Localmind: An ideal Acquihire

In my last post I talked about acquihires. For this post I thought I’d share the story of an actual acquihire that I was involved in. Since this was not a public transaction, many specific details are left out.

Back when I was at Real Ventures, I invested in Localmind, a platform that let users crowdsource information about a local scene. Localmind was one of the hot apps at SXSW in 2011. With a mere $ 650K USD in seed capital the team created a ton of buzz and high user engagement.

Despite the amazing initial launch, it wasn’t clear how this would become a large company. Before trying to raise more capital the team decided to reach out to product managers at a bunch of larger companies to see if they were interested.

Those conversations led to Airbnb buying the company in 2012. While this wasn’t the original outcome people had in mind for this company, it ended up working well for everyone. Localmind’s CEO is still with Airbnb today. His investors ended up getting shares in a company that has increased 25x in valuation since the deal closed.

While I can’t share any numbers here, there are a number of good lessons for seed stage founders as they think about how to protect their downside through an acquihire.

1. ) Don’t over-capitalize: Localmind raised $650K. Many seed stage companies are raising seed rounds that look more like what series As used to look like. Raising too much money too quickly can make it harder to get a profitable early exit.
2. Early hires should be technical: If you have a bunch of MBAs and outsource your programming, you have no value to a buyer. The Localmind team was all technical (either dev, product or design) and were all valuable to a buyer.
3. Ship something amazing: As mentioned, Localmind’s app had tons of buzz and engagement, proving that the team could build great product experiences.
4. Build relationships with buyers: This is an important concept that I have posted about before here. The team proactively built relationships within the product teams that would ultimately sponsor an acquisition.

On that point, it’s important to note that while corporate development teams are responsible for executing deals, in most cases someone who has product or line of business responsibility must sponsor the deal. So, it’s important to get to know these groups directly.