Why Trello Failed to Build a $1B Business(producthabits.com)
producthabits.com
Why Trello Failed to Build a $1B Business
https://producthabits.com/why-trello-failed-to-build-a-1-billion-business
119 comments
I don't buy that narrative since Trello received $ 10M in funding [1] and you must convince investors to put that sum of money.
[1] https://www.crunchbase.com/organization/trello#/entity
[1] https://www.crunchbase.com/organization/trello#/entity
wait, WHAT?
if the investors got 16% of the company they got $80m, a ~8x return in 3 years.
And more likely they did better. Twitter did a series C, raised $17.4m at $104m valuation, and it was a pretty hot company to give up a bit less than 17%.
A great venture fund gets a unicorn, a legendary one gets two. A 1/2 unicorn that maybe returned most if not the entire fund is a great outcome. If 50% of the investments did that well it's a top-tier fund.
People are a little demanding if only decacorns are seen as wins. It's like expecting your team to win the World Series every year.
if the investors got 16% of the company they got $80m, a ~8x return in 3 years.
And more likely they did better. Twitter did a series C, raised $17.4m at $104m valuation, and it was a pretty hot company to give up a bit less than 17%.
A great venture fund gets a unicorn, a legendary one gets two. A 1/2 unicorn that maybe returned most if not the entire fund is a great outcome. If 50% of the investments did that well it's a top-tier fund.
People are a little demanding if only decacorns are seen as wins. It's like expecting your team to win the World Series every year.
True, but they did say that they did that to accelerate, to spin it off and let it grow on its own faster. It was profitable at the time.
https://techcrunch.com/2014/07/24/trello-series-a/
https://techcrunch.com/2014/07/24/trello-series-a/
Agreed. Furthermore, Atlassian is a 5 billion dollar business that Trello is now helping to build.
That's ridiculous, every businesses wants to grow and make more money. In their ideal world I'm sure Trello's management would have preferred to buy Atlassian than the other way around. The article does a reasonable job with 20/20 hindsight at musing on how they might have achieved that.
"every business"? I'm thinking of Craigslist, they don't seem that interested in making more money.
> That's ridiculous, every businesses wants to grow and make more money.
But not every person wants their business to grow.
"Feed me venture capital, Seymour..."
But not every person wants their business to grow.
"Feed me venture capital, Seymour..."
They built an authentic artisanal lifestyle $425 million business. They would never think of doing anything so crass as to build a billion dollar business.
"Let me tell you how you to build a $1B business. I've never done it, but take my word that I know how to do it better than someone who sold a half a billion dollar business."
Like really, if your advice is useful, why hasn't the author built a $1B business? It seems like they missed the point that Trello became giant for what is essentially networked sticky-notes, were they even trying to become a $1B Business?
Next week: Why Trello Failed To Be the First Company On The Moon (spoiler alert, they weren't trying to do that).
Like really, if your advice is useful, why hasn't the author built a $1B business? It seems like they missed the point that Trello became giant for what is essentially networked sticky-notes, were they even trying to become a $1B Business?
Next week: Why Trello Failed To Be the First Company On The Moon (spoiler alert, they weren't trying to do that).
There are some interesting points in this article, but I can't help but feel that the author takes the final value of hundreds of millions of dollars as a given. As a resut, there are several recommendations in this article that I can easily see having led to a lower valuation!
> Trello could have created a stickier business product by making sure that it was so deeply integrated with other tools, teams couldn’t rip it out.
But if they had focused on having even more integrations, maybe they wouldn't have been able to focus on creating simple features with broad appeal, or creating a snappy app, or they would have had to spend more money and pivot away from a robust free product.
All of these things would have hurt the user base by ruining one of Trello's main value propositions: it is free and simple. I never would think about learning to use Asana for a personal project, but Trello is an easy sell to teammates for small/medium businesses and personal projects. It is even easy for one-person teams. If Trello wasn't free and easy, then they would just be another Asana competitor, and I can imagine them fizzling with no buyout, let alone an IPO.
I think this sort of business case analysis can be useful, but even in hindsight, the consequences of various decisions are far from obvious.
> Trello could have created a stickier business product by making sure that it was so deeply integrated with other tools, teams couldn’t rip it out.
But if they had focused on having even more integrations, maybe they wouldn't have been able to focus on creating simple features with broad appeal, or creating a snappy app, or they would have had to spend more money and pivot away from a robust free product.
All of these things would have hurt the user base by ruining one of Trello's main value propositions: it is free and simple. I never would think about learning to use Asana for a personal project, but Trello is an easy sell to teammates for small/medium businesses and personal projects. It is even easy for one-person teams. If Trello wasn't free and easy, then they would just be another Asana competitor, and I can imagine them fizzling with no buyout, let alone an IPO.
I think this sort of business case analysis can be useful, but even in hindsight, the consequences of various decisions are far from obvious.
What is this article, I can't. In what world do we live in where we paint a $425m exit in a bad light?
> They built their servers on top of Node and used MongoDB to store data so that the web app would load really fast.
I stopped reading here.
> They built their servers on top of Node and used MongoDB to store data so that the web app would load really fast.
I stopped reading here.
> In what world do we live in where we paint a $425m exit in a bad light?
It depends how much they invested in it before selling, my ignorant guess would way less than $425m. Also some investors may have invested in it for a valuation of 1B, in which case they did not get the return they expected. Anyway, I'm pretty sure all parties involved must be doing fine.
It depends how much they invested in it before selling, my ignorant guess would way less than $425m. Also some investors may have invested in it for a valuation of 1B, in which case they did not get the return they expected. Anyway, I'm pretty sure all parties involved must be doing fine.
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Trello is actually slow, because of that backend stack, I imagine. I thought the author was going to point to that.
