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Towards Paperless Contracts: EchoSign CEO Jason Lemkin (Part 2)

Posted on Thursday, Feb 5th 2009

SM: Let’s talk about your time at BabyCenter. When did you get involved?

JL: I joined the company about a year after it was founded. I had gotten to know them as a lawyer.

SM: In what capacity did you join them?

JL: Corporate development. I helped them figure out how to keep the fuel on the fire in 1997, 1998, 1999, and those times. I was not a founder, but I had known them since pre-founding. We had a relationship of trust that was able to transcend any employee they could hire. The real value I added was not just my day job but my ability to be a sounding board for the co-founders.

I can tell you, having founded two companies myself, that being a CEO is a lonely job. It is very challenging. They were good friends, and they are current investors in my company. One key to startup success is to make yourself invaluable in some fashion.

SM: You said BabyCenter was acquired twice. Who acquired it?

JL: We were acquired at the peak of the bubble by eToys for almost $1billion with a good $2 million in revenue at the time. They halted their IPO right in the middle in order to complete the acquisition. It was a lot of drama. I learned a lot from that.

I learned to do two-way diligence. eToys was a poster child of Web 1.0 success in the ‘Wall Street Journal’ at one time. I did not understand what it meant to be hemorrhaging cash. I did not understand, even as a public company, what it meant to have less than 12 months burn rate in the bank. I did not understand how a company that could do $300 million in revenue go bankrupt the same year. Now these things make complete sense to me.

At the time we were a little company that had two offers, one from Amazon and one from eToys. The management wanted to do the Amazon offer, but eToys made it so lucrative for the investors that they more or less forced management to go with the higher offer. I learned some lessons from that.

SM: Those are tough lessons that entrepreneurs must learn.

JL: You do not want to overanalyze. That was a lesson in the values of different stakeholders. You want to make sure you understand exactly how it all works from day zero so you can keep interests aligned. eToys went bankrupt and BabyCenter was the only thing worth anything from it. It was borderline profitable, and it was a standalone web property that had value. It was the number one online or offline parenting media property. That has intrinsic value versus the 11 ways to sell toys for less than it costs to buy them.

We were sold the second time in 2001, which was tough because there was no capital in the market. We did finally scrape together a group of investors who would help us buy BabyCenter out of bankruptcy. eToys just wanted the cash immediately, so they sold to Johnson & Johnson, who was one of our customers. I think BabyCenter is a $100 million business under them now.

All of the founders had left after the acquisition. We knew it was good, and we knew that even in 2001 that if you had the largest media property, which was the largest in one of the most profitable spaces there is, it has value. People will spend money on their families when they will spend money on nothing else. It is a high-margin segment.

This segment is part 2 in the series : Towards Paperless Contracts: EchoSign CEO Jason Lemkin
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