted that there’s a real issue of breach of fiduciary duty when a founder takes a side deal but doesn’t cut investors in.

It’s not clear what’s happening with Lightbox, but the fact that the team is getting hired — rather than the product getting acquired — certainly sounds like a Gowalla-style deal. That, of course, means the argument put forward for Gowalla then could probably also apply to Lightbox: the product was small, going nowhere, and if the company didn’t get bought soon it would probably be dead sooner rather than later.

But the reality is that Facebook is now more — much more — than it was even just a few months ago. It’s on the verge of a vast public offering, and it has shown recently how happy it is to pay huge amounts to buy companies and teams in the right circumstances.

And while big investors may be sanguine about not getting a good deal, they’re also desperate to keep Facebook on good terms for potential future acquisitions. Piss the company off now, and every interaction with them gets a little bit harder — and the chance of getting a real slice of that $100 billion somewhere further down the line disappears very quickly.

That’s the politics of the startup game, I suppose: right now Mark Zuckerberg holds all the cards. But still, I can’t shake the feeling that somebody’s getting hosed here — and whoever it is, it’s not Facebook.

Update: Investor Dave McClure has responded in the comments to say “the investors are likely to get a modest return,” and that “We’re happy the founders are going to a great environment to continue working on photos, and that’s that.”

Another investor I spoke to said the deal ended up with a small return, but said talent acquisitions rarely meet anyone’s ambitions. Meanwhile users continue to express their sadness on the service’s Facebook page.

Mark Zuckerberg photograph used under Creative Commons license courtesy of Flickr user Deneyterrio

  1. VC investors are big boys and girls. As you point out, there is plenty of history on which they can draw as they structure their investments with start-ups. The people that might not be so sophisticated are the families.

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    1. Bobbie Johnson Wednesday, May 16, 2012

      True, not everyone in Lightbox was a VC (though most of the angels were Googlers, so I’m sure they knew something of what they were getting into).

      It’s interesting to think about the changing dynamic with an acquirer like Facebook, though. When the deal starts being made, who holds the power? I think it’s pretty clear here that Facebook was in total control.

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  2. Tom McGuinness Wednesday, May 16, 2012

    Does this sort of action put investors off? I mean, small companies wouldn’t come on Facebook’s radar without investment to get them to the necessary size. It seems very unfair that investors get cut out of these deals and don’t make returns. Would that mean other investors will be more wary of actually investing?

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  3. Roberto Valerio Wednesday, May 16, 2012

    I had some email exchange with the founder of Lightbox, Thai Tran, at the time he was still working as an EIR for Index Ventures. He had more tech expertise than most of all VC people I’ve met. And an impressive CV at a fairly young age. Facebook definitely bough talent here! And Index still profited from his tech knowledge. I don’t see too many losers here – except the users. But that’s life if you are using a free service.

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    1. Bobbie Johnson Wednesday, May 16, 2012

      Oh, the team are very smart — no doubt about that. I suppose it depends on whether you see a successful exit as one where the founders get what they deserve, or whether there’s a balance between the team, the users and the investors.

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  4. your headline is obviously fishing. if you wanted commentary, you might want to call me… Om has my #, as do several other writers at GigaOm (in fact, one of them is with us here in Brazil). so given that you’re not trying very hard, I’m not sure why I should do your homework for you, except to correct the errors in your post… to wit: the investors are likely to get a modest return. we’re happy the founders are going to a great environment to continue working on photos, and that’s that. next time, you might want to find other ways to get some page views than writing salacious headlines that have no basis in fact. kthxbai.

    DMC

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    1. Bobbie Johnson Wednesday, May 16, 2012

      Dave, thanks for your opinion — suffice to say, you weren’t the only person interested in Lightbox as either an investor or a user.

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      1. Dave McClure Thursday, May 17, 2012

        it’s not an “opinion” when one of the investors whom you report on tells you what actually happened.

        it’s an “opinion” when you write something that isn’t accurate without contacting someone who you are referencing in the article.

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      2. Bobbie Johnson Thursday, May 17, 2012

        I meant your opinion of my reporting, Dave, not your opinion on the situation.

        Look: I’m adding an update into the story, to make your comments clear. But just because you were happy with the deal, doesn’t mean everyone involved felt the same way.

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      3. Dave McClure Thursday, May 17, 2012

        Bobbie – my point was that you used my name materially in a story with an attention-grabbing headline, but failed to make a serious attempt to get in touch with me for commentary on the story. that’s lazy journalism. sending Katie an email and expecting her to relay your request while traveling internationally is just sloppy. you could easily have gotten my # directly from Om or other writers at GigaOm. while other investors may have diff opinions than mine, suggesting a perspective in the article by “some investors” and using my name in the same article implies that perspective was held by me — which was ABSOLUTELY not correct. in short: if you’re going to use my name in an article that takes an aggressive interpretation of investor opinions on a deal, and you don’t call me for commentary, then don’t expect me to return your calls in future for other news either.

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    2. Bobbie Johnson Thursday, May 17, 2012

      Right: so here’s the thing. I do not think the story implies what you think it does, and I think you’re forgetting that the headline applies as much (in fact more) to the users of the service, who are clearly not all entirely happy with having something they love closed down.

      Feel free to exercise your ban list as you see fit: I’m not going to apologise because of threats over access. We can talk about it next time I’m in SF (or you’re in London etc)… if the ban doesn’t stretch to being in the same place at the same time too.

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  5. Fascinating that a VC expects editorial authority over a blog. That he is “happy the founders are going to a great environment” and he is “likely to get a modest return” (since when is a VC happy with a modest return?!) would seem to support the author’s theory that VC’s are “desperate to keep Facebook on good terms for potential future acquisitions”. I appreciate the blog post and the bit of inside look from the exchange of comments.

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    1. Dave McClure Thursday, May 17, 2012

      i dont’ expect editorial authority. i expect to be called for commentary when my name is used in the article, and the article implies a perspective which i absolutely don’t agree with.

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      1. Of course you want authority. you’re definitely working hard to draw attention. you look to have a good relationship with Om, did you take it to him? you must be connected pretty well, as a geek, to your messages and subordinates. no mention by you of the facebook angle. hmm. its only getting better, peering from the outside in. Thanks.

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  6. Tommy Ahlers Thursday, May 17, 2012

    I invested USD 100,000 in Lightbox alongside the other angels and Index and Accel. I invested because Thai is an amazing entrepreneur who set out to do great things. Not everything worked out they way Thai and his team wanted and a talent acquisition by FB is the right outcome for the him and the team. Actually it’s a great outcome as they continue along the lines of what they started. And as an investor (for once I’m on that side) I can say that Thai treated us extremely fair in this deal. An actual acquisition of all the assets would not have changed the outcome for the investors. Fair game. Good luck to Thai and the team. (Thai, remember to call me next time)

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  7. Bobbie– Nobody got hosed here. Thai Tran did the best deal he could in the circumstances and treated his co-founders, employees and investors with total fairness and integrity. We would jump at the opportunity to work with him again.

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  8. Bobbie– Nobody got hosed here. Lightbox did the best deal it could in the circumstances and Thai Tran treated his co-founders, employees and investors with total fairness and integrity. We would jump at the opportunity to work with him again.

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