This article first appeared in London Loves Business and the original can be seen here.
With Moonfruit’s acquisition by Yell fresh in our minds we catch up with its CEO to get the lowdown
In mid-May the news broke that Moonfruit had sold to directories giant Yell for £23m. It was a well-received success story, celebrated by a lot of the close-knit tech community in which Moonfruit CEO Wendy Tan White is a prominent figure.
You see, DIY website builder Moonfruit isn’t a product of the latest tech bubble, a start-up founded a few years ago and caught up in the whirlwind that is “Silicon Roundabout”. Moonfruit was founded back in 2000 and weathered the storm of the first dot-com burst. Having scaled back and bootstrapped for a few years, it became one of the first brands to trend on Twitter in 2009, reached profitability and by 2012 had built five million sites and 230,000 online shops.
I met Tan White last year and tried to lasso the CEO into doing a bit of regular writing for us here at LondonlovesBusiness.com. Her enthusiasm was followed by perplexing radio-silence that in the following months was explained by the news of the sale.
“Things were crazy,” she explained when I finally meet her again. “It’s been a real journey.”
A journey that I am eager to hear about. Why sell now? Why sell to an unlikely character like directory business Yell? And what has happened since? I settled down with Moonfruit’s mogulista to find out…
So Wendy how did the sale come about?
We had started going to the US a lot more. We have a lot of white label partners like Barclays, Bank of Scotland and Paypal so we were going for meetings with potential partners in the States.
We found that every conversation ended with, “we really like this stuff, but can we actually just buy you rather than partner with you?”
What was your reaction? Were you surprised?
It was surprising at first but some of the players were so big you could see why it made sense to them. They don’t want to licence you, then watch you go and licence yourself to their biggest competitor – and we’re small enough for them to control us as an asset.
What kind of companies were you talking too?
They all had SMB products of some sort. We find that the web presence and shop presence that people create with us are very sticky – once people have set up a website they don’t tend to move. They also trust you and tend to buy a lot more SMB products from you – so Moonfruit was quite an important jigsaw piece for these companies to complete their offering.
They were all looking for something quite modern, a lot of SMBs say, “if I build a site or shop, I don’t want to have to build it again for mobile, tablet or Facebook – can someone please take that pain away from me!”
Exactly what Moonfruit offers I suppose. How did you decide now was the time?
Years ago I met an angel investor from Silicon Valley called Robbie Van Adibe. When I was first raising money for Moonfruit (looking for around 500,000) he actually said to me “this is a big idea, go and raise £5m – you can do it.” So we did.
I kept in touch with him over the years and about 18 months ago he came to visit to see how we were doing. He looked at the figures and said – “if you were in the US right now you’d be totally ripe for buying.”
I think that added together with the market interest made us think there’s something going on here. Also we had a feeling that a peak was coming in the tech market which we expected would be signalled by the Facebook float.
We have been doing this for twelve years and reached the point where we had hit profitability, it was either raise again and scale or be acquired.
So how did you decide who to go with?
Robbie introduced us to a boutique banker in San Fran called Scott Smith – he had a whole network of people in finance and lawyers, (lawyers who talk about the magic of the Valley – you don’t get lawyers who talk about the magic of anything here!)
They gave us a lot of confidence and helped us to understand that there are methods to this kind of thing, it’s not a random choice. An acquisition is not easy. Once people know you’re interested in being sold and that there are other players in the market they start throwing out valuations. People often walk away in the middle of a deal, you can get gazumped – it’s like buying a house but worse.
They also taught us that there’s more to think about than the price. You need to be able to pay off your investors but also understand how long you will be expected to work there for? Will there be performance metrics and earn-outs? Will they let you stay in your own office or subsume you into the business? Are they going to carry on investing in you?
So all of these answers led you to choose Yell?
There were three players on the table and we picked Yell because it gave us flexibility. There’s a two year golden handcuff so some of the capital has been kept aside but it is not an earn-out. If we don’t hit our targets we still get the agreed amount.
We liked it because it’s part of a turnaround. They said “stay with us and help us to create a digital business, we can learn from what you guys have to offer and you can contribute and be part of what we are creating.”
Yell is trying to create a new digital market space for SMBs. It has rebranded to move away from the old yellow pages type branding.
It still generates £1.6bn in sales last year, it is a big cash generative business but the old part of the business is in decline. It still has time to turn it around, the digital revenues are on the increase and Yell has hired a new team to make the digital transition.
Also we liked the fact that it is a UK/US company, so UK floated but with all of the directors in the US – it gives us great access to the US market.
So how has it been so far?
We really didn’t know what it would be like – people warned us that however much they promise, you often can’t help but be subsumed into a big corporate’s processes which slows everything down. But it’s been great – they say “we brought you here to innovate not get sucked into the business”. They have protected our brand because they realise that we are not just a product but a community. Moonfruit has very engaged customers; we talk to them directly and co-produce with them.
Yell is very interested in our culture. We have always taken it for granted as we were part of the tech culture – we move very quickly, we’re agile, transparent and we still take chances. The yell team want to see how we will expand that into a bigger scale.
So what is next?
We’re doing some media products to push out through their sales force but Yell is interested in future innovation and are investing in us to become an innovation centre and pass what we learn onto it.
Our next step is to learn how to scale. Learning to leverage people and keep the culture in-place and co-exist with a bigger culture. Investing in us gives us something to do – as entrepreneurs and having pushed hard to achieve it’s hard to switch that off.
If we learn to scale we can use that experience if we go on to start another business. Looking past that I envisage becoming an angel – I would certainly want to do that with the right people. Most angel investors were previously entrepreneurs – you can keep working with start-ups but not always be the one right on the wire.
Sounds great – looking forward to seeing how it all pans out!