The Untold Story of Kobo

So I read most of the news this morning around Kobo and the links being passed around. Generally I was miffed. When folks in the startup scene complain about media doing a lame job covering entrepreneurial stories, this is a great example. The story being published in the media is “Indigo sells Kobo”, “Indigo builds Kobo”, etc, etc. All Indigo, all the time. Probably due to PR agencies spinning the story that way, and also due to lazy business journalism. Well, having chatted with a bunch of folks involved with Kobo, I have a different take on the Kobo story:

Mike Serbinis

If you are in the startup scene in Toronto and you have not heard of Mike Serbinis – shame on you. He is another example of an amazing entrepreneur in the community who has been wildly successful. The first company he started, DocSpace, was an internet leader in security. He founded it in 1997, and went on to sell it to CriticalPath in 1999, for whom he was CTO and EVP marketing for some time. Throw in a master’s in engineering, a few patents, and you can see why folks were pretty excited about his return to Canada, joining Indigo in 2006.

The Indigo/Shortcovers/Kobo story is as such. In 2007, 2008 Serbinis starts lobbying Indigo about the coming sea of change called “ebooks”.

In April of 2008, Shortcovers is created within Indigo. Shortcovers is an online ebook store and mobile app meant to work across the plethora of new smarter devices – Apple, Android, BlackBerry, Palm, etc. Access to books on any device.

This date is important, April 2008. If you think this is just another dumb Canadian “me-too” play, you should look up the launch date of the Kindle. The Kindle launched in November of 2007. And Amazon blew the Kindle launch, and had no stock available until April of 2008. Every attempt before April of 2008 at ebook readers and online ebook stores had been nothing short of disasters, ripe with lost capital. Let me double down on this point:

ebook Sales 2007-2010

In 2007 and early 2008 it was NOT obvious that ebooks would be a big factor, and that Indigo should meaningfully go after the ebook space.

So Mike Serbinis, within Indigo, stared at this in 2007/2008 and said “Indigo should enter the ebook space”. Wow – those are some big brass entrepreneurial balls.

So they create Shortcovers. Shortcovers name was from their original “gimmick” in that they let folks buy books a chapter at a time. Shortcovers was a pure ebook store & software client. No hardware. They were originally intending to put their ebook app on as many devices as possible. No hardware. So somewhere in 2009, things change.

Kobo is Created

Serbinis then goes on to do the unthinkable. At some point in 2009, he see’s the only way for Shortcovers to get critical mass adoption is to launch its own hardware. Whattt????

Shortcovers is a software company. Serbinis is a software exec – CIO & EVP Online at Indigo. Indigo is a brick and mortar retailer. They have ZERO hardware background. That’s a big-ass, high-risk pivot folks!!

So he goes off with his “lets build a device” vision and convinces Indigo to spin them off into their own business, but also gets Indigo to cough up another $5mm as part of a $16mm round where he gets Borders, RedGroup & one of the most famous Asian investment firms around – Cheung Kong Holding.

In early-mid 2009, it probably looked like launching a new ebook reader was a good idea. By the end of 2009 though, everybody and their sister was launching a new ebook reader. Check out this article: Everybody I know who went to that CES said “maannnn, so many ebook readers”.

I remember talking to Dan Leibu, CTO of Kobo, who in early 2010 was nervous as hell about launching their own device. He said something to the effect of “if we had known so many ebook readers were going to launch, we probably wouldn’t have launched our own”.

Kobo launched in July 2010, well after many of the above devices were in market. How did they do? The rumour on the street is that Kobo cracked $100mm in sales in its first 12 months. $100mm in revenue in its FIRST YEAR!!! They only raised $16mm in their A round and built a $100mm revenue company in 12 months. That is simply unbelievable. How about you other startups, have you done 10X your initial investment in revenue yet?

And how did the rest of the industry do? Anybody know where the Skiff Reader, the Plastic Logic Queue, the Alex Reader, and so on and so forth ended up? Probably not with $100mm in sales and a $315mm acquisition.

And that my friends is why I’m miffed at the coverage on Kobo. This is a wild and crazy story entrepreneurial story full of big risky moves. Its a story of an entrepreneur doing things that only great entrepreneurs can do – even making elephants dance. And its a rare story in Canada, and as such a story that deserves proper coverage.

2011, The 1 Billion Dollar Year??

Edit 1 – Techvibe just put together a more comprehensive list than mine – It is an even a bigger year than I thought!