Not at all. Trello is quite snappy and back when I first started using it in 2013, it was remarkably so compared to all other similar tools I'd seen.
To add to other people's anecdotal evidence, Trello is painfully slow for the board I use the most. Perhaps I over-use it - I have 27 lists, the longest of which has some 1500 cards. But it's slow to the point where Chrome asks if I want to kill the tab at least once every 2 days.
It works fine for other boards, so I assume it wasn't built with so many lists+cards in mind. But the fact it, it can be slow, almost unusable, at least for certain use cases.
It works fine for other boards, so I assume it wasn't built with so many lists+cards in mind. But the fact it, it can be slow, almost unusable, at least for certain use cases.
Do you have any data to back that up? I rarely hear people saying Trello slow, usually the opposite.
I'm with you, Trello was super slow for some larger projects that I used it with. I posted this in my own comment, but it makes sense here, too [1]. Not sure if the performance problems were related to the backend stack, though. My impression is that the api was just written really inefficiently.
[1]: https://blog.fogcreek.com/we-spent-a-week-making-trello-boar...
[1]: https://blog.fogcreek.com/we-spent-a-week-making-trello-boar...
Anecdotally, Trello is the most performant large scale web app I use.
From a user experience perspective it is freaky fast at updating other clients.
From a user experience perspective it is freaky fast at updating other clients.
Interesting, but I can't help thinking that this was fairly obvious, am I the only one? It already blows my mind that it is that big already. The app is a todo list with several columns. Todo lists don't make billion dollar businesses... and yeah, SMBs are fine with actual post-its!
Kanban boards have existed since the 50s. The "magic" of trello was the instant updates. It was a perfect example of software eating the world.
The trello UI is also great. If you don't need the back-end features of something like Jira, trello's limited functionality greatly reduced the friction to tracking your activities.
Their API is outstanding as well.
You can talk to it from just about everywhere including the terminal, that's a big reason I use it, it acts as a clearing house for all my stuff, I even use a chrome plugin to store "bookmarks" to stuff I've clipped.
You can talk to it from just about everywhere including the terminal, that's a big reason I use it, it acts as a clearing house for all my stuff, I even use a chrome plugin to store "bookmarks" to stuff I've clipped.
That they were bought by Atlassian fills me with dread because of precedents set by their other products. I use Trello (and pay for it) exactly because I don't want anything like Jira.
Hopefully they are smart enough to keep the products differentiated. Otherwise, a Trello clone will surely arise.
There is at least one, but I don't know whether it's any good. I'm a bit tempted to write one, partially because I have a thing about self hosting my data, but also because I love the overall idea and design of Trello, but I'd love it to be more extensible/flexible/hackable.
E.g. being able to make layout changes(have lists that span columns for example, or cards that show more of their information on the cover). Or more flexibility in colour changes/background, or ability to style cards.
E.g. being able to make layout changes(have lists that span columns for example, or cards that show more of their information on the cover). Or more flexibility in colour changes/background, or ability to style cards.
Checkout selfhosted.reddit.com there are a lot of self hosted Trello clones already
I'm not surprised... Thanks for the suggestion.
> Todo lists don't make billion dollar businesses
That's the domain of photo sharing apps.
That's the domain of photo sharing apps.
> SMBs are fine with actual post-its!
I've tried many things (including Trello) and even bought a dedicated laser printer and wrote a small shell routine so I could print 3x5 cards to keep on my physical desk. By force of habit and ease of use nothing so far has topped post it notes (other than printed 3x5s or hand written 3x5's) for keeping track of things that I need to keep on top of.
I've tried many things (including Trello) and even bought a dedicated laser printer and wrote a small shell routine so I could print 3x5 cards to keep on my physical desk. By force of habit and ease of use nothing so far has topped post it notes (other than printed 3x5s or hand written 3x5's) for keeping track of things that I need to keep on top of.
Have you tried http://www.hyperplan.com? It is a rather different take on post-it note planning and desktop-based.
Took a look. But honestly I think the biggest issue I have is that I have literally hundreds of things that I need to do and nowhere near enough time to do most of them. So making lists and moving etc. just doesn't work for me. Hence the most important things are on my mind and those things get the special 'desktop' (physical) treatment. I kind of suspect that I am not alone here. Might be because I handle a wide array of tasks which are hard to prioritize by a scheduling system which just allows you to organize that isn't the issue the way I work.
Masonry is nice and all, but like a lot of taskplan implementations it suffers from signal overload. Rows, columns, color coding, icon/sticker coding, text...
The idea of pricing a product like Trello should be taxing the added value it creates. What can indicate added value in Trello? Not emoji stickers, for sure. It's the number of cards and lists. If a user creates many cards/lists s/he clearly sees added value of the product. Trello should've limited the number of lists or cards in the free edition and charge a fee for an unlimited edition. Those users who don't see much value in Trello won't use many lists/cards anyway.
We've been using Trello as the main tool for project/product management for years and quite happy with it. I would gladly pay a reasonable monthly fee for it, but they didn't even try to charge me. I feel like it could've been a bigger business.
We've been using Trello as the main tool for project/product management for years and quite happy with it. I would gladly pay a reasonable monthly fee for it, but they didn't even try to charge me. I feel like it could've been a bigger business.
The integrations/powerups are an easy sell for me. Especially github integration.
While we're talking counterfactuals, how about the scenario where Trello chased that $1B dream, lost focus on what users liked about the product and ended up as an acqui-hire.
Which, I'll point out, is an extremely common scenario. The guys behind Trello stuck to their vision of the product and made an obscene amount of money. Good for them.
Which, I'll point out, is an extremely common scenario. The guys behind Trello stuck to their vision of the product and made an obscene amount of money. Good for them.
I wish the author of such posts would start with a disclaimer about whether or not they have ever built a "$1B+ business". I did some quick searches, and it looks like the author in this case has tried several times (but I guess not yet come close).
