There has been a flurry of news recently about Twitter raising $100 million at a $1 billion valuation from new investors including T. Rowe Price and Insight Venture Partners, alongwith from existing investors Spark Capital and Institutional Venture Partners. Not too surprising, given Twitter’s amazing growth and popularity.
That sparked a post though from the normally witty and engaging 37signals, where they announced that they had raised a $1 from “Institutionalized Venture Partners” for 0.000000001% of the company, thus making 37signals worth a $100 billion. Would have been funny if it wasn’t for the weird fact that 37signals developed the software platform known as Ruby on Rails which made web application development a breeze, and while they stuck to developing niche small-business focused web applications themselves’…and which actually generated some revenue – someone (Twitter, in this instance..) came along, used Ruby on Rails and executed on a simplistic idea without really a business model and is suddenly now worth a $1 billion!
Throughout the years, the folks behind 37signals have been powerful advocates of charging for your software products (instead of just giving them away for free..) and have generally had a lot of right things to say to entrepreneurs, from how to develop your web applications to how to market and sell them. They’ve been good role models and provided possibly the best web application framework out there currently – Ruby on Rails – to the world for free and made it open source. They even got funded by Jeff Bezos of Amazon himself. This is what they wrote at the time (in ’06):
Over the past two and a half years we’ve accomplished a lot on our own. We’ve released 5 products (Basecamp, Backpack, Campfire, Tadalist, and Writeboard) which over 500,000 people have signed up for so far, wrote Getting Real which has sold nearly 20,000 copies in less than six months, changed the web development world by writing and open sourcing the Ruby on Rails framework, presented at conferences around the world, and more. We’re proud of what we’ve been able to do without outside help. But we think we can do even better with the right kind of help. And we’re picky.
Since we launched Basecamp we’ve been contacted by nearly 30 different VC firms. We’ve never been interested in the typical traditional VC deal. With a few exceptions, all the VCs could offer us was cash and connections. We’re fine on both of those fronts. We don’t need their money to run the business and our little black book is full. We’re looking for something else.
..It will be great learning from Jeff as we build 37signals into one the great companies of the next 20 years.
Been 3 yrs since that post, and during this time the web has been buzzing with companies like Facebook and Twitter and their sky high valuations and the enormous wealth they will generate for their stakeholders. Where is 37signals and their “big idea” in all this – given all that they had going for them ? Is it a case of not being in the right place ? (37signals is based in Chicago..) Is the killer instinct when it comes to consumer web start-ups exclusive to the Valley ?