Why OBT/SesameVault Is Selling Their Angel-Funded Software Company … On eBay (Updated 2/22 @ 15:35 EST)

Today we announced the sale of my company, Open Box Technologies.  We will be selling the company - including our SesameVault online video platform - via an eBay auction that will run for 7 days, ending next Wednesday, February 24th. The decision to put OBT up for sale came about as the result of our recent inability to raise investment adequate to support our plans and objectives going forward.  The OBT board and I choose an eBay auction as the sale vehicle to allow for the participation of the widest possible range of potential acquirers. This post is meant to shed some light on what precipitated our decision to sell, and why we’ve chosen eBay as the vehicle. WHY WE’RE SELLING The genesis of our decision to put OBT up for sale goes back to April 2009. Prior to April, we had spent the better part of previous 9 months developing the second version of our product, SesameVault 2.0. Everything we had learned since the launch of SesameVault 1.0 in 2007, including who our customers were, what they wanted, and how to serve them and make money went into the design of SesameVault 2.0. The launch of this product on was a major event for our company and the first step in a 12 month plan we had constructed to become the leading SMB online video platform. The only thing standing in our way: a very immediate need to raise additional financing. Beginning in June - after the post launch dust had settled - one my partners and I set out to raise a Series B round of financing. Being that we were still a relatively young/small company and were only looking to raise around $2M, we focused our efforts on angel investors and early stage VCs in the Seattle, Boston, and New York areas. Very soon after embarking on this effort we secured commitments from two angel investors and a small VC firm amounting to about 60% of our goal. However, as the summer wore on we found it more and more difficult to secure additional commitments. It became clear we weren’t going to be able to close by our early-August goal and as such, decided to push our planned closing back to early November. Picking up our efforts again after Labor Day, my partner and I found it to be an even more difficult fundraising environment. Aside from the small VC in New York that had made a commitment towards our round, virtually every other VC we spoke with ended up passing for one reason or another, usually stating that we were too early or that the total we were looking to raise was too small. Further, many of the angels we met with told us they simply weren’t making any additional investments at that time. To be honest, we were stumped. On the one hand we had commitments from angels and a VC who had come to us, but on the other hand most every group we met with wasn’t excited enough to invite us back for a second meeting. In an effort to make sense of our situation, I had a number of conversations with OBT board members and advisors over the latter half of October. While a few urged us simply to take the commitments we had (again, totaling roughly 60% of our goal) and adapt accordingly, others expressed concern that perhaps we weren’t raising enough money. After much examination and discussion, the team and I determined that given the time that had elapsed since we originally set out to raise our Series B round and the various changes that had occurred in the market/economy at large, we would in fact need to raise even more money to sufficiently execute our 12 month plan. However and unfortunately, raising more money was clearly not an option. As such, in early November I recommended to our board that we suspend fundraising efforts and pursue a sale of the company. WHY WE’RE USING EBAY The original inspiration for using eBay came from a Ycombinator-funded web calendar company named Kiko, who after being made irrelevant by Google Calendar put their business up for sale on eBay. That said, I recommended that we use eBay to sell OBT for three primary reasons: 1) it’s cost effective, 2) it allows us to control the timeline, and 3) it’s public. While the concept of selling a business on eBay may seem strange (I’m not arguing that it’s not unorthodox), those criteria closely matched what the board and I were looking for in a sales vehicle. Regarding cost, eBay is exceedingly inexpensive. On a sale totaling more than $100K, eBay’s commission is roughly 1.5% and the cost to list in under $100. By comparison, even boutique investment banks charge base retainers of around $20K/mo simply to determine if they can sell you business. If they find the answer is yes, sale commissions can easily be over 10% of the gross sale price. In terms of time, we don’t have a lot to spare. As many of you know, eBay auctions range from 1 to 10 days; we’ve chosen a 7 day auction for OBT. Any alternative (engaging an investment bank, conducting a guerilla sales effort of our own, etc.) would have likely extended beyond our remaining runway. Finally and most importantly, eBay auctions are public. We’ve spent the last two and a half months reaching out directly to companies we have identified as potential acquirers. However, there are companies we have been unable to reach and others that we likely haven’t even identified. It’s our belief that the attention generated by/inclusiveness of a public auction has the potential to bring these companies to the table. DETAILS OF THE AUCTION The OBT eBay auction went live this morning, February 17th at 9:01am EST. It will run for seven days, ending Wednesday, February 24th at 9:01am EST. Bidding started at $500K and a reserve has been set. All OBT assets are included in the auction. The big items include:

• Product: The SesameVault website, application, and platform
• Customers: All SesameVault customers and users
• Intellectual Property Rights: Three patents covering SesameVault and it’s commercial applications
• Production Infrastructure: Servers, storage devices, and networking equipment responsible for powering the SesameVault product
• Development Infrastructure: Servers and workstations used for the development of the SesameVault product
• Office Infrastructure: Fixtures and furnishings, including a killer ping-pong table

PARTING THOUGHTS I founded OBT in 2005 with the vision of providing small businesses with the tools they need to leverage video on the web. Our team has spent the last four and a half years turning that vision into reality; building a fantastic product and a good book of business on significantly less capital than other competitors in the online video platform market. That said, it is clear we have brought our business as far as we can - in order to continue operations and take it to the next level, SesameVault needs to be taken under the wing of a company that has the resources to support it. Stay tuned over the next week.  Should be an interesting ride. Update (2/17 @ 18:10 EST): It’s been a little over 9 hours since the OBT/SesameVault eBay auction went live. Been a very interesting day. Here’s what’s happened so far:

• Over 1,200 people have viewed the OBT/SesameVault eBay auction page
• We’ve been contacted by four companies requesting additional information
• Two of those companies we had not previously identified as potential acquirers

Will continue to provide updates here on this post as the week progresses. Update (2/22 @ 15:35 EST): We're past the mid-point of the OBT/SesameVault eBay auction. Lots of good/interesting things have happened since it went live last Wednesday morning. Here's a quick update as we head into the final stretch:

• Over 2,800 people have viewed the OBT/SesameVault eBay auction page
• So far, we've been contacted by a total of nine prospective buyers
• We're currently in serious discussions with five of these companies

Will post another update this time tomorrow.

Tagged as: angel investor, online video, startup, venture capital