It would be more interest to read too, why 'I' failed to make a $1B+ business might have some useful lessons in it, whereas whether Trello failed at anything at all depends to a high degree on what they were trying to accomplish. By any measure (except, perhaps the author's) Trello is a huge success.
Not a billion dollar business yet != failed to build a billion dollar business.
How do you keep scaling the revenue? Get bigger customers. Where do you get those big deep-pockets customers? The enterprise. How do you sell to big enterprise? With a big enterprise salesforce.
Ok. With that, you can either build your own enterprise sales machine (which takes years), or you can sell out to someone who already has one. Like, say, Atlassian.
How do you keep scaling the revenue? Get bigger customers. Where do you get those big deep-pockets customers? The enterprise. How do you sell to big enterprise? With a big enterprise salesforce.
Ok. With that, you can either build your own enterprise sales machine (which takes years), or you can sell out to someone who already has one. Like, say, Atlassian.
There are plenty of companies who have scaled their revenue beyond this point without an enterprise salesforce - Trello's acquirer is one of them
Its not a hard rule that to reach beyond $x you need to become an enterprise
Its not a hard rule that to reach beyond $x you need to become an enterprise
Atlassian didn't become a billion dollar company without an enterprise sales force. They just built one. Being acquired is definitely a shorter path.
Google had no enterprise sales for a decade. They did fine.
Completely different business model. Atlassian and Trello are much more similar. Google was selling ads, not software.
Trello and Google are SaaS, they sell a service, not software.
They made it so that one could register easily and use the service quickly, without special training or any setup. That's how you grab tons of free users.
Atlassian is mostly shrink-wrap entreprisey software. They software with expensive licenses that also require extensive installation and maintenance by the client. They need a sale force.
They made it so that one could register easily and use the service quickly, without special training or any setup. That's how you grab tons of free users.
Atlassian is mostly shrink-wrap entreprisey software. They software with expensive licenses that also require extensive installation and maintenance by the client. They need a sale force.
That "no training or setup, tons of free users" model? You can't sell into the enterprise like that. And Trello can be very useful in the enterprise - into an environment that doesn't really think twice about paying $1000/year/user. Enterprise is a far more lucrative market than freemium. And if you need to keep doubling your revenue on a regular basis, that's how you get it.
Don't let the SaaS thing fool you about sales. Salesforce is SaaS too, but they're a lot more like Atlassian than Google, business-wise.
Don't let the SaaS thing fool you about sales. Salesforce is SaaS too, but they're a lot more like Atlassian than Google, business-wise.
> They software with expensive licenses that also require extensive installation and maintenance by the client.
They also host the software. Do you know if the majority of their revenue comes from the self-hosted customers?
They also host the software. Do you know if the majority of their revenue comes from the self-hosted customers?
I mean, I get what the guy is saying, but look at the text vs subtext here:
text is "here is advice to take a burgeoning company to the stratosphere" But honestly, how many people in that position are going to read this blog post? 3? 10? If this was his true intention, he would have packaged this as some kind of super premium offering that only well-connected VCs could read or something.
subtext: "I'm really smart about what takes a company from success to HUUGE SUCCESS." Is this guy trying to gain a rep in VC circles as a CEO of late stage startups or something? What's his angle?
text is "here is advice to take a burgeoning company to the stratosphere" But honestly, how many people in that position are going to read this blog post? 3? 10? If this was his true intention, he would have packaged this as some kind of super premium offering that only well-connected VCs could read or something.
subtext: "I'm really smart about what takes a company from success to HUUGE SUCCESS." Is this guy trying to gain a rep in VC circles as a CEO of late stage startups or something? What's his angle?
It feels like Trello was a HUUGE SUCCESS. Todo lists are notoriously hard, and target a very thin demographic; people who are trying to plan and track progress, i.e. middle managers or OCD contributors.
Reaching $N million instead of $2.4N million, where N > 200 doesn't really feel like an obvious shortfall.
Reaching $N million instead of $2.4N million, where N > 200 doesn't really feel like an obvious shortfall.
I agree with you, and others in this thread have lauded Trello's success. But the author of the page is angling for another interpretation, and I'm trying to figure out what he hopes to get out of it.
What do you think that interpretation is?
Half a billion here, half a billion there, soon you're talking about real money.
"Because it's a todo app" is an obvious response to the title but the content is interesting.
Trello Gold with emoji support and custom backgrounds was a weak proposition and they could have moved into enterprise faster. Still, it's amazing they did as well as they did.
Kanban boards and Chat apps are the new todo lists - ten a penny - which makes people dismiss the notion of building a business around such a trivial feature.
This is a mistake. Most of those apps are badly designed, meaning for those looking to eke out a living rather than break $1 billion, there's still plenty of opportunities.
For example, Diigo the highlighting app is relatively unknown but is a hit with educators and so makes cash in a corner where few competitors are looking. The top stopwatch on The Play Store makes over $400,000 with in-app sales.
And Wunderlist sold for $125 million. And Todoist is profitable.
It's a big Internet out there.
Trello Gold with emoji support and custom backgrounds was a weak proposition and they could have moved into enterprise faster. Still, it's amazing they did as well as they did.
Kanban boards and Chat apps are the new todo lists - ten a penny - which makes people dismiss the notion of building a business around such a trivial feature.
This is a mistake. Most of those apps are badly designed, meaning for those looking to eke out a living rather than break $1 billion, there's still plenty of opportunities.
For example, Diigo the highlighting app is relatively unknown but is a hit with educators and so makes cash in a corner where few competitors are looking. The top stopwatch on The Play Store makes over $400,000 with in-app sales.
And Wunderlist sold for $125 million. And Todoist is profitable.
