Last August, News Republic (a startup from Bordeaux, France), creator of a content aggregation mobile application, announced its acquisition by Cheetah Mobile. XAnge happened to be one of its three investors since 2012, which means I was lucky to follow the entire adventure from the inside.
Let me tell you this story – it’s one of a kind but also a bit of an emotional roller coaster for its founders, teams and Venture Capital investors.
The News Republic story actually starts with In-Fusio, an unfortunate previous enterprise, synonymous for “painful failure” for its founders.
When Gilles Raymond started News Rebublic in 2009, he was already well known by the VC world. Back then, he was the co-founder and former-CEO of In-Fusio, a French gem specialized in mobile gaming services. The story, sadly, ended painfully with a distress sale in 2007.
For a VC, In-Fusio became the perfect example of what happens when a Board declines a good deal (ie an “X3 or more” exit). In In-Fusio’s case, Yahoo was apparently willing to put down €300M but some of the Board VCs wanted more.
It’s always hard to know whether you should carry on with your business or if it’s time to sell. But in summary, two pre-requisites needs to be there for us to turn down a good offer:
- The Management is motivated enough to stay (one doubt = no doubt)
- There is no major strategic threat ahead (yes I know, this is always hard to assess in the digital world)
For In-Fusio however, it seems that none of these conditions were present at the time. Once, Gilles actually confessed to me that this failure had taught him three lessons:
- In the Tech sphere, Porter’s 5th force (“The Threat of Substitution”) is a fast and fatal one. While In-Fusio mastered almost the entire value-chain (technology, publishing and distribution aspects), the threat however, came too suddenly and without warning. Java opened the market and competitors rushed in, in only 18 months. As a result, over this same period, the value of In-Fusio’s was divided by 10.
- Whatever happens, keep up the passion! In its 5 first years, things had been a little too easy for In-Fusio (exponential growth, successful internationalization, too much money raised…) and the team had gradually started to rest on its laurels, emphasizing mainly on the management of its assets.
- There were too many investors and the founders couldn’t manage them. For some of the investors, In-Fusio represented up to 70% of their portfolio. They consequently pressured the team by intervening directly in operational matters. On top of this, second-tier investors and lead investors were not aligned. This created chronic tension and disagreements between the Board and Top Management and also between Board members.
Drawing on the In-Fusio experience and its many lessons, Gilles and his partners quickly threw themselves into a new challenge: News Republic.
Three times (in 2009, 2010 and 2011), the “News Republic” file landed on my desk – and three times, I passed on it. In 2009, neither the product nor the market were ready; in 2010, the differentiation (vs the main competitors: Zite, Pulse, Flipboard) was unclear; and in 2011, even though I was getting a lot more interested, I couldn’t see the potential of a big hit.
Despite these three rejections, we continued to speak regularly. Since the beginning, I was impressed by News Republics’ founding team, by its relentless execution spirit and extensive experience. Although In-Fusio was not successful from a financial point of view, the team had proven its ability to create value: a product in line with the market, international ambitions, the ability to engage with the best talents, the ability to raise funds and last but not least… to sell.
The decision to invest in News Republic came in 2012. Why?
- Displaying news on smartphones was gaining a foothold on the market and we believed that personalization would also become a general trend for news content.
- The quick sale of Zite to CNN and LinkedIn’s acquisition of Pulse confirmed the strong appetite of a few potential buyers.
- Google and Yahoo were bizarrely struggling to develop their own tools.
Despite the downturn in advertising at the time (not to mention mobile advertising), we thought the market was mature enough for News Republic. And since we had kept close contact with its team, we felt confident and ready. XAnge jumped in, joining Creathor on-board. Intel Capital let the Series B in 2014. And two years later, in 2016, News Republic staged a perfect exit with its acquisition by Cheetah Mobile.
Four years of an amazing adventure .. with good and bad memoires.
- Let’s be honest, the unsuccessful fundraising in 2015 was a blow – pushing the Board and the management to their limits
- Melting cash: at one point, we only had one week of cash left
- The HTC partnership in 2014
- The take off of advertising monetization on mobiles in 2015
- The three VCs stuck together and decided to re-invest prorata in 2015. Believe me, you’ve got to damn believe in a project to go and see your colleagues – the partners of the fund – to pitch for a defensive investment.
- 40 loyal employees stayed on when the cash was low – not a single leaver. People truly are a company’s first asset and News Republic had always been uncompromising on its choice of talents. That includes the choice of VCs themselves, on which the management conducted a proper due diligence – sounds obvious, but we don’t tend to see it that often.
Ultimately, this story’s happy ending is based on the success of its team and a qualitative rollout of its strategy. All through the adventure, both Management and Team managed to stay focused on tough, but high-value stakes. At the time of its buyout, News Republic had already signed 1200 media agreements and spanned up to 12 countries – all this, in less than 6 years and with a team of 40. Execution, execution.
Gilles – even if you’re no longer recovering from failure – should you embark on a new entrepreneurial adventure, you know where to find me 😉