It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Gurbaksh Chahal, former founder and CEO of BlueLithium, to learn how he created a company that achieved an almost 100+x ratio of exit value to capital used.
BlueLithium was founded in January, 2004, and was headquartered in San Jose, Calif before it was acquired by Yahoo. With offices in San Jose, London, Paris, New York, Los Angeles, Boston, San Francisco, Chicago, Atlanta and Belarus, BlueLithium was the leading data-driven performance marketing company, using data from 145 million consumers worldwide, sophisticated analytics and advanced ad targeting technologies to create value for both publishers and marketers. The company was named 2006 Innovator of the Year by AlwaysOn and was named one of the top 100 private companies in America for three consecutive years.
Venture Capital Raised/Used: Raised $11.5 million/ Used $0
Exit Value: Sold to Yahoo! in September 2007 for $300 million
Exit Value to Capital Used: 100+X
To understand the entrepreneurial success of Gurbaksh “G” Chahal, one must know more about his background. Born in India, G came to the United States when he was four years old after his parents received a visa through a lottery-based system in his native country. Settling in San Jose in 1985, his parents had only $25 to their name and struggled through menial jobs to support their four children.
G started his first company – an Internet advertising company called ClickAgents – when he was 16 and promptly quit high school to focus on his business. Within two years, he had bootstrapped a successful business that he sold for $40 million to Value Click when he was 18 years old. With the three-year non-compete from this sale set to expire, G started planning his next venture, what he called “a bigger, meaner version of an ad network, with the secret sauce being behavioral analytics.” And on January 20, 2004, BlueLithium was born, with only G investing about $500,000 of his own money.
G recently spoke with us about how in just a few years he was able to build a company with a minimal investment into one with a $100 million run rate at the time of its sale to Yahoo! for $300 million.
Javier Rojas: What was your strategy when starting BlueLithium?
Gurbaksh Chahal: I’m somewhat of a different type of entrepreneur. Rather than going out with a product or service that is defining a market from the start, I find a market that is growing fast and focus on out-executing in a crowded space. Then, when I reach parity in market share, that’s when I begin to innovate and separate from the competitors.
I was at Value Click for one and a half years after their acquisition of my first company, and left because there was so much I wanted to do that I couldn’t accomplish at a bigger company where things move a lot slower. During the last 18 months of my non-compete, I planned for the launch of BlueLithium
JR: What were the most important things you did from the start to successfully build BlueLithium?
GC: I’m very picky when hiring my initial employees because I believe that the first 20 people you hire define if you’re going to succeed. I wanted people on my team that were equally hungry – or more hungry – than I was.
Also, right as I started the company, I purchased a company in Belarus called AdRevolver, and used their platform to build the business. I found them through classic Internet due diligence, when I was researching companies that could fulfill our technology needs. They fit the bill and had a team in place, about seven people, so we were able to jumpstart the business.
JR: Did you seek funding immediately after starting BlueLithium?
GC: Not right away. I used $500,000 of my own money to start the company, and the acquisition of AdRevolver was an all-stock deal that included us taking over their payroll for about seven percent of the company. After about six months, I did my first circuit, and while I got a significant amount of interest from potential investors, we never got to the finish line on a deal. At the 12 month mark, investors started coming to me. At that point, we ended up raising $11.5 million, though we never used any of it.
JR: After bootstrapping your first company and selling it for $40 million, what was different about running a company that had received an infusion of venture money?
GC: It was quite a learning curve from me. When you’re bootstrapping, you’re scrappy, much like the teenager I was at the time. When you take capital, you become an adult. There’s a maturity from the market’s perception – from public relations, to the company structure to governance. You’re surrounding yourself with people who are in it to win.
Another difference was how I viewed compensation. When you’re bootstrapping, before interviewing someone I would have to assess whether I could afford them. With venture funding, I could instead feel more confident interviewing someone who was worth a salary of $500,000 a year. The capital allowed me to make decisions, without being emotional, and surround myself with talented people.
JR: How did you decide to pursue your exit strategy?
GC: When the rumor about DoubleClick and Google started circulating, I sensed that consolidation in our industry was coming and wanted to pursue the company’s sale. I had a split board – some thought I didn’t know what I was talking about, and the others thought it was an interesting theory. Shortly after that, we received an overture from another company about doing a deal. With this incoming opportunity as evidence, our board agreed to do a market overview and we ended up looking at Yahoo!, which eventually purchased the company for $300 million cash.
JR: What advice would you give other entrepreneurs?
GC: I think the best advice is that you don’t need a lot of capital to make a great company. In fact, I don’t believe that capital is any indicator of success.
At my first company, I didn’t even try to raise money because I was young – only 16 – and was scared. At BlueLithium, at the six-month mark, I went out trying to raise money and it didn’t work out. I was 21 at the time, and getting rejected by VCs was very emotional. At that point, I focused on executing with the company instead, and about six months later, they came to me and I got better valuations and terms. You shouldn’t take it personally when you get a “no” when seeking money. You should embrace rejection. If you have a strong business and a strong team, the money will follow.
Javier Rojas is a Managing Director of Kennet Partners in Silicon Valley. Kennet provides growth equity capital to bootstrapped companies in the US and in Europe. Kennet focuses on capital efficient businesses with annual revenues of $5M to $50M. Kennet works with founders to build high value outcomes and preserve equity value through capital efficient growth strategies.