It's a big Internet out there.
This article should be titled how an MBA could have ruined a wonderful product. There is absolutely no way to maintain a useful horizontal product - which is what Trello is, and what makes it so great - and to simultaneously build a deep vertical product targeted at the enterprise. That is an entirely different thing (which Atlassian has already built and it's called Jira...and it's a rabbit hole of complexity out of the necessity to serve enterprise customers.)
You know I started this thinking it was idiotic, based on the headline, and it's actually quite interesting. I think it's totally the wrong way to look at the Universe, but it's rational and well articulated.
"Failed"? Seriously?
Isn't selling a Kanban board for half a billion dollars amazing enough?
Isn't selling a Kanban board for half a billion dollars amazing enough?
Besides all the comments about his article being from a bizarro-world, it should be noted that once Trello infrastructure was in place it was impossible to move it.
Turning a todo-list app into "the single-source of truth for a company" would require monstruous schema changes and changes in all the live updates thing etc., and everything would be slower, heavier etc., all that and you couldn't have known if that would catch up or if you would end up losing your users that liked Trello just because it was a simple board thing. It would be better to start a new app.
Turning a todo-list app into "the single-source of truth for a company" would require monstruous schema changes and changes in all the live updates thing etc., and everything would be slower, heavier etc., all that and you couldn't have known if that would catch up or if you would end up losing your users that liked Trello just because it was a simple board thing. It would be better to start a new app.
did you work on trello, or is this speculation?
When did $425m exit turn out to be a failure?
I suppose the author built several multi billion dollar businesses?
By any metric, Trello is a huge success.
I suppose the author built several multi billion dollar businesses?
By any metric, Trello is a huge success.
$450M... for a todo list. #perspective
Seemingly simple things done well and actually used can be extremely valuable.
That's the point. The marginal value for each person isn't that large even when you account for the collaboration features. But when you build a product that can be everyone's todo list incredibly cheaply the value starts to accumulate.
I mean Heinz sells bottled tomato paste. If pressed, it's probably isn't worth that much to each individual, but they're successful because it's cheap, available everywhere, of sufficient quality, and consistent.
I mean Heinz sells bottled tomato paste. If pressed, it's probably isn't worth that much to each individual, but they're successful because it's cheap, available everywhere, of sufficient quality, and consistent.
Immediate thought, unchanged by the content of the article: how many people (a) know how to build a billion-dollar business, and (b) how to distill the "failure" to reach the billion-dollar mark into simple talking points? Something that big has so many moving parts and intangibles, I'd imagine a rigorous analysis would be very difficult.
Because it is a trivial todo app?
A couple of months ago there was another article about Trello here on HN that basically held Trello up as a model of disruptive success:
https://news.ycombinator.com/item?id=13485462
https://news.ycombinator.com/item?id=13485462
I LOVE Trello and was an early adopter. At one of my companies I even hacked together some mission critical tools (KPI-related) that depended on Trello as a front-end, with the reporting generated on a custom Rails backend.
When I moved to an "enterprise" company, I wanted to bring Trello with me, but was immediately told NO because 1) we were already using JIRA and Asana, and a third option was not desired and 2) Trello is (was) not "enterprise-grade" meaning they didn't have sufficient security vetting or centralized user provisioning (and more importantly--deprovisioning.) It was demoralizing and stupid. RIP Trello.
When I moved to an "enterprise" company, I wanted to bring Trello with me, but was immediately told NO because 1) we were already using JIRA and Asana, and a third option was not desired and 2) Trello is (was) not "enterprise-grade" meaning they didn't have sufficient security vetting or centralized user provisioning (and more importantly--deprovisioning.) It was demoralizing and stupid. RIP Trello.
I love Trello, but they never got enterprise sales down. SSO isn't federated, and the ACL system is leaky (much like Google Drive).
It also is too religiously adherent to the card metaphor (understandable) which works in most contexts but falls down in others where more traditional tools (Jira, Github) shine. We use Trello for a ton, but not mainline work.
I use it as a contact manager, todo list manager, and we use it a lot for card sorting/brainstorming and more "people" type stuff.
It also is too religiously adherent to the card metaphor (understandable) which works in most contexts but falls down in others where more traditional tools (Jira, Github) shine. We use Trello for a ton, but not mainline work.
I use it as a contact manager, todo list manager, and we use it a lot for card sorting/brainstorming and more "people" type stuff.
I love Trello and used it a lot (before we moved on to something different and easier to understand for most people). However, even when it was important to our business and we had around 12 users (I know, still relatively small) using it, we never once felt and pressure to pay for the product.
Trello didn't build a $1B business because they never forced anyone to pay for their product, even when they were extracting significant value from the platform.
Trello didn't build a $1B business because they never forced anyone to pay for their product, even when they were extracting significant value from the platform.
What did you use after trello?
I definitely don't remember all of the cards loading in ~250ms. Maybe like 7 seconds [1]?
Either way, failing to hit $1bn doesnt sound like much of a failure where I live outside the Valley. $400 some million is pretty respectable.
[1]: https://blog.fogcreek.com/we-spent-a-week-making-trello-boar...
Either way, failing to hit $1bn doesnt sound like much of a failure where I live outside the Valley. $400 some million is pretty respectable.
[1]: https://blog.fogcreek.com/we-spent-a-week-making-trello-boar...
I think one of the most obvious and glaring reasons is also one of the simplest - my company uses Trello a fair bit, we have a lot of teams on it, tracking a lot of stuff. And we've never once paid a dime for it. Never even been asked to pay for it. Brought us plenty of value, would have paid, but we never hit a threshold where that was a thing. I don't even know where that threshold is or if there is one.
Counterfactual history can be fun but it's highly speculative. That's true even for well studied historical events - it's even more true for something opaque like a private company's growth. What were Trello's main customer acquisition channels? Without knowing that how can you hope to derive an alternative history?
