Our service was free as we were working out the business model. We actually had a genius business model but hadn’t implemented it yet. We wanted more users so we spent money on marketing.
Maybe the real problem wasn't the insurance?
If they had simply charged a reasonable fee, maybe they could have grown the business the old-fashioned way. It would have meant smaller sums of money all along, but maybe they wouldn't have experienced this explosion.
A lawsuit wouldn't have fixed anything for them; it'd have taken years to resolve.
Good god, that was a bad idea. I got lots of users, ended up buying a bunch of hardware, and worse, signing contracts on more datacenter space. I got a whole lot of abuse complaints, and had to get a larger bandwidth commit, too. (my provider at the time had the very common business model of having very high overage charges, but you could get out of the overage charges by signing a long-term contract at the new 95th percentile.)
Of course, many left when they got the first bill, leaving me about where I started revenue-wise, and with much larger monthly bills.
several years later, vastly increasing the resources I gave per dollar, /then/ getting featured in a blog[1] many months later, brought me up to a reasonable scale. I do think that the lower prices were necessary (but not sufficient) to start that growth.
I suppose that might be more like the transistor situation than anything else; Yeah, the company was "Profitable" but only because my time was free. I was selling at a huge loss if you counted market-rate for my time.
[1]http://uggedal.com/journal/vps-comparison-between-slicehost-...
(I owe that one post so much; revenue more than tripled in just a few months, and I was able to go full-time. I should probably do something for that guy.)
Yes, please tell me more about all these children whose lives your service saved. Just like To Catch A Predator's ridiculous premise (that digusting, fat 50 year-old men who live in their parents' basement are hooking up with hot teenagers), yours reeks of trumping up a problem that only exists on the extreme fringe. Literally.
one of the partners installed our software. He tested it, he used it, it worked. He got it. He called us and said he wanted to invest as soon as possible.
Who is this investor? I want to know because anyone who would vote money on an anecdotal experience like this is an idiot.
Your story is interesting, but only when it sticks to the parts about you rushing into an investment without due consideration or self-protection.
If you wanted funding, you should've asked Congress for it. They love to exaggerate child sex exploitation as much as your service did.
Has anyone claiming child pornography online ever actually found something? Again, please show us, they would be my first datapoints ever in our assisting of the police in investigating these.
The business model of the OP is itself predatory on the fears and underbelly feelings of uninformed parents. Better to explain to those parents how to raise children so that they are cautious about anything they encouter online.
Can't tell if serious? This happens all over the valley all the time. You show investors something they would use many of them would invest.
I have heard "oh, that's cool I would use that," many times for a lot of bad ideas. VCs have egos that cloud their judgement all the time.
Anything is better than what's up there now.
I worked at the company that was bought by HP in Oregon and then later in Texas. It was called RLX technologies and created the first blade server. After it was purchased by HP I stayed on for a few months before moving on to a startup in Oregon. It seemed like a great idea as they moved me back to Oregon.
My best friend, who got me on at RLX after my first startup (NEI: high speed telecom startup) had crashed and burned, had taken a position at this startup in Oregon (we both were from there and had met after graduating from Oregon State). It seemed like a way to continue the work we had started at RLX and would get me back to Oregon. So win-win.
Long story short: the startup had issues and he moved on to found IMSafer. I would of liked to but needed to stay on for another 6 months, so I wouldn't have to pay back half of my moving expenses.
Once I finally moved on to IMSafer the company was still small with only 6 of us. It was a great time and we built something truly exciting and helpful. We had a wonderful time at the Techcrunch 40…, but that's a story for another time. :) I believe Paul knows this story too, as it was one of the big reasons we got into Ycombinator!
I will skip to the end as Jason supplied much of the interesting info and the color to that debacle. But, I will add, just as you don't count your chickens before they hatch you never, never invite your new 'partner' (board member, investors…whatever) to a board meeting until the money is in the bank.
Once the assets were sold only 2 of us stayed on with the new company that bought us. It was a trying time, but my best friend did get to move back to Oregon and it was just us, keeping a rather complicated site up and running while working on creating the 'new' product that was to make all the money.
While, at IMSafer we had realized that there could be big money in using this software in a more enterprise fashion. We realized that many virtual worlds for kids were popping up and they had use for software like this. He, I and another one of our friends from our old RLX days set out to create a real-time piece to the software that was much better at moderating less dangerous content like curse words, etc. It would quickly mark words they found objectionable and pass the text on to the more complicated software outside their enterprise to look for the truly dangerous things.
