Inside Grapeshot's $325 million decision to sell to Oracle, despite some investors thinking it could have grown into a $1 billion startup
- Oracle completed its acquisition of UK adtech startup Grapeshot last week in a deal that sources said was worth $325 million.
- Grapeshot's technology helps brands avoid unwittingly showing ads next to embarrassing content, like airlines advertising next to news stories about plane crashes.
- The deal has turned Grapeshot's executive team into millionaires, and is another big Cambridge success, according to its investors.
- But they also said Grapeshot could have one day been worth $1 billion, and that the company fought off investment offers from private equity firms.
- There's a perception that promising European tech companies might be selling out to US tech giants too early, siphoning talent out of the region.
Startup investor Max Bautin popped open the champagne when one of his investments, British adtech company Grapeshot, finalized its $325 million (£242 million) sale to Oracle early last week.
Oracle announced the purchase in April, but did not disclose the price. Sources said the $325 million tag included earn-outs, where the executive team will be paid depending on how the business does in future. The deal closed last Tuesday, the sources said.
According to Bautin, the acquisition turns Grapeshot's executive team into millionaires. "It's always amazing when that happens," he said. Oracle and Grapeshot declined to comment for this article.
It isn't just good news for the new millionaires. Bautin and his fellow investors at IQ Capital and Albion Capital have seen strong returns on their original investments into Grapeshot. Back in 2014, the Cambridge startup was worth around $15 million (£11 million), a person familiar with the matter said. The $325 million price tag suggests its value has rocketed 20x since then. The company raised less than $20 million (£15 million) in total funding since launching in 2004.
Albion Capital led an initial funding round into Grapeshot in 2014, then participated in a follow-on round 2016. The company has seen a 10x return on its investment, the company said.
"[John Snyder] built a hugely capital efficient business," said Robert Whitby-Smith, partner at Albion Capital. "The multiple on the capital invested is enormous."
Bautin said Grapeshot's acquisition helped IQ Capital's first fund return 2x to its investors.
It's the ideal outcome for a venture investor: find an efficient startup with an outstanding executive team and amazing tech, and enjoy an exit that will pay off big on your original bet. Creating some wealth for a strong team who might go on to found new startups is a nice side-effect.
Yet for all the champagne, all three investors sounded a little wistful about the sale. All said Grapeshot had the potential to become a "unicorn," a term given to a startup that is worth $1 billion or more. The UK's current crop of startups at that valuation include Deliveroo and Farfetch, both of which are rumoured to be nearing the point of listing.
Grapeshot could have been in 'billion-dollar plus territory in time'
Grapeshot took a long time to land on its current idea. Its core technology was created by Martin Porter, a highly regarded Cambridge computer scientist who invented the Porter Stemmer algorithm, commonly used in information retrieval systems like search engines.
"Martin Porter's tech was always about contextual search," said Stuart Chapman, managing partner at Draper Esprit. "In some ways, you could say it was phenomenal technology trying to find a commercial application."
CEO John Snyder eventually landed on advertising, and brand safety in particular. He noticed that the move toward real-time bidding, where ads are sold through real-time auctions, meant digital advertising was growing at a rapid clip but quality was declining. Because everything was being done automatically, there was no one to filter for nuance, resulting in awkward ad placements like commercial airline ads appearing next to news stories about plane crashes.
And so Snyder spotted an opportunity for Grapeshot's contextual advertising. As more brands redirected their ad spend to programmatic, they also found their ads ending up in awkward spots like terrorist sites. Eventually the concept of "brand safety" became one of the most talked about topics in marketing, and Grapeshot grew rapidly.
IQ led a £1.5 million round into the company in 2009, and by the time Albion and Draper invested in 2014 and 2015, the company was "going like a train", according to Draper Esprit's Stuart Chapman. That only grew as more brands were turned on to brand safety, in the wake of media investigations that found ads for big brands next to terrorist content.
When Albion invested in 2014, the company had revenues of £1.8 million. Filings show the company reported £9 million in revenue for 2016 on a loss of £1 million. And sources told Business Insider that revenue for 2017 was around £24 million, and that the company was profitable.
"It had fantastic KPIs [key performance indicators], and it could have been in billion-dollar plus territory in time," said Max Bautin.
Grapeshot fought off offers from private equity investors and considered staying independent
Bautin and Whitby-Smith said Grapeshot had considerable interest from multiple buyers and investors, including private equity firms, but ultimately opted to sell to its longstanding partner Oracle. The tech giant first kicked off serious talks in December last year.
"In some ways, it would have been great to see it stay independent, get unicorn status and IPO, which it had potential to do," said Bautin. "But then there was Oracle - their software was good, the teamed like the new home, and there was impetus to grow into a big player."
The adtech market is generally undergoing lots of consolidation, especially with Europe's new privacy laws about to come into effect. "Things are not quite so certain [in advertising]," added Bautin.
Draper Esprit, as the last to invest and a proponent of long-term investing, was perhaps the most reluctant to sell.
"We were not looking to sell out," said Stuart Chapman. "The approach was not what we were looking to do ... That said, look at the industry at the moment and the issues that Facebook and Google have. Partnering with a major brand, the powerhouse of Oracle, as a business person it doesn't look like a bad decision."
According to Whitby-Smith, there was unanimous agreement inside Grapeshot to sell, partly because they had built up trust with Oracle over time.
Superficially, the deal looks like another European startup selling out too early to a major US corporation. But, Bautin argued, it's created several millionaires in the executive team. They may go on to found further startups, and CEO John Snyder is already a serial entrepreneur, having cofounded natural language search company Muscat, which he sold to Dialog Corporation in 1997.
It's also yet another success to come out of Cambridge, alongside chip firm ARM and Autonomy.
"This is another Cambridge success story," said Whitby-Smith. "Both Martin [Porter] and John [Snyder] were at Cambridge University. It's another data point on the strength of Cambridge entrepreneurial ecosystem."