Atlanta, startups, Technology

Is the Twitpay acquisition good for Atlanta?

Twitpay was founded about 15 months ago at Atlanta Startup Weekend 2, and was recently acquired for $100k (and an additional $1 million committed to move Twitpay forward as a non-profit fundraising tool).  The acquisition was widely hailed with congratulations to the founders and touted as a success story and evidence of the strength of a “payment cluster” of startups in Atlanta.  Now I think very highly of Twitpay’s founders, know they had some great buzz, great advisors, and that everyone congratulating them was genuine in recognizing this as the payoff for hard work by everyone involved.

All of the positives aside, it appears to me that the facts are that several talented Atlanta/Southeast regional entrepreneurs worked full-time for over a year on a disruptive technology that was developing good partnerships and good press and got bought out for small change.  Lance Weatherby put it well, “There are three types of successful exits for startup founders.  You get a new car, you get a new house, or you get a new life.”  It looks like the Twitpay deal sits in “new car” territory, with “new job” thrown in since I imagine they’ll get to draw a salary as they work with investors including Acculynk CEO Ashish Bahl to refocus the technology.  I’m not privy to any details, but I maintain some hope that the Twitpay team has enough of a stake in the new entity to push up into “new house” or “new life” territory.

There are a number of issues with the whole deal that I think put a bit of a damper on Atlanta’s startup ecosystem:

  • What Cluster? – There is indeed a solid bench of payment processing technology companies in Atlanta, but it’s hard to see much benefits from this in Twitpay’s story.  With the acquirers in the payments space, the best I can say is that participating in this cluster may have meant the difference between “new car” and “no car”.  It’s small wonder entrepreneurs often ignore our local clusters.  Many local entrepreneurs who are fully dedicated to their startup just end up in “new 2nd mortgage” territory.
  • The Series A acquisition – Atlanta is not “The Valley”, and this deal rubs that fact in.  A “success story” version of this situation would have seen the $1 million invested in Twitpay and used to give the company strategic investors and a couple more iterations to “get it right”.  Buying startups after their initial model is “busted” and funding their additional experiments after the fact is not an appealing outcome for entrepreneurs.
  • The compensation sucks – If our version of a success story is that a founding team of entrepreneurs goes without salary for a year and a “good” outcome is that they get to split $100k 3 ways, and THEN get to draw a real salary as an employee, we have a real problem.  New Georgia Tech CS grads can make twice that much, fresh out of school, guaranteed.  This sends a message to talented potential technical co-founders to just go get a J.O.B.
  • Few Lasting Benefits – these guys have “new car” money.  They’re not going to be the next partners in Shotput Ventures, they’re not going to be a part of the next big angel deal or have large amounts of time on their hands to re-invest into other startups and entrepreneurs.  Furthermore, they’re now employees, which means they’re not spending much time starting their NEXT company.  They do have some domain knowledge and credibility to bring into their next startup.  Who knows?  They may even co-found something awesome that does benefit from Atlanta’s strength in payment processing.

Let me be very clear that I may have a number of facts wrong about compensation, deal terms, etc.  I’m a total outsider to this deal so I know little more than the publicly stated facts (the rest are educated guesses), but that also means that the way the deal looks to me may very well be the way it appears to other outsiders in the Atlanta startup ecosystem.  I also have the utmost respect for everyone involved in this situation.  The Twitpay team rocks.  I am sure their acquirers have great intentions and solid potential to do great things with Twitpay.

If I’ve got something wrong, let me know.

An ongoing message and lesson I take with me is that Atlanta is for bootstrappers unless you are fundable on reputation and track record alone, or you are one heck of a fundraiser.  Don’t quit your day job.  Let customers fund your growth.

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11 thoughts on “Is the Twitpay acquisition good for Atlanta?

  1. I can see why, on the surface, the TwitPay acquisition may be disappointing. In my mind, the question is, “what is the potential of the company”? Did this acquisition mean that TwitPay fell short of its potential or did it meet that potential?

    What I’d like to know is why the founders gave up on the deal so early. Until I know that, I’m not sure I can characterize the deal as disappointing or simply cutting losses.