From the point that IMSafer crumbled to when he and I decided to leave or got fired…depends on who you are asking, we had grown the business to a million dollar run rate in 8-9 months. But, we had been bought by a startup and we had very different opinions on how to run it with the purchasing company…and we lost!
About that time we left/got fired we decided to do something new. Both of us had vary different experiences buying a new car and decided we wanted to fix that. After getting in a small fight with our former employees we got them to relinquish all rights to CarWoo! and proceeded to build it. At the time it seemed a bit crazy to fight for something that wasn't much more than a landing page and a bunch of crazy ideas, but in hind sight…seems like genius….I have decided to tell it as a stroke of genius!
After we got into Ycombinator we told Paul about this story and at the time he said it was the worst 'pulled funding' story he'd ever heard. It's possible he's heard worse since, but somehow I doubt it.
5 of the 6 of us were married at the time and 4 of us had children. As we were in the tussle over CarWoo!, which was almost nothing at the time my wife had our second child.
Tommy and I got our call that Ycombinator had accepted us while sitting in benchmark's parking lot in the spring of 2009. We had come full circle i guess you could say.
We moved down to Palo Alto, left our wife and kids behind for the time being and the rest is history.
Also, now I wish I were in the market for a new car. I'll probably just get a Tesla in a couple years, which CarWoo can't really help with.
No offense (well we know where this is going), but anyone saying this has no f*$%ing idea what they are talking about.
What we found in those years with IMSafer and later with the company that purchased our assets was mindblowing in a terrible way.
In the US we weren't allowed to really do anything with the data we found even in the most awful cases. When the patriot act was in affect there were opportunities to turn some of the data over to the gov agencies that deal with exploited children, but it was unclear.
In the UK they were allowed to more freely use what they found to put pedophiles behind bars...which they did on more then one occasion.
In some cases it appeared that children had installed the software as a desperate cry for help against their abusive family members.
In one particular egregious case the offender was involved in group chats where he would try to normalize the behavior to his child by having other sick individuals tell her it was OK. Then, they would setup times for her to be online with them while terrible acts were perpetrated on her.
No one is acting as if this was common. But, it did happen. And we weren't selling the chat, running ads against it or in anyway trying to monetize the 'fear' or grief of our users.
A lot of people here do not have kids and don't understand how hard it is for parent's to talk their kids about all sorts of issues around sex and drugs and rebellion etc.
In many cases IMSafer was their last hope and it was very helpful to a lot of people.
We never started it because we wanted to spy on kids or know people's gossip. We did it because we realized that parents were ill equipped to deal with the new online world.
Porn was a not a concern. To us that was your child viewing something. What we were concerned with was someone coming into your child's world and talking to them without your permission. If the child was having an issue with their parent's these kind of people would pick at that and try to show the child they were on their side to win trust.
Places where parent's thought their kids should be safe just weren't and still are not.
Also, some kids are susceptible to these kind of attacks by predators. In some cases parent's had kids who had been sexually assaulted in real life already and they were very afraid, because of their child's mental makeup now, that they would make easier targets.
We had adults buying plane tickets for kids and working out details to get them to fly across the country to meet under the guise of some camp the kid was going to, etc.
It's real whether you want to deal with it or not. We did our best to balance online privacy while helping people.
I feel like we did a phenomenal job and we didn't sell fear. It was never part of our marketing or selling.
First, there was a case where a high school girl was equipment manager of her school football team. She was gang raped by some of the players. She was talking about that in chat with her friend, talking about committing suicide, and talking about how she couldn't tell her parents. She was afraid of what they would do to her. To her! Our engine caught much of this, and flagged it for the parents. It worked out in the end. We found out about this after the fact when the parents contacted us to let us know how our software probably saved her life.
Then there was the situation where there was a father who was a community fire chief. His child installed the software on his father's computer because his father was abusing him, and was spending time in really really bad chat rooms. The kid was hoping we were monitoring the alerts. The child eventually reached out to us asking why we hadn't sent the police. It was heart breaking.
Lastly, there was a kid who was buying drugs from a contact online. Is this a sexual predator? No. But a predator nonetheless. Our software flagged it.