So, this is how you make it to the top of HN, with an outlandish clickbait-y claim. Good to know.
Initial question that set me off upon reading the article is this: Was Trello actually aiming to get $1B off of it? I know more money makes sense for them and their investors, but the amount it already sold for is astounding to say the least.
Almost everyone in the world failed at building a $1B business.
This is hilarious. Only in the bizarre world we live in could a half billion sale be spun out into a failure to get a billion. Would a billion have satisfied the author or would it have then needed to be two?
>Only in the bizarre world we live in could a half billion sale be spun out into a failure to get a billion.
I can't speak for the author but selling Trello "for only $425m" is a failed outcome if the growth expectations was for it to become a massive $1 billion business.
How do we know that? Because Trello took $10 million in VC money in 2014.[1] So we can just work backward from the $1 billion goal using basic math:
VC firm Index Ventures buys 25% ownership of Trello for $10 million.[2] They manage several funds and I don't know which one they used to write that $10 million check but let's assume the money came from the 6th Fund of $442 million they raised in 2012.[3]
Over the 10-year life of that fund, they basically need to grow that $442 million into ~$3 billion. Since most startups in the fund will turn out to be money losers, they need at least one of their investments in the portfolio to become a $1 billion+ company. And keep in mind they only own 25% which means that even if Trello sold for $1 billion, they'd only cash out their position for $250 million. For Index Ventures to get to ~$3 billion, they need one or a tiny handful of winners from their portfolio to return ~$10 billion! (Assuming they take ~25% ownership in each startup and therefore cash out at ~2.5 billion.)
Yes, IndexVentures still gets ~$106 million (25% of $425m) from the sale to Atlassian but as you can see from the math above, $106m hardly moves the needle toward ~$3 billion. That's a $10 million opportunity cost that they could have put into a different company in 2014.
So, if you're a financial analyst, or one of the Limted Partners in IndexVentures fund, or possibly even J Spolsky, the failure to reach $1+ billion is indeed a "failure."
tldr: because of algebra, if a VC invests in a company, that means they expect the startup to reach a multi-billion market cap.
[1] https://www.crunchbase.com/organization/trello#/entity
[2] https://www.quora.com/At-what-valuation-did-Trello-raise-10M...
[3] http://vator.tv/news/2012-06-17-index-ventures-raises-442m-e...
I can't speak for the author but selling Trello "for only $425m" is a failed outcome if the growth expectations was for it to become a massive $1 billion business.
How do we know that? Because Trello took $10 million in VC money in 2014.[1] So we can just work backward from the $1 billion goal using basic math:
VC firm Index Ventures buys 25% ownership of Trello for $10 million.[2] They manage several funds and I don't know which one they used to write that $10 million check but let's assume the money came from the 6th Fund of $442 million they raised in 2012.[3]
Over the 10-year life of that fund, they basically need to grow that $442 million into ~$3 billion. Since most startups in the fund will turn out to be money losers, they need at least one of their investments in the portfolio to become a $1 billion+ company. And keep in mind they only own 25% which means that even if Trello sold for $1 billion, they'd only cash out their position for $250 million. For Index Ventures to get to ~$3 billion, they need one or a tiny handful of winners from their portfolio to return ~$10 billion! (Assuming they take ~25% ownership in each startup and therefore cash out at ~2.5 billion.)
Yes, IndexVentures still gets ~$106 million (25% of $425m) from the sale to Atlassian but as you can see from the math above, $106m hardly moves the needle toward ~$3 billion. That's a $10 million opportunity cost that they could have put into a different company in 2014.
So, if you're a financial analyst, or one of the Limted Partners in IndexVentures fund, or possibly even J Spolsky, the failure to reach $1+ billion is indeed a "failure."
tldr: because of algebra, if a VC invests in a company, that means they expect the startup to reach a multi-billion market cap.
[1] https://www.crunchbase.com/organization/trello#/entity
[2] https://www.quora.com/At-what-valuation-did-Trello-raise-10M...
[3] http://vator.tv/news/2012-06-17-index-ventures-raises-442m-e...
That's only a failure on the VC overall fund level, not the company or investor level. That investment is not a failure, even if the fund is. If most the investments are money losers, but this one "only" paid out %1000, it's still contributing towards making the fund pay out, even if it's not doing well enough to account for the losing investments. You wouldn't classify a stock that tripled in price over a few years as a failure, even if overall your portfolio was a failure, and this is the same thing.
>That's only a failure on the VC overall fund level, not the company or investor level. That investment is not a failure, even if the fund is.
I put that last "failure" in scare quotes to soften the label a bit because in many ways, Trello is a success.
Nevertheless, the VC will frame it as a "failure" or "suboptimal outcome" because they use the framework of "opportunity cost" which means they missed the other startups they could have invested that 10 million in.
If the VC knows ahead of time that investing $10m startup in will return just 1000% in 2 years, they'd rather ignore Trello and find "another Facebook" that can return 20000%+[1]
[1] https://techcrunch.com/2010/11/22/accel-partners-fund-ix-fac...
I put that last "failure" in scare quotes to soften the label a bit because in many ways, Trello is a success.
Nevertheless, the VC will frame it as a "failure" or "suboptimal outcome" because they use the framework of "opportunity cost" which means they missed the other startups they could have invested that 10 million in.
If the VC knows ahead of time that investing $10m startup in will return just 1000% in 2 years, they'd rather ignore Trello and find "another Facebook" that can return 20000%+[1]
[1] https://techcrunch.com/2010/11/22/accel-partners-fund-ix-fac...
> Nevertheless, the VC will frame it as a "failure" or "suboptimal outcome"
Sure, but that's in the context of the fund, not the company. It's meant to be consumed by people dealing with the fund in some way.
