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In 1999 Andrew Roberts founded Ephox as a software company to help people create and update websites on their own. The company was way ahead of its time, and two decades later, the rebranded firm, Tiny (more on that name change in a bit), would be acquired for 10X its original invested capital.
Humble Beginnings
Andrew bootstrapped Ephox in the beginning with some angel investment as well as money from his father and a friend of his father. They ended up focusing on simply creating the editor portion for websites, and that editor technology would get licensed.
Early on Ephox secured a good relationship with IBM, which ensured stable income, but they didn’t really have a good go-to-market strategy. Another firm in the marketplace didn’t have a big whale client like IBM, but did have a good position in the marketplace. That firm was TinyMCE, who had managed to capture clients like WordPress and Atlassian already.
Move to Open Source and VC
Andrew saw synergies between the two firms and in 2015 Ephox acquired TinyMCE and would go on to rebrand as Tiny with a focus on a freemium model, i.e. the base software would be free, but premium add-ons cost more, as did support. This also stretched Andrew out because the firm was originally born in Brisbane, where there was still a team, Andrew was now in the US, and the TinyMCE team was in Sweden. He knew he needed help, and that’s when he turned to a VC.
That VC helped him buy back some stock from early investors as well as cash some of them out, and for the first time ever, Andrew had someone with a seat at the table who was encouraging him to grow. Before he took VC money, Andrew had a foot in both camps: part lifestyle business (this money is pretty good) and part growth (but we could grow this). The VC ruled out the possibility of a lifestyle business and focused the company on growth. The company stopped paying dividends and focused on growth. Andrew took a fair amount of money off the table but rolled quite a bit forward as well into the new venture.
Between 2015 and 2022 the company grew revenue 12X. The fast growth made them look like an excellent acquisition target. A company that bought Tiny’s main competitor in the space a few months earlier were interested. Since they had already done the due diligence on the space and the industry, they put forward an LOI fairly early. An investment banker who was one of Tiny’s investors examined the offer and advised that even after they ran a process they might come up with a similar valuation, so it was a good time to accept such an offer. For Andrew it also seemed like the right time to move on.
Lessons
Andrew was one of those who did well coming out of the tech boom of the 2000s, in part because of focusing on and owning his niche. Here are three takeaways from his story:
- Know your weaknesses, seek synergy. Part of why Andrew made the move to acquire TinyMCE was their traffic on the open source platform. He knew it would cost almost as much as the deal itself just to advertise to that many people, so why not get an asset in the meantime? If you don’t have a working go-to-market strategy, acquire someone who does.
- Use opportunities to take money off the table. By the time 2015 came around, Andrew’s father had been invested in the company for many years and was getting older, so it was a good time to buy him and others out, giving Andrew more control and flexibility for the future.
- Take another risk. By choosing to roll a significant portion of the equity forward, Andrew gave himself another liquidity event, while risking that he was no longer as in charge as he was previously. He created a deal that set everyone up for success and is now on to his next venture, Deliverables AI, which aims to turn data into reports in minutes.