In the days that followed Twitter’s acquisition of local startup Crashlytics, the reaction of many in the Boston startup scene was confusion. Several people I spoke to couldn’t figure out why the founders and investors of a company founded in 2011 would have wanted (or needed) to sell so early. One local CEO told me he was using the sale as a cautionary tale; he didn’t want to be in the position of needing to sell so early. One VC, trying to make sense of investor David Aronoff’s enthusiasm at the exit, guessed that the “good” outcome in question might have been something on the order of $20-25 million.
We now know the deal was for nine figures, roughly five times that, and Twitter’s biggest acquisition to date.
Details gleaned from conversations with a number of BostInno sources point to a big win for the Crashlytics founders and a strong return to its investors, albeit on relatively little capital. In short, the Crashlytics outcome is a story of one of the world’s tech giants recognizing huge strategic potential in a young Boston startup, and paying through the nose to bring it on board.
Sadly, that stands in contrast to the other Boston company Twitter acquired recently.
Whereas Crashlytics had the luxury of considering a generous offer, Bluefin Labs, the social TV analytics firm out of the Media Lab, essentially had no choice but to sell to Twitter, as I’ll explain in a bit. That lack of leverage translated not only into a lower price and likely worse terms, but also resulted in a third of the Bluefin team being let go as part of the deal.
In reporting on Twitter’s two Boston acquisitions, BostInno spoke to several sources with knowledge of each deal, all of whom spoke on the condition of anonymity. Crashlytics declined to comment for this article, and Twitter did not respond to a request by email. (Bluefin’s site already directs to Twitter’s press team.)
What follows is what we’ve learned, and what it means for the Boston tech scene.
Bewilderment over why Crashlytics sold faded quickly after Xconomy first reported that the deal was in the range of $100 million. Sources with knowledge of the deal tell us that it’s in fact a bit more than $100 million, a mix of cash and stock. And we can confirm that it – not Bluefin – is Twitter’s biggest acquisition to date.
We’ve also confirmed from multiple sources that the return to investors from the $1 million Crashlytics seed round, led by Flybridge and joined by Baseline Ventures as well as a number of prominent Boston angels, was 11x. No word on the multiple for the $5 million A round last April by Flybridge and Baseline. While it certainly won’t return either’s firm’s full fund, no doubt a very solid IRR there too, especially with how quickly the capital was returned.
We’re told Crashlytics will maintain its brand and, according to Aronoff, founders Wayne Chang and Jeff Seibert will also take on substantial roles within Twitter, though I’ve not uncovered exactly what those will be.
As for why Twitter so badly wanted Crashlytics, that’s less clear. None of our sources had more than guesses, but here are the leading theories I heard in my many conversations with outsiders and insiders: through the popularity of its mobile crash reporting product, Crashlytics offers significant mobile device reach – which should only accelerate with its recent move to offer its enterprise product free of charge – and so Crashlytics could conceivably be the beginning of a broader mobile analytics product for Twitter, or potentially even of a mobile ad network.
(One other lingering question: who made that first acquisition offer that Crashlytics turned down last year? Could it have been Twitter?)
The day after Business Insider broke the news of the Bluefin acquisition, I wrote that one factor motivating the company to sell might have been its reliance on Twitter’s data, coupled with Twitter’s increasingly aggressive stance concerning its API partners. A source has confirmed that the possibility of Twitter turning off Bluefin’s access to its data was indeed a key factor. In fact, our source tells us, Twitter told Bluefin in an email that if they opted not to sell, Twitter would simply do what the company was doing itself.
Bluefin measures social media buzz in response to television programs and ads, tracking both volume and sentiment, and turning it into structured data for networks and advertisers. About 90% of its data reportedly comes from Twitter. When you’re an analytics company and the source of nearly all your data plays hardball, there’s not really much you can do but go along. Add the fact that Bluefin was struggling to make its business model work, and accepting the offer looks like the only logical outcome.
But with lack of leverage comes a potentially mediocre deal. Our source tells us Twitter bought Bluefin for $80 million, all stock. Depending on Twitter’s impending IPO, suspected in 2014, there could be an upside for those at Bluefin who stick around. Though Business Insider originally reported this as Twitter’s largest acquisition, that honor remains with Crashlytics. Unlike Crashlytics, Bluefin will not maintain an independent brand and, as mentioned above, a third of the team has already been let go.
The Dangers of Walled Gardens
The contrast between these two deals offers a stark lesson for entrepreneurs: end up relying on a single company’s platform for your business and you’re not ever really in control. Twitter’s goal is to maximize the value of Twitter, and it’s been clear for some time now that that means playing hardball with respect to its API. Bluefin is hardly the only business to struggle with an overreliance on the service.
As entrepreneur Anil Dash explained powerfully in December, this kind of problem has become more common in recent years, and stands in contrast to the early days of the web:
Five years ago, if you wanted to show content from one site or app on your own site or app, you could use a simple, documented format to do so, without requiring a business-development deal or contractual agreement between the sites. Thus, user experiences weren’t subject to the vagaries of the political battles between different companies, but instead were consistently based on the extensible architecture of the web itself.
In a world where real-time public messaging in the vein of Twitter was governed by an open protocol, or even in a world where Google+ had gained market share and Facebook had focused on more public interactions, a Bluefin might not have had to sell. Had its data come from even a handful of sources it would have had some minimal leverage when Twitter came calling. But that’s not the world we live in. At the very least, entrepreneurs need to remember that.
The lesson, as Fred Wilson once put it: “Don’t be a Google Bitch, don’t be a Facebook Bitch, and Don’t be a Twitter Bitch. Be your own Bitch.”
Twitter’s Impact on Boston
Despite the circumstances of the Bluefin deal, Twitter’s growing presence in Boston stands to benefit the ecosystem. Though I haven’t been able to confirm anything about a Twitter Boston office, I assume at some point the two offices will combine. Crashlytics is clearly a central piece of Twitter’s mobile strategy in one way or the other. And despite Bluefin’s lack of leverage, the social TV business could still potentially be quite lucrative. That Twitter’s outpost for its mobile and television strategies will be based in Boston is a big deal, not just for startups but also for the local agency community.
Moreover, the Crashlytics deal should help the angel ecosystem. First, it has returned capital to local angels David Chang, Lars Albright, Chris Sheehan, Ty Danco, Jennifer Lum, Roy Rodenstein, and Joe Caruso. Second, it should put founders Wayne and Jeff in a position to start investing, should they have the interest.
Despite the fact that these were two very different acquisitions, both are a big deal for Twitter, and both are a big deal for Boston.
Know anymore about these deals? Send me tips at walter at bostinno