> If the VC knows ahead of time that investing $10m startup in will return just 1000% in 2 years, they'd rather ignore Trello and find "another Facebook" that can return 20000%+
No, any fund that knows they will get a 1000% return will definitely invest. The assumption will be that those dollars would have gone to one of the bad investments, because since the vast majority of dollars do, they're likely right. That investment will help the fund, because it doesn't it can be one large return, or a few slightly less large but still great returns. Not every fund that makes money does so because of a single great investment.
Sure, but that's in the context of the fund, not the company. It's meant to be consumed by people dealing with the fund in some way.
> If the VC knows ahead of time that investing $10m startup in will return just 1000% in 2 years, they'd rather ignore Trello and find "another Facebook" that can return 20000%+
No, any fund that knows they will get a 1000% return will definitely invest. The assumption will be that those dollars would have gone to one of the bad investments, because since the vast majority of dollars do, they're likely right. That investment will help the fund, because it doesn't it can be one large return, or a few slightly less large but still great returns. Not every fund that makes money does so because of a single great investment.
This is regrettably out to lunch, my friend. A 10x return (and a nine-figure absolute return) in two years is "failure" all around?
Only in the waning days of a market top would such an assertion (that such a return is a "failure" to anyone involved) even have a frisson of plausibility.
Also, most of your numbers & ratios are order-of-magnitude right, but as they say, "horseshoes and hand grenades." A $442 M fund size is big enough that returning even a 3x-4x overall, with any consistency, would be downright virtuosic. So, no, they don't need to return $3B or 6-7x the entire fund to be successful (nor do they or their LPs have any realistic expectation of doing so).
The long game, as always, is to try to have just ONE Google in your portfolio (the 400x+). But the short and mid games dominate, and they are about staying alive long enough to have enough at-bats to hit that grand slam. And the absolute, bar-none best way to stay alive that long, is to consistently make money for your investors.
Finally, the ex ante assumptions and hopes and dreams are not really the way to judge the decision to sell Trello. That decision must be judged on facts in hand at the time. And frankly, at that time, Trello was a leading Kanban app, with no obvious or de-risked path toward a 10x or 100x from where they were.
TL;DR: Nobody actually in that game is pooh-poohing a 9-figure exit for 10x in 2 years with a straight face.
Only in the waning days of a market top would such an assertion (that such a return is a "failure" to anyone involved) even have a frisson of plausibility.
Also, most of your numbers & ratios are order-of-magnitude right, but as they say, "horseshoes and hand grenades." A $442 M fund size is big enough that returning even a 3x-4x overall, with any consistency, would be downright virtuosic. So, no, they don't need to return $3B or 6-7x the entire fund to be successful (nor do they or their LPs have any realistic expectation of doing so).
The long game, as always, is to try to have just ONE Google in your portfolio (the 400x+). But the short and mid games dominate, and they are about staying alive long enough to have enough at-bats to hit that grand slam. And the absolute, bar-none best way to stay alive that long, is to consistently make money for your investors.
Finally, the ex ante assumptions and hopes and dreams are not really the way to judge the decision to sell Trello. That decision must be judged on facts in hand at the time. And frankly, at that time, Trello was a leading Kanban app, with no obvious or de-risked path toward a 10x or 100x from where they were.
TL;DR: Nobody actually in that game is pooh-poohing a 9-figure exit for 10x in 2 years with a straight face.
>is "failure" all around?
It's definitely not failure all around.
>A $442 M fund size is big enough that returning even a 3x-4x overall, with any consistency, would be downright virtuosic.
A 3x return is 11.6%/year which isn't much more than Warren Buffet's Berkshire Hathaway (9.6% last time I checked) -- given the increased risk of VC funds. BH stock also doesn't have overhead of 2/20 fees. Every institutional investor is different but many would look at safer investments if they are targeting ~11%.
If Sequoia, USV, etc are consistently returning 20+%, that's what the competitive levels among top VCs look like. Maybe it's unreasonable for LP's to expect returns like that from a VC fund but they do.
It's definitely not failure all around.
>A $442 M fund size is big enough that returning even a 3x-4x overall, with any consistency, would be downright virtuosic.
A 3x return is 11.6%/year which isn't much more than Warren Buffet's Berkshire Hathaway (9.6% last time I checked) -- given the increased risk of VC funds. BH stock also doesn't have overhead of 2/20 fees. Every institutional investor is different but many would look at safer investments if they are targeting ~11%.
If Sequoia, USV, etc are consistently returning 20+%, that's what the competitive levels among top VCs look like. Maybe it's unreasonable for LP's to expect returns like that from a VC fund but they do.
Personally I doubt most VCs provide better returns than Buffett, in fact as a class I'd be surprised if they are significantly better than the stock market. But their model is that they need 10x return investments to pay for all the 0x return investments they make. A 3x return is viewed as a disappointment from that perspective.
You're confusing the fund level return with individual portfolio companies. This entire thread has been premised on the idea of getting a 10x on an individual investment. The instant matter of a 3x is a 3x at the fund level, which I'm trying to say is no slouch, and if it's consistent would generally be considered outperformance.
11.6% a year for 10 years compounds out to 3x. If it was 10 years to 4x, that would be 15%. Which would be a very respectable risk premium over BH, the greatest publicly-traded large hedge fund/conglomerate of all time.
But, the "percent" returns, as opposed to cash-on-cash, aren't actually calculated that way. Most funds eventually call something close-ish to 100% of capital (1.0x paid-in), so you can meaningfully-ish talk about the "times money" on the entire fund. But it doesn't work for "percent" returns, which are necessarily annualized.
Funds call capital over time, not all at once. They also pay back distributions as they become liquid, not all at the end. Investors measure this with IRR, taking into account the timing and magnitudes of the cash flows. So a fund that posts up a 4x "times money" within ~ 10 years is going to have a substantially better IRR than 15%.