Edit 2 – I have been corrected that the Coradiant acquisition was more likely $100m-$150m. Updated below. Bigger than I thought! Glad to see I was “under-reporting”

Interesting first 6 months to 2011. Check out this list of exits:

Radian6 – $326mm
Coradiant – $100mm (guess – this one has been tougher to size, some searching shows them to be around 100 employees with 10mm revenue?? That Akamai partnership feels pretty strategic though…)
Pushlife – $25mm
Tungle – $20mm (guess off of last raise/valuation)
PostRank – $15mm (consensus guess from asking around)
CoverItLive – $10mm (big guess)
tinyHippos – < $1mm (4 employees)
About $495mm. Give or take $25mm depending on my math.

Firstly, this is a perfect example of how VC exit math works and the power of a fundmaker like Radian6.

But get this, we are exactly 6 months in and almost half way to…. well… July/August/December all kind of suck for doing deals… buuuutttt… maybe… maybe if I utter the amount… people will dream and we could maybe dreamily hit 1 BILLION DOLLARS in returns this year. Wow, 1 BILLION. Thats nine 0’s.

The Net Value of All Exits for 2011?? (by Adam Crowe, some rights reserved)

We’d need another big mama ala Radian6, and another 4 $20-$30mm exits. I could hazard a guess at a few companies that could exit for $20mm+ today and now, but the big, big question is, where will the big exit come from?

Kobo Books (@kobo)

They just raised $50mm. Not sure about the valuation, but we could size it at say $150mm – $300mm (I’d go higher because they are very young and having a $50mm raise means they have a vertigo inducing growth/revenue curve). And lets not forget the mainstream press chatting about an Apple acquisition. This could be a high 9 figure to billion dollar plus exit if something happens.

Freshbooks (@freshbooks)

They state over 2mm users on their home page. Lets say 10% are paying customers and they pay on average $30/month (looking at their pricing plans). 200k * $30/month * 12 months = $72mm in annual revenue. Even at 5% freemium conversion they are at $36mm. Thats a big customer base and a big chunky, sticky subscription revenue base.

Would love to hear from folks. What other startups do we have hanging about that could do a big exit? Am I missing any of the 2011 exits to date?

Hustle & Flow

Once upon a time in my startup life, we stumbled across the deal of a lifetime. A large company was spinning off a subsidiary, and they were paying someone a few million bucks to take it off their hands.

Most folks looked at the numbers and said “no thanks” – $7mm in revenue and spending about $20mm… yuck. But these guys were running the exact same business as us, similar subscriber counts and all, and we knew they could be run spending $3-$5mm per annum (which is what we were spending). For instance their CEO was getting $4mm/annum and ours was making $1/annum (perfect example of why big companies can be bad at launching new products). So we put in a bid for -$2mm (yes thats a minus in front). I.e. pay us $2mm to take your company, and have it generate $2-$4mm a year in cash for us. Booya. You could imagine how excited we were. We basically re-enacted this Monty Pyton scene every day in the office for 2 weeks (word of caution – this is 10 minute video and there’s a part 2):

Yaaaaar, corporate raiders be we.

Until, sadly, of course, somebody outbid our -$2mm offer. Damn. I suppose -2mm isn’t that hard to outbid.

I’m telling this story to give another “meme” to startupdom. Lean product development, social marketing, customer development, iterations, pivots, etc – these are the more popular memes of today. Well there’s another one thats not mentioned enough – Hustle and Flow – doing deals, business development, partnerships, strategics, m&a, etc. There are many big famous startups who had deals with a big elephant: Google powering Yahoo, Amazon powering Target, the Microsoft/Apple/IBM/Xerox tangle, RIM’s pager deal with Ericsson. Its a crucial part of growing your startup, you gotta be able to do deals.

One of the current killer “deal-oriented” startups in Toronto right now is Kobo Books (@mserbinis). Kobo got frickin’ Li Ka Shing to back them, the guy is a business legend! Why waste time with tiny business punks like Paul Graham and Dave McClure (I joke) when you can have a business God invest in you. Plus Kobo has done huge, killer deals from top to bottom in every category of their business – checkout their partner list in here. That my friends is big pimpin’ Canadian startup style.

Here’s another one, check out the list of deals Fixmo (@ricksegal, @shyamsheth) has done. They acquired a company (Conceivium) as a year and a half old startup! How many of you entrepreneurs in your first year or so wake up and say “lets buy a company”. On top of that, as an unknown one year old startup they walked into the Department of Defense in the US and nailed a massive deal. That is pure brass-balled, biz dev game.

Would love to hear some other great Canadian business hustler success stories from folks (or near misses, or disasters), or give us your favourite links/resources for networking, bd, m&a, hustling, pimping, whatever. We’ll be following up with some resources and tips to help your biz dev game.