Lessons from eBaying Kiko
By Emmett on Monday, September 18 2006, 23:03 - Permalink
We at Kiko Software Incorporated have recently had an experience which is fairly unique in the crowded software world: we successfully sold a full software product on eBay. This hasn't been done too many times before (just one, as far as I know), but it's a pretty good way to exit a startup. There are a few potential problems areas though, and I'd like to share what we learned from the process.
Most importantly, specify the contract fully up front. Because we failed to do this, we wound up negotiating that contract after the sale. As anyone who's ever paid a lawyer to negotiate anything knows, that's more expensive than you'd like. Luckily Tucows was very reasonable and the negotiations went fine; if we'd been less lucky it could have been a real problem. Different sets of terms are worth very different amounts. In our deal, we very specifically did not offer a long term support contract with the software, even though that could have potentially increased the final price quite a bit.
If you think you have two potential sets of terms that would appeal to different buyers and you're willing to entertain either, consider selling an option bundled with the software. For example, if we'd been willing to offer a long term support contract for a reasonable price, we could have included that.
Pay careful attention to eBay's terms of service though. From what I can tell, certain kinds of options might be against the rules. Kiko's auction was pulled on the 7th day (out of 10) for having 2 links to the kiko.com (one to our main page, another to the API documentation). Apparently that's one over the limit, and an extremely vigilant community member killed our auction for it. We relisted it again as a 3 day auction and it doesn't seem any long term harm was done, but it was very nerve wracking.
Relisting it for 3 days was actually a mistake. We should have taken the removal as a blessing in disguise and relisted it for 10. Another week and a half would have given allowed more companies to bid. Corporations are slow. Ten days isn't enough time for most of them to both find out about the auction and go through their internal procedures. So a ten day auction is probably too short. If you can find another auction site besides eBay that allows longer auctions, you might consider using them.
We did do at least one thing right when we started our auction at $50,000 instead of $1. It's easy to see why it's a good idea if you consider that the real bids are all going to come in the last ten minutes of the auction. Earlier bids are essentially meaningless noise, and a low starting price can only induce more of those. The disadvantage of a low starting bid is you could be forced to sell for less than your minimum. Why take the chance?
Overall, the experience was extremely positive for us. Even with the mistakes we made the process was very fast, the asset sold for more than we expected, and our baby found a good home with Tucows. If you find your business with an large, valuable asset, consider eBaying it. It may sound crazy, but it seems to work.