There are bad people out there. Some of them are the Chris Hanson predator types. They aren't all sexual predators, but they are still looking to gain access to children without parental permission.
Children and young people react with "this software violates my rights!" As a child, under the age of 18, in the US, has no rights. A parent is supposed to parent. They have no right to privacy.
The software was not meant to record chats. It worked as a sort of a sliding window, and only when there was a flagged issue would a parent get a notification. That notification would include some of the chat around the offending line to give context, but nothing more.
With regard to access to kids - parents can look into a living room and ask "who is that?" Well it's Johnny. He lives down the street. The parents can talk to Johnny's parents. When a child is in an MMO and has a "friend" list a mile long, parents can't really ask "who is Fragg3rKill3r225?" Worse, their kid may not really know who that person is either.
At the core, IMSafer was about helping parents manage the relationships their kids were building online. As a parent, it is your job to know who has access to your kids, and how they are influencing them. Most parental control software is billed as keeping porn of the computers. IMSafer was about keeping the bad guys out of the kids lives.
It's absolutely false that children in the US have no rights or that parents can legally violate any of their rights arbitrarily. It's closer to the truth that children don't have a legal right to privacy from their parents in their parents' home using their parents' computer and internet connection.
This attitude is problematic though. Instead of encouraging a more open dialog between parents and their kids, parents using spyware creates an adversarial relationship. Under those circumstances, the kids will find ways around it, which you describe elsewhere as "unfortunate". I have no doubt there were situations where your software resulted in very good outcomes, but I'm inclined to suspect that in most cases where parents installed it, there was something broken in the parent/child relationship. Unfortunately "No mutual trust with your teenager? Our robot babysitter will let you know if she's talking about suicide online." probably isn't the world's best advertising slogan.
I was going to mention the UN convention on the rights of children.
(http://www.unicef.org.uk/UNICEFs-Work/Our-mission/UN-Convent...)
But it seems that only 2 countries haven't formally approved it - Somalia and the US. (And Somalia doesn't have a government, so I guess they get a pass for the moment.)
Articles 3, 5, 12, 13, 15, 16, etc etc would all be relevant. If you had carried on with the software this could have helped sell the product. Compare
"You are under 18. You have no rights" with
"You are under 18. You have rights. We know what they are, and we feel our product helps you enforce your rights, and carefully balances your rights with your parent's rights."
It's also how teenagers started conversations with each other in chat rooms a decade ago. It may still be, but I haven't been a teenager in a while. I imagine predators open with the same question, but actually using it as a filter would produce an unacceptable amount of noise.
This is a useful story about some of the mistakes one can make dealing with VCs, but it sounds like the product itself was a little questionable.
This is an issue of parenting; you can't just turn on an app and expect it to do your job for you. Kids won't be dumb if you treat them with respect and show them what can happen if they don't keep their eyes peeled.
Like the ridiculousness of the Dateline conversations, it was always very obvious when someone was creeping on me and it only took one click to block them. Allowing my already-fearful and ignorant parents to read random snippets of messages I was sending and receiving - particularly because a lot of our ASL?? comments were jokes to begin with - is a violation of my privacy and trust. Growing up in an environment like that would have completely shifted not only the way I use the internet today (especially if they'd gone ahead with their plans to implement it in social sites for kids), but would have affected my relationship with my parents in ways that would have left me hesitant to be myself at all.
Worse, when my cousins reached those ages at around the time this company was starting, social mediums had progressed and their problem wasn't talking to people online; it was posting very promiscuous photos and embarrassing YouTube videos showing the inside and outside of their homes and not putting any privacy barriers up. Those are much bigger concerns to me than knowing how to deal with stranger danger in text communications.
re: the notion that _you_ would have known about a creep online, that's awesome. It's great that you were so self aware. Not every child can say the same. A favorite quote of mine applies here. No matter how you cut the math, and no matter how much you don't like the answer, 50% of the population is below average intelligence.
All of the content on our site explicitly suggested to parents that they should talk to their children _before_ installing our software. Talk about why they were installing it, and show them how it works. Every kid hated it. Of course they did. I would have. Unfortunately, kids have plenty of time to think about ways to circumvent protections their parents put in place. Parents have jobs, multiple kids, schedules to maintain, etc, and in general were outgunned on the technology front. They are all screaming for help, or suffering in silence, throwing up their hands because they cannot solve the problems for themselves.