WRT LP expectations: institutional investors aren't just weighing VC against "safer investments." They look at long-term historical data about different asset classes, project out their best opinions about likely risk and return AND correlations among classes, and make a top-down decision about where to allocate. Then, within each bucket, they try to select a group of managers who can meet (or ideally safely beat) those assumptions. (If rather small, they may delegate this to a fund-of-funds; if rather large, they may further differentiate into various stages or strategies of venture, and the process is more or less fractal.)
Partly we may be talking past each other because "expect" here could mean various things. One thing that's clear is no major LP / institution is going to be invested only in one VC firm or only one vintage year. They think about these things in aggregate and over time.
If by "expect" you mean, "in aggregate and over time, some LPs project 20% IRR for the venture asset class (subject to a very high, like say 25%+ std dev)" I think that's very fair and you'd be right.
But if by "expect" you mean "LPs look at each venture investment and rely on it to consistently return 20% IRR, or that will have been deemed a failure" then you're not giving them enough credit.
#1 driver of venture performance: fund vintage year.
#2 driver of venture performance: manager persistence (manager skill/alpha).
But to bubble back up to the higher level: LPs who see 10x, 9-figure exits in 2 years coming out of the portfolio of a ~$400M fund are not going to say "why not $3B?" They are going to understand that it's a rare fund in a rare vintage year that is going to return 7x+ on the whole fund, and they are going to be exceedingly happy if the "off years" consistently return 3x.
But, the "percent" returns, as opposed to cash-on-cash, aren't actually calculated that way. Most funds eventually call something close-ish to 100% of capital (1.0x paid-in), so you can meaningfully-ish talk about the "times money" on the entire fund. But it doesn't work for "percent" returns, which are necessarily annualized.
Funds call capital over time, not all at once. They also pay back distributions as they become liquid, not all at the end. Investors measure this with IRR, taking into account the timing and magnitudes of the cash flows. So a fund that posts up a 4x "times money" within ~ 10 years is going to have a substantially better IRR than 15%.
WRT LP expectations: institutional investors aren't just weighing VC against "safer investments." They look at long-term historical data about different asset classes, project out their best opinions about likely risk and return AND correlations among classes, and make a top-down decision about where to allocate. Then, within each bucket, they try to select a group of managers who can meet (or ideally safely beat) those assumptions. (If rather small, they may delegate this to a fund-of-funds; if rather large, they may further differentiate into various stages or strategies of venture, and the process is more or less fractal.)
Partly we may be talking past each other because "expect" here could mean various things. One thing that's clear is no major LP / institution is going to be invested only in one VC firm or only one vintage year. They think about these things in aggregate and over time.
If by "expect" you mean, "in aggregate and over time, some LPs project 20% IRR for the venture asset class (subject to a very high, like say 25%+ std dev)" I think that's very fair and you'd be right.
But if by "expect" you mean "LPs look at each venture investment and rely on it to consistently return 20% IRR, or that will have been deemed a failure" then you're not giving them enough credit.
#1 driver of venture performance: fund vintage year.
#2 driver of venture performance: manager persistence (manager skill/alpha).
But to bubble back up to the higher level: LPs who see 10x, 9-figure exits in 2 years coming out of the portfolio of a ~$400M fund are not going to say "why not $3B?" They are going to understand that it's a rare fund in a rare vintage year that is going to return 7x+ on the whole fund, and they are going to be exceedingly happy if the "off years" consistently return 3x.
So some VCs didn't get the crazy high returns they thought they would. So what? Calling Trello a failed outcome is still crazy.
There are far, far more metrics, and I'd say far more important metrics to decide whether a company is a success than the amount of VC returns.
There are far, far more metrics, and I'd say far more important metrics to decide whether a company is a success than the amount of VC returns.
>Calling Trello a failed outcome is still crazy.
Please read my previous comment charitably as I deliberately wrote about Trello using the "investment perspective" for discussion purposes only. It wasn't rendering absolutist judgement that Trello was a failed company.
>So some VCs didn't get the crazy high returns
That's only looking at one side. The other side is J Spolsky who accepted the $10m. To do that, he had to believe Trello would grow beyond $1 billion and convince outside investors of that same vision. If a founder makes a decision to accept VC money, he has redefined the threshold of what success/failure will be. The math makes that unavoidable.
Please read my previous comment charitably as I deliberately wrote about Trello using the "investment perspective" for discussion purposes only. It wasn't rendering absolutist judgement that Trello was a failed company.
>So some VCs didn't get the crazy high returns
That's only looking at one side. The other side is J Spolsky who accepted the $10m. To do that, he had to believe Trello would grow beyond $1 billion and convince outside investors of that same vision. If a founder makes a decision to accept VC money, he has redefined the threshold of what success/failure will be. The math makes that unavoidable.
What is the basis for a $10M investment implying a $1B expectation?
I cannot agree with that. Taking $10m does not mean you plan on growing into a $1B business. I also disagree with the idea that we have to focus on the "investment perspective". The VCs made money. I can't care less that they didn't make as much as they wanted to.
My understanding is that a 10x return is what most vcs consider successful. At the very least, this investment had a major positive attribution in their port returns and they likely list it in their materials to LPs as a success.
Your argument doesn't hold up. As you point out, most startups in the fund will turn out to be money losers. It therefore doesn't make sense to consider the opportunity cost of the $10m investment vs. only the unicorns but vs. the average return. An investment that returns more than the fund's overall target return is a winner. The opportunity cost is an investment in another company that will probably lose money, not a guaranteed unicorn.
How do you get that they need to grow to 3 billion based on raising 442 million? At an annual return of 10 percent they would need to hit 1150 over ten years.