  2. Mike,

    good questions. I think most would agree that Twitpay approaches a large addressable market to meet a need that hasn’t been met yet. With minimal money invested to date and a sound technology platform, they seemed to still have upside potential. I can vouch for their team as people and technologists, but have no basis to evaluate them as founders.

    The nature of the deal seems to indicate to me that they were at a point where they needed to pay themselves but didn’t have the revenue to do it, and couldn’t raise money to get there. Given a decision between searching for a job and getting paid to continue working on their startup as an employee, I can see many founders choosing the latter option.

  3. This is only the beginning. You’re going to see more startups and tech companies either get acquired (Twitpay), move operations (Suniva) or move their company (Appcelerator) because Atlanta/Georgia is not putting in the capital, nor creating the incentives to grow and retain businesses that are building disruptive technology. Make no mistake, Suniva was not funded by Atlanta investors: http://suniva.com/investors.php

  4. Rick, good post. It will be interesting to see where Twitpay goes with this. I have tried to promote Twitpay’s use on maybe 8 TechDrawl “fundraiser” posts to send people on various investigative trips. Basically, Lance used Twitpay a few times and I believe another investor. 2 other people used it but then cancelled and used PayPal instead back when Twitpay made you use Amazon payments. I inquired of Michael Ivey at least twice if they were considering making an embeddable custom payment “button” like PayPal has but never heard back from him. (He’s probably working awful hours like I do, so I understand). It is hard to compete when PayPal has a big screaming button that says, “Contribute” with credit card icons on it. Anyway, I look forward to seeing what they do because we do a lot of for-profit fundraising and I try to “go local” whenever I can. I hope it has a dynamic visualization tool to go with the fundraising. That would be a plus.

  5. Rob, can you name any happier stories for early stage companies in Atlanta in the last year? Two years? Obviously to be optimistic you’ve got to reach, but the story was based on the (perhaps incorrect) fact that Twitpay’s cofounders got a much better deal than you suggest.

    The take home message should be: outside a cluster, a startup in Atlanta is incredibly hard. Every card is stacked against you. In a cluster, your odds are not quite as totally screwed.

  6. Softball question, Russell. JungleDisk, A Small Orange, PureWire. ASO and JD started outside any notable ATL cluster. If the key differentiator of being in an ATL cluster is that a startup sells for back pay and future equity rather than folding, I am unimpressed.

  7. Jungledisk – self funded from a previous exit. SaaS isn’t exactly foreign to Atlanta.
    A Small Orange – small business built up over a decade.
    Purewire – deep inside a cluster, extreme track record and large friends and family round.

    None of those sound like Twitpay – young founders without a track record on a high growth business plan. If thats you, unless you’re in a cluster you may as well go deep sea fishing.

    1. You asked about early stage, without qualification. Purewire is an obvious happy story. Fast, lucrative exit. Turned founders who may have been in decent financial shape into angel investors. Win.

      ASO was founded in 2004, bootstrapped. 6 years is not a decade. By any account I have heard, this exit was remarkably superior to TwitPay. Not a “small business” exit.

      JungleDisk was bootstrapped. Regardless of previous exit, JungleDave was not buying a Porsche before JD exit. Track record not relevant since investment was not involved. SaaS isn’t a vertical. How is JD different from any other bootstrapped startup with highly committed founders?

      If there is a more encouraging version of the TwitPay exit, I am happy to hear it. As of right now, it sounds like non-game-changing money with potential upside.

  8. I already described a happier story of the twitpay exit in my post on Techdrawl. You didn’t believe me. I wouldn’t have written the article if they just got jobs and a paycheck.

  9. If you’re privy to the specific details of the Twitpay deal, that’s great.

    It certainly seems possible if not likely that they got jobs, back pay, paychecks moving forward, and some equity in the new entity. Reading the tea leaves of the acquisition, however, it’s evident this wasn’t a home run. One article referred to this as a “second chance” for twitpay. A second chance is GREAT. The terms on deals characterized as second chances are probably not great.

    Yes, they have a chance for some upside, and had enough that someone saw fit to invest, but it’s not a “win” yet (time will tell), in my book.

  10. It was a funding round, not an acquisition. The ‘acquirer’ is a new company. Apple’s first funding round was also an asset acquisition/reorganization.

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