SwipedOn acquired for $11 million – sold too soon?

Last week Tauranga startup SwipedOn announced it had been acquired by UK public company SmartSpace Software for $11 million. The news was surprising, since SwipedOn had only recently completed its first funding round ($1 million in January) and appeared to be at just the beginning of an upward trajectory in sales.

So why sell a young startup after just a year or so of growth? Shouldn’t our local startups be aiming big and staying independent for years, like local success stories Xero and Vend? I reached out to SwipedOn founding CEO Hadleigh Ford and board chairman Ben Kepes to explore these and other questions.

SwipedOn is a ‘Software as a Service’ (SaaS) vendor, specialising in visitor management software. If you’ve visited a modern corporate office recently, chances are you signed in at the front desk on an iPad. This is the type of software SwipedOn delivers as a monthly subscription service. SwipedOn’s software runs on Apple iPads and it charges a monthly fee of between US$25-49.

The acquisition announcement noted that SwipedOn had 2,279 customers at the time of sale, over double the number this time last year. Annual recurring revenue has also been rising, from NZ$846,000 in September 2017 to NZ$1.6 million in August 2018. The company has 19 employees, who will all remain with the business.

Like many young startups, SwipedOn was operating at a loss ($450,000 for the year ended 31 March 2018). But presumably the January funding round of $1 million had given the company a runway until at least mid-2019. Probably even longer, given the increase in sales over 2018. Even if the founders wanted to do another funding round now, to fuel more growth, they would’ve had no trouble raising it given their customer and sales traction.

So I asked co-founder and CEO Hadleigh Ford why they chose the trade sale route, rather than continue to grow independently?

“At the end of the day, startups consume significant capital to maintain exponential growth,” he told me. “In my mind, acquisition was just another way to realise this.”

If SwipedOn had raised another round of funding, it likely would’ve been in the millions and so may have required an overseas venture capitalist firm to step up. But Ford pointed out that “the VC route has it’s own problems” and raising large sums from VCs doesn’t “necessarily align with the founders’ best interests.”

I asked the same question to the chairman of SwipedOn’s board of directors, Ben Kepes: why sell now?

“We’re well aware that we did leave value on the table,” said Kepes about the potential future valuation of SwipedOn, but “for the two founders this is a great outcome.” Each of them earned “well over $1 million” from the sale, which is a “life changing amount of money, but not ridiculously so – so they will go and do it again.” The January investors at least doubled their money, Kepes continued, so it’s a great outcome for them too.

In Kepes’ view, acquisitions like the SwipedOn one are good for the NZ startup ecosystem.

“Having these quick cycles of ‘invest and exit’ means that money can go back in and keep cycling throughout the ecosystem,” he said.

In a decision like this, a lot also depends on where the founders are at in their personal lives and whether they want to continue the intense daily grind of startup life.

From my own experience, I sold my tech blogging business ReadWriteWeb to a US media company at the end of 2011 – when it was still experiencing excellent growth on an annual basis (it had doubled in revenue for the year ended 31 March 2011). So you could argue I sold too early too. But to continue growing my company amid increasingly well-funded competition, my options were essentially twofold: take investment from a VC firm and move to Silicon Valley, or sell to a large US media company.

I chose the latter, partly because my personal circumstances prevented me from moving abroad at that time. Also, I was burnt out after nearly a decade building ReadWriteWeb – it had even affected my health, in the form of a type 1 diabetes diagnosis in late 2007.

Of course there were other, non-personal, reasons to sell too. As just one example, I thought selling to a San Francisco media company would allow ReadWriteWeb to establish a base in the US (by far its largest market) and hire more people on the ground.

Ultimately, though, a decision to sell a startup is a life decision by the founder(s).

For Hadleigh Ford, he had to deal with a rare form of cancer a couple of years ago. Thankfully he got the all clear from that. But I was curious whether his health or other personal factors played much of a role in his decision to sell now?

“Yes, the start-up world is indeed 24/7,” he said, “and no more so with a worldwide customer base into the thousands.” However, he pointed out that his previous career as a Harbour Pilot came with its own challenges – such as “boarding ships via rope ladder in the middle of winter storms.”

In the end, Ford said his “vote to exit” for SwipedOn involved a number of decisions.

“For me, I looked at this from a personal level, what it meant for our employees, our investors, Tauranga and of course the NZ tech ecosystem.”

Indeed, it looks like SmartSpace Software will continue to base the SwipedOn business in Tauranga – which is great news for the local economy.

“From my perspective,” said Ford, “one of the fundamental aspects of this deal was that we maintain and grow the company from our base in Tauranga. SmartSpace were onside from the start. We have a pretty special culture here, so it’s crucial that we maintain this as we scale and join a larger entity.”

Critics will still say SwipedOn should’ve backed itself to grow more as an independent company. But it’s hard to argue the acquisition isn’t a good outcome for all concerned. It’s certainly a more realistic outcome for most kiwi startups, to sell to a bigger and more connected overseas company. If anything, Xero is the outlier in the local startup ecosystem – it’s very rare to build a multi-billion dollar software company anywhere in the world, let alone from New Zealand.

Ben Kepes is fond of saying that NZ shouldn’t try to replicate Silicon Valley; and I agree. As he and I both well know, the work/life balance in Silicon Valley borders on the insane. SwipedOn seems to have found a much better balance. Just look at its About page, which extols the virtues of Tauranga:

Tauranga sits on the coast of the bountiful Bay of Plenty, known for its fruit orchards, sunshine and surf. Now Tauranga is also gaining momentum in the tech community as a great place for startups and digital businesses.

You can’t blame SwipedOn’s founders for wanting to enjoy a bit more of that daily sunshine and surf. Plus, now they can toast it with a glass of champagne.