Betaworks, the New York-based company, has focused on making, buying, and otherwise nurturing real-time technologies since its outset in 2007.
Turns out its strategy is going so well, the company may eventually go public.
The offering would be a hot one. In addition to in-house creations that include the analytics services Bit.ly, Chartbeat, and SocialFlow, Betaworks helped hone the software companies Summize and TweetDeck, both of which have sold to Twitter in mostly stock deals. (Twitter reportedly paid $15 million for Summize in 2008, when Twitter’s valuation was in the neighborhood of $100 million. Twitter paid another $40 million to $50 million in cash and stock for TweetDeck six months ago, after its valuation had already hit the stratosphere.)
Meanwhile, Betaworks, which has invested in roughly 40 startups over the years, has also demonstrated a knack for identifying outside talent. The popular microblogging site Tumblr is one of its portfolio companies. So was the group texting service GroupMe until it was acquired in August by Skype for reportedly north of $40 million. (The then-year-old company had raised $11.5 million from investors.)
Given that Betaworks has itself raised $30 million from investors over the years, including RRE Ventures, Intel Capital, and Softbank, I recently asked Betaworks founder and CEO John Borthwick about the prospect of an IPO. We also talked about a major acquisition we’ll see the company engineer, and the surprise departure of cofounder Andy Weissman, who left the firm in September to join Union Square Ventures as a partner. Our conversation has been edited for length.
You’ve never commented publicly on Andy Weissman’s parting from Betaworks. What happened?
[Weissman and I] talked for the first six months of this year about whether we should have a separate fund, and after discussing the machinations of how it would work, I concluded in summertime that it would likely mean that we do what we do at Betaworks less well; that the potential for conflicts of interest [with Betaworks’ investors] would be high; and that what we’re doing here works. So why fix it if it ain’t broke?
The departure, while unfortunate, made sense for him and for us. I come to the table as an operator, as a company builder, and I think he really wanted to be an investor.
Are you doing more of the VC stuff now that he’s gone?
I’m CEO of the company, so every decision is ultimately mine. But we have process by which we deal with intake and inquiries that come into Betaworks, and while Andy handled a lot of that, the actual filtering of it happened with the same team that remains in place here. Andy also did a fair amount of business development, and I’ve brought in a guy [Sam Mandel] who was COO of TweetDeck as head of business development here.
You last raised money, $20 million, in March of 2010. Will we see you raise more money from investors soon?
No, I’m not out there fundraising. We’ve been very successful. We have a set of holdings that we can trade on the secondary market and so we can opt to liquidate those things if we so desire for cash.
So you might never raise more money from VCs?
That could be an outcome.
And have you already taken advantage of the secondary markets, to buy or sell shares?
We have acquired stakes on the secondary market. Our thesis isn’t stage specific. We believe there’s a transformative opportunity going on in the market. And as we get more capital through monetizing in one form or another, we can take that capital and reapply it wherever we want.
The bulk of our time and focus is at the beginning, because that’s where we can best apply our expertise, but that doesn’t mean we’re confined to a particular stage. In fact, you’ll see an acquisition of a scale that people wouldn’t have expected over the coming year.
Aha! You are buying Yahoo.
You’ve focused long and hard on Bit.ly, Chartbeat, and SocialFlow, all of which are in the business of selling analytics tools. Are any of them profitable?
We’ve spent time and energy on building out three platforms that I’d consider to be part of social stack, tools for understanding social traffic, distribution, and how to optimize it. They are all making money. Are any profitable? I’m not talking about that.
But part of why we’ve spent so much time in social tools area is that we believe many opportunities exist [in it]. We also knew that in the social tools area, you could monetize it earlier than consumer social. We knew you could actually build a business. Bit.ly has 15,000 white label partners. Chartbeat has thousands of customers on its platform, some of whom are paying $10,000 a month. So these companies are starting to make real money.
Two of the newer companies you are crafting –News.me, which finds news from tweets, and Findings, which allow users to share highlights from the books they are reading — are more consumer focused. Is there a shift afoot?
Yes, in the last six months, we started building again on consumer side, making things that are consumer driven but powered and enabled by big data. Bit.ly, Chartbeat, and SocialFlow have given us a great understanding of the social data web.
Using that information, how you decide which ideas to seed?
We have a process by which we seed things, based on our observations and the work that we’re doing in the space. We see adjacent opportunities and then test and trial and push things to market and pull them back. If you take any one [Betaworks] company, I can give you the genetic history of that company and usually two or three companies that have come before it.
Give me one flop.
Before Chartbeat, we built Firefly, a consumer-facing product that people would install on their site, and you’d see the cursor movements of people on that page and they could chat with each other on that page. Around 5,000 sites installed it, but then when we dug in and understood the data, we realized that usage of product was fairly thin in that most people on Websites don’t have traffic at any one point in time, so in essence, you’d turn on Firefly and there would be no one there. It would disappoint. And you want to delight users, not disappoint them. Another problem was that rather than talk about the substance of the Web page, people were mostly talking about Firefly’s technology, which wasn’t [useful information] for the publishers.
What we learned in talking with those same customers was that they wanted richer analytics. So we left Firefly out there, iterated on a new product, Chartbeat, and when Chartbeat was ready, we took Firefly out back and shot it.
Andy Weissman once told me that Betaworks’ goal was to go public someday. Will that happen in 2012?
Obtaining the currency to do larger transactions is definitely on the map for us, but I don’t want to talk about the timing of it. Going public is one of those seminal events in the life of an entrepreneur and company that the press pays disproportionate amounts of attention to. It’s a means to an end.