Hitting 3 billion over ten years means getting more than 20 percent growth year on year ten years in a row...
Hitting 3 billion over ten years means getting more than 20 percent growth year on year ten years in a row...
>Hitting 3 billion over ten years means getting more than 20 percent growth year on year ten years in a row...
Exactly! When Harvard University invests some of their endowment in a Sequoia VC fund, they are expecting returns better than 20%!
To compare, here's my previous comment about USV's 22%+ returns: https://news.ycombinator.com/item?id=12678009
Exactly! When Harvard University invests some of their endowment in a Sequoia VC fund, they are expecting returns better than 20%!
To compare, here's my previous comment about USV's 22%+ returns: https://news.ycombinator.com/item?id=12678009
His next article - "Why Google failed to build a $1T+ business"
In fairness to the author there is this text in the conclusion:
> Hindsight, of course, is 20/20. While I’ve spent most of this post talking about Trello’s missed opportunity, we shouldn’t forget that building a SaaS business that’s worth over $10M, let alone one that’s worth $425M, is a huge accomplishment.
Ignoring the ROI question for Trello investors/employees, I think it's fair to portray Trello as a "failure" if the goal is to build a large self-sustaining independent business, especially if it's true that they "had to sell" rather than stay independent.
> Hindsight, of course, is 20/20. While I’ve spent most of this post talking about Trello’s missed opportunity, we shouldn’t forget that building a SaaS business that’s worth over $10M, let alone one that’s worth $425M, is a huge accomplishment.
Ignoring the ROI question for Trello investors/employees, I think it's fair to portray Trello as a "failure" if the goal is to build a large self-sustaining independent business, especially if it's true that they "had to sell" rather than stay independent.
The flip side is that if you regard them as having built "a feature not a product" (as discussed in the article) and having started at a time when developing real-time shared card dragging/dropping was a relatively technically difficult problem and since been copied by every competing service and plenty of OS library demos, a $425m exit is seriously impressive...
It's all about the commas.
tres commas :)
Never mind they would use dots to indicate thousands in Latin America
Ah yes, my favourite tequila ;)
You make it sound like just a tech-press delusion. VCs invest in businesses because they want them to grow big; they don't invest in lifestyle businesses. This is a systemic thing, don't portray it as a fever dream of some far-gone tech writer.
"Why Trello Failed to Build a $1B+ Business" != "Why Trello Failed"
Unicorns are so 2016. It's all about the decacorns now
IMHO you're missing the point. Sure many of us want to get rich, but probably more of us want to built a profitable, sticky long-term business. The article makes it clear that they didn't succeed as well as they could've in building a business. Getting somebody to buy you doesn't mean you created a business. The benchmarking of business achievement gets even murkier considering the notoriety of Trello's CEO, Joel Spolsky. It's the same issue as with Path's $100M or Slide's $200M exits, which also featured prominent CEO's with products of dubious business value.
RE: Trello, e.g., see the part in the post about "Trello's value proposition". Their $5/month Gold plan was really poorly thought out. Many other areas, again as articulated in the article, we're also not well thought out in terms of building a sustainable, profitable business. Signups != locked in, paying, happy customers.
> The 2013 blog post that announced the launch of Trello Gold highlighted three main reasons users should pay $5/month for Trello:
> Customizable board backgrounds
> 250-megabyte attachments for each card in Trello (vs. 10 megabytes on the free plan)
> Stickers and custom emoji
RE: Trello, e.g., see the part in the post about "Trello's value proposition". Their $5/month Gold plan was really poorly thought out. Many other areas, again as articulated in the article, we're also not well thought out in terms of building a sustainable, profitable business. Signups != locked in, paying, happy customers.
> The 2013 blog post that announced the launch of Trello Gold highlighted three main reasons users should pay $5/month for Trello:
> Customizable board backgrounds
> 250-megabyte attachments for each card in Trello (vs. 10 megabytes on the free plan)
> Stickers and custom emoji
This is basically clickbait. Pretty much all the comments have the same sentiment: $425M is a lot of money.
I look forward to the followup article: Why Trello Failed to Build a $1T+ Business.
"Why Star Wars is a terrible documentary."
425M is a crime. Trello is a magnificent feature. It is a weekend project and should have been open sourced.
Why? It's an enterprise software development tool without the ability to run it locally within the enterprise. Companies don't want to put corporate IP on remote servers as much as possible without very tight data protection guarantees. Trello didn't offer either one so many companies that could have benefited from Trello (and knew it) couldn't use it.
In fact, at some point, users started to get anxious that Trello was free and actually WANTED to throw money at the company. I suppose part of that was the perception that if you're paying for it, it will be more likely to survive and won't go away? This was what spurred Trello to create an offering of something (via Trello Gold) - simply so people could pay for something they liked and feel good about themselves, and get something in return.
Actually, I don't know this for sure, but I think they genuinely built Trello because it was a tool that they really felt should exist, and wanted to make it work as inexpensively as they could and support as many as they could, while staying permanently free. I think Trello was an experiment for them, one which succeeded at gaining the huge userbase with a simple tool (which I believe was their goal).
Once the realization that the huge userbase itself was valuable, it was inevitable that someone would buy it out. Atlassian wanted to be associated with that huge userbase, to help with Jira... maybe or maybe not to actually bring Trello into the fold with their existing products.
In any case, Trello is a huge accomplishment, before the buyout, and as a business, even moreso afterwards. I was thinking about building (and actually working on) something like Trello before it existed, but I didn't necessarily think the world needed something so simple. I would have been quite happy with this result!!! They made an absolute ton of users (self included) very happy with the results of their labor, and now they have a wonderful reward from it.
Trello did not fail to build a $1B+ business. Trello succeeded at building a $425M business through good faith and hard work. Bravo.