It was only one year ago that Jared Hecht and Steve Martocci received $850,000 in angel financing from a group that included Betaworks, Ron Conway of SV Angel, Josh Kopelman of First Round Capital and Kenneth Lerer of Lerer Ventures. This week Skype announced that it will buy GroupMe, the company founded by Hecht and Martocci, for an estimated $80 million.
For more on GroupMe, read our June feature on Super Angels.
The Skype acquisition is recognition that group texting is one of the hottest markets in digital media, says Lerer. Texting itself is replacing e-mail, especially among people 25 and younger, and group texting has become a utility, he adds. So it is not surprising that Skype, which is actively seeking a wider footprint for itself and for the Microsoft Corp. apps it will be offering users, would pay a premium for it. Indeed, Skype expects GroupMe to continue as a stand-alone company, building out and benefiting from its massive audience.
GroupMe is the classic garage-to-riches story — unfolding at warp speed. Hecht, a 2009 graduate of Columbia University and Martocci, who graduated from Carnegie Mellon University in 2004, got together in early 2010 to try to develop an application that would allow them to connect with friends. Hecht had been on the road, having a hard time contacting friends, and decided to do something about it. He says he called up his colleague Martocci, a technical veteran of a number of start-ups, and asked if they could come up with a texting-based solution. Within days the two had worked up a program and distributed it to friends by e-mail. The response was overwhelming, recalls Hecht. They then set about creating an alpha version. For seed capital Hecht persuaded his family to put up $20,000. They presented the program at the TechCrunch Disrupt Hackathon in May. Soon after, Hecht and Martocci left their respective jobs and raised $850,000 from superangels, with Lerer as the lead investor.
By the end of the year, the group messaging space had begun to attract me-toos and wannabes by the dozen. GroupMe itself, which in September began with 30,000 text messages a day, soared to 450,000 messages per day. The five-month-old company began a new round of financing in an auctionlike atmosphere. And although many venture capital firms liked the deal, they passed. “It was just too pricey,” says a Boston venture capitalist who let it go by. But the deal got done at a near-$36 million valuation, with Khosla Ventures, General Catalyst Partners, and the angels anteing up a total of $11.6 million.
“We were at the right place at the right time,” says Lerer, pointing out that almost every major venture fund and investor group in the digital media space has a group texting company in its portfolio. GroupMe itself needed another round of capital to maintain its leadership in the group texting arena. Instead, it agreed to be acquired by Skype, which now has an exciting new application on its plate.
Couldn’t Skype come up with a 12-month technology within itself? “It’s not so easy to replicate what the two have achieved in only 12 months,” Lerer says of Hecht and Martocci. “It would take time and could prove to be even more expensive. This isn’t their focus.”