When we started IMSafer, we were all in our late 20s or very early 30s. We were all hacker types. We also had young kids. One of our advisors was a police officer (personal friend) who spent a ton of time with us talking about the realities of the bad people out there. It's not Chris Hanson crazy, but there are really, really bad people out there. More often than not, related to the harmed minor.
The clause that was impossible to make disappear suddenly disappeared overnight.
P.S. Congrats for Matasano, I am a fan of your company.
The clause that was impossible to make disappear suddenly disappeared overnight
Oh, if I had a nickel.
Younger readers (and older ones, too) should be aware that this is one of the easiest lies to slip from someone's lips: "oh, that's standard, we can't get rid of it."
You need someone experienced on your team -- even if not working for you, a friend you can call -- to find out just how "standard" these things are.
EDIT: even terms that really and honestly are "standard" can be changed
Anyway, a few comments:
- They paid for free users with no business model in place
- They failed to complete requirements of their previous investment deals
- Handshakes don't matter, term sheets don't matter; nothing matters until the check clears
We did not get the D&O. That was as much a legal representation screw up than my own failing. I was the CEO, so the ultimate blame lays at my feet.
Term sheets don't matter, but one thing that is getting lost in all of this is that we had definitive docs. We had been given keys to the VC office to take up positions as residents until we had office space. Money from other investors was already in escrow. It's not like we got a signed termsheet and moved. We signed the termsheet in Sept, moved through definitive docs until Nov, and it all fell apart in mid-late Nov. It sucked.
And as long as Twitter, Google and Facebook keep paying 8 figure (or 10 figure) sums to acquire "startups" without a business model, VCs don't need to know anything about real business.
I want to respond to a few of the comments, as I was the main protagonist in getting this idea off the ground, CEO of the company, and the business/product guy surrounded by the talented engineers who made this happen.
The decision to invite the board member on to the call the day before the money was in the bank was my call. My biggest mistake of my career. I have learned from it, but it was my call and I blew it. Nothing about the situation gave us any reason to believe that we would have a problem. By the way, if anyone wants a front door key to a tier 1 VC firm, I am sure one of us still has theirs.
On the topic of the business model. Let's first talk about the derivation of the idea. Having spent my career in tech and Wall St, I have seen the migration of high IQ talent into spaces where the marginal utility of IQ was trending to 0. We wanted to find an opportunity where we could be smart and do new things, and that would, theory lead to money. The base thesis here was that no one had made money in the kid protection space for a while. IQ follows money. Viola. We were right - there had been no innovation in this space in a long time, and everyone was focused on keeping porn off computers. We decided to try and focus on keeping bad guys from getting to the kids.
We can all have an intellectual discussion about whether this was an overblown social issue or not. I don't feel like rehashing that here. What we did know is that we had a novel approach to solving this language problem, and we built an engine. We did not solve it with Bayesian analysis or ML. We went a different route, and the engine was very effective.
Our premise was that we could sell the software to parents. We did all the things many of you would do. Built an MVP (before there was a phrase for it), talked to customers, etc. It turns out that the axiom from real estate is true here. People lie. What parents said they would pay for, and how they reacted when using the software were totally different. Many of them expected the software to come with a computer, or be paid for by someone else. They told us they would pay for it, but in reality they expected it to come from an AV provider. That never would have surfaced in talking to customers ahead of time.
We then pursued a deal with McAfee. I don't know if at this point in time I can talk about that deal or not, but suffice it to say, that wasn't the golden ticket.
After spending time refining the business model to get parents to pay, we (as many companies do) fell backward into our business model. It started with a fortuitous call from a large company making a massively multiplayer game for kids. It turns out many of these companies who cater to kids have rooms full of moderators for in game chat. People are very expensive. Some tech found out about our software, installed it, and found it very difficult to beat. They were intrigued enough that they asked us if they could install it inside their server farm. When we took the call, every answer from us was "yes of course" but in reality we had no idea. Credit to Tommy and Erik for figuring out in short order how to make the demo a reality. The first company figured they could reduce their people count from 600 to 60 with our software being the first pass filter.
Once we figured this market opp out, we started reaching out to other companies. Long story short, we were looking at deals of $250K per year for our software. Bad timing being what it is, this was all happening around the time of the financing closing. So while Benchmark (wow, that's the first time I have said that name out loud in connection with this story in public since 2003) was moving forward on what they thought was a consumer software deal with massive growth potential, it looked like we had a business opportunity in enterprise-y software for community moderation for companies catering to minors.
