MSC Rendezvous || Balint Orosz, A3 Ventures
How did a small Hungarian developer team go from scraping together money for beer, to scoring a $10M acquisition?
Meet MSC’s Beta Community, and the amazing stories behind the teams working from the Campus!
Part one of our interview with Balint Orosz.
How did you get into tech?
I was in the informatics section in high school, and I had a math teacher who regularly assigned us problems that we could program for extra credit. I needed the extra A’s.
The next push came when I needed more money for beer and going out in college. I realized that people were posting 10–20–30k HUF gigs on email lists. Then it was one thing after another: bigger projects, then a closer working relationship with my college friend Akos Kapui, and this is what Distinction grew out of.
You never had a traditional job?
At the time there were no startups or similar work cultures. We knew that we wanted to do good things, we got together to give it a try.
We got third at Microsoft’s Imagine Cup world finals, which gave us a lot of confidence — we may not have come from MIT, but maybe we knew a little something about these things after all. The small side gigs started becoming more like a job, to the point that I finished my Bachelors degree, but I dropped out of the Masters program because everything was moving full steam ahead.
I didn’t think about it too much at the time, things were constantly progressing. Everything was getting better, we put more and more energy into it, rented an office, hired people and grew, slowly but surely.
Tell us a bit about Distinction’s first few years.
We always wanted to develop our own products at Distinction, but we also had to make enough to live. VC money was pretty much non-existent at the time, so we worked for clients, learned a lot and tried to push our own projects forward on the side.
In the first 2–3 years we had three co-founders and three early employees, and things went pretty slowly. We had a few successes with our own products, less from a financial perspective and more in terms of user acquisition, and bigger international clients found us, because they appreciated the quality of our work. In the first three years we learned what it means to work, to have responsibilities. Then there was a big turning point.
In 2011, we launched Appflow, an in-house project. This made some real noise: in the existing market of 4M Microsoft Phones at the time, we got 400,000 downloads, 10% of the market. From the success of AppFlow, RedBull found us, and we developed a very strong partner relationship with Nokia, which established a serious revenue stream and a new level of work.
These were the moments when we grew, hired more people, got a bit more structured, and began to suspect that something could come out of this yet. We had three big clients besides our own projects: Nokia, Skyscanner and Red Bull.
We had been working with Skyscanner since 2010, pretty casually in the beginning. Mid-2014 they proposed that we talk about forming a closer partnership. After we spoke to them we realized that the best way to have a closer partnership is to have the closest partnership, that is an acquisition.
Moving forward our task was to develop and implement a mobile strategy for the global company, valued at 800M USD and at the time, Sequoia Capital’s biggest investment. By the end of November 2014, the deal was closed, and Distinction continued working under Skyscanner’s colors.
There haven’t been too many similar acquisitions in the Hungarian market. How did it feel? Did you have any second thoughts or doubts?
This wasn’t our first acquisition offer over the years, so we had the opportunity to think about what it was exactly that we wanted.
We got offers from big names too, but this was the first time we felt like we would be partners. When a really big company acquires you, you become a very small cog in the entire machine. Several acquisition offers stipulated that we move the entire team abroad, and we weren’t comfortable with that.
Akos and I were a bit tired, and a 30 person company requires a strong cash flow, so for us, the biggest priority was to see how big business works from right here, in Budapest. We said we would have even accepted this offer for free, because it was such a great opportunity to learn, that we wouldn’t have gotten elsewhere.
The other part was that when we started working with Skyscanner in 2011, they were a team of 50–60. We knew the CEO, the cofounders, we had beers together. This gave us an extra boost of confidence, we believed in their company culture and in the founders’ vision. We had pretty much maximized the half-agency half-startup line, and we were looking at problems that would have required a different structure, which always comes with risk.
We traded a high-growth high-risk business with a strong-growth low-risk business, from carrier, financial security and many other perspectives.
Your background is basically in tech. How did you learn the business side of things in the meantime?
We read, discussed and worked on picking things up along the way. No one in the company was specifically dedicated to business development, because all of our clients found us.
We were able to create long-term partnerships with them, so we didn’t have to go searching on the market or do sales. We could basically work as an outsourced product team, before that was really a thing. Our co-founder Akos led the accounting and legals, and HR was based on trial and error.
Looking back I’d say that we made a lot of mistakes, our management structure was really weak, we didn’t have face-to-face meetings, didn’t do anything that they say is a must. We probably compensated this with enthusiasm and commitment, but in a lot of ways we weren’t professional. Luckily, the people who found us were driven by enthusiasm and action, and not career structure or promotion opportunities.
We know that you got an investment offer earlier, but decided that instead of accepting ‘dumb money’ (purely a financial investment) you would concentrate on personal development. Today there’s heaps of dumb money on the market. Could you speak a little bit about the difference between ‘smart money’ (funding from investors that also support with their personal experience and/or a network)
We talked about venture capital a lot within the company. It works better in the US, because marketing, development and launch cycles are faster if you have money and vision, because you can hire the talent you need to scale.
I’m more critical of large-scale VC funding in Hungary, because even if you get 2M HUF you won’t necessarily be able to meet your goals by just hiring the talent you need to grow — often you need to train new team members yourself, which may take more time.
This isn’t just in Hungary, across Europe a lot of successful 100–150 person startups are looking for management that can scale the company even more. We’ve only had a few of these. And in this environment, I support slower growth. That’s why I prefer smart money, and I think startups should too, because it helps them build, and helps them understand what they’re missing.
Skyscanner was also acquired while you were there. How did that impact you?
Ctrip, China’s biggest online booking portal, listed on NASDAQ and valued at 20B USD, acquired Skyscanner. We stayed operationally independent, but we got access to Ctrip’s resources.
Ctrip is a 10–12,000 person company. If we, as a 1,000 person company, asked for something, they could answer with ten times as many resources, and in the first half year we were learning how to use these opportunities best, and avoid starting 10 things at once without any success.
Because the brand basically didn’t change we basically got a big, friendly parent company — it was completely different than Distinction’s acquisition, when we integrated both Skyscanner’s brand and the product.
It impacted your exits as well of course.
Yes, partly in money, partly in shares, which was good for everyone. There were really good vesting and other bonuses afterwards, which we were euphoric about in the beginning especially because we got to keep our independence, but then, as is to be expected, we sobered up and the questions began to arise.
To be continued.