When Benchmark pulled out (worst kick in the stomach feeling of my life having to pass that news on to the team) we scrambled. The deals from these game companies were coming along but we weren't going to have enough runway to get them closed. The eventual buyers of the company were building similar software, and they had heard our name enough in their calls with their potential customers when being told why they were not being moved forward in the deal that they wanted to buy us. It was a little bit of good luck and timing in an otherwise crap sandwich state of play.
To sum up: 1) We knew who we thought our customers were: parents 2) We were wrong about how they would act: parents didn't want to pay for this type of service, despite what they told us 3) We were wrong about the virality of the service: despite saying otherwise, parents wouldn't tell friends they were running this software because of what they perceived as potential social stigma 4) You can sometimes fall backward into your business model 5) Benchmark did us wrong, but that's life. Move on and do great things. Jason, Erik, Tommy and David are some of the most talented people with whom I have ever worked, and I rate IMSafer as the time of my life. We had a lot of fun, and built some amazing stuff (patent filing in case you are interested: http://www.google.com/patents/US20090089417) 6) Survivorship bias is a bitch, and there are many stories of smart guys not getting over the hurdle which never get told. We weren't idiots, or morons, or whatever. Sometimes things don't make it. The real question is what did you learn and how to you do something constructive with what you learned.
I am happy to answer any additional questions.
We were offered some additional capital but it wasn't enough and our conviction was smashed. Until you've been in this sort of situation, you can't know how you will feel or react. Experience is a great teacher.
BTW, if anyone needs commercial insurance for their (California based) business, I've had pretty good experience with http://www.alliedbrokers.com/ Allied Brokers in Palo Alto, so far. Prof liability, D&O, etc. are all things which are probably worthwhile after a >$1mm seed, depending on how litigious your sector is (b2b, particularly).
But I guess that's many successful products, make people feel bad or their lives are missing 'something' and give them the solution for the $
Myself and friends have often talked about it. Be unethical but make money. Individual vs Herd mentality. And in the first world is it really that evil to fool the people who fall for it? I find it hard personally but maybe that's a weakness I should train to get over, not sure. I do give a % of my wage to 3rd world charity so would I still be up positive ethics wise.
Interesting article to see into that world anyway, something to think about.
> Age? Sex? Location? That’s how predators started their hunt.
And how non-predators start their hunt (the same way that predators in the 1800s started their letters with "Dear Timmy").
It's a completely nonspecific starter question for anyone who is chatting with a stranger, and I wish the author were more careful with this.
I don't understand this part. Shouldn't the investors have seen the insurance through themselves? It seems mad to rely on other people for that kind of thing. Sure it would have been nice for the startuppers to organize it, but really, it's a no-brainer that for such things you have to organize it yourself (because the people tasked with it have no real stake in it).
"Do you really know this person AFK?"
"How would you feel if this photograph was sent to all of your teachers, and everyone you know in school?"
And before people mention MS Office's Clippy - yes, it was was awful, but part of the reason for that was kludged implementation.
(http://robotzeitgeist.com/tag/bayesian-inference-engine)
This new implementation could have a "spy on your children" feature, but allow that to be turned off for the parents that find such things troublesome, allowing the warnings to go direct to the children.
This is why VC-istan is dead. (Not actually dead, but "Microsoft is dead" dead.)
Thank you for sharing your story - by sharing, it it helps the whole startup community :)
While I feel bad for the founders here and the VC behavior is deplorable, a little cautiousness and common sense would have really saved the day here. "Let's not move until the money is in the bank, ok? Hey board member -- just step back for a few minutes until the wire clears. Once it does, we're all yours."
... All that being said ..... BIG KUDOS to the team for getting the investors their money back:
"We sold the assets for what our original investors had put in to the company, about $1.5 million, so we were able to give them their money back."
That's great -- I know very few entrepreneurs who have gotten well past the point of raising capital who can claim to have returned investor money.
So, while you might have gotten the Big Screw by VCs, in part due to their shadyness and in part due to your own over-enthusiasm and lack of diligence, I think you saved the day for your investors. They may not invest with you again, but they can't say they lost money with you either.
What could they have done to make money from children's internet chat logs that would not be in some way shady?
