Amazon announced this afternoon that it has acquired San Francisco-based Goodreads, the online community where 16 million people find and share book recommendations. Born six years ago as the brainchild of Otis Chandler, a scion of the Chandler publishing family in Los Angeles, Goodreads is home to more than 23 million book reviews and 30,000 book clubs, and has become one of the major vehicles for book promotion among authors and publishers—perhaps second only to Amazon itself.
Amazon hasn’t said exactly what it will do with Goodreads, but there are hints that the site’s recommendations will be integrated in some way into Amazon’s Kindle e-book platform. “Our members have been asking us to bring the Goodreads experience to an e-reader for a long time,” Chandler wrote in a blog post about the deal. “Now we’re looking forward to bringing Goodreads to the most popular e-reader in the world, Kindle, and further reinventing what reading can be.”
The acquisition was good news for Goodreads’ sole institutional investor, San Francisco-based True Ventures. The firm helped the startup get off the ground with a $105,000 check in 2007, and put in another $1.7 million in 2009, in the depths of the financial crisis.
By pure coincidence, I was visiting True’s offices today when news of the acquisition broke, and I was able to ask True founders Jon Callaghan and Phil Black to relate the story of True’s involvement with Goodreads, which is in many ways an exemplar of the kinds of companies the firm has supported.
But first things first. Was this a lucrative exit for the founders and investors? Amazon isn’t saying how much it spent to buy Goodreads, and Black and Callaghan weren’t talking about that either. But Black did allow that the exit provided a “nice return” for True Ventures. “We’re thrilled for those guys,” he added. [Update 3/29/13: Kara Swisher at AllThingsD is reporting based on “sources” that Amazon paid between $140 million and $150 million.]
I’ve written before about the unusual emphasis True Ventures puts on its network of entrepreneurs. With few exceptions, the firm only invests in companies referred to it by the founders in its portfolio. That’s a pattern that got started even in 2006 and 2007, when the firm was brand new and didn’t have much of a portfolio. At that time, Callaghan says, the partners depended for leads on entrepreneurs they’d known in their roles at other venture firms.
Chandler was referred to True by Ooga Labs co-founder Stan Chudnovsky, who formerly ran Tickle. I’ll let Callaghan pick up the story from there. The remainder of this article is told in his words:
“Otis came to us from James Currier [Tickle’s first CEO] and Stan Chudnovsky at Ooga Labs. We had an offer at my old firm [Globespan Capital] to invest in Tickle, which ended up selling to Monster, so we knew them really well. Otis used to work for James and Stan at Tickle. One of our core themes is to work with great entrepreneurs and follow their thoughts about who are other great entrepreneurs. We were a year old, and these were a couple of entrepreneurs we knew from prior firms, and they said, ‘You have got to meet this guy.’
“[Chandler] had a really simple vision, which was to connect book lovers. He was extraordinarily passionate about it, and he wanted to build something good, for the love of something. He really felt that the world would be a better place if readers were better connected, and had someplace that was not really for commerce, but for connection.
“It was really pure, and super capital-efficient. At first it was just Otis and Elizabeth [Khuri Chandler] and he didn’t want to raise a lot of money. Again, one of our core theses at True is more venture, less capital. You can build great things without necessarily raising a ton of money to do it. We firmly believe that too much capital too soon can get in the way of creativity, and this was a great example of something very capital-efficient. So we invested $105,000 in 2007.
“Otis was just brilliant. He had a very long-term perspective on his vision. He wanted to change the world. We talk about funding the founders of movements, and he was definitely the founder of a movement. It was a different kind of social. At the same time, you had Facebook and Twitter emerging, and this was a deeply vertical social network around reading. I can’t think of anything more fundamental to the human condition than reading; it is literally how ideas are transferred and absorbed. So we loved it from the beginning.
“The company grew really well, and Otis was a great leader, and hired a bunch of great people. He bought a company that did recommendations, so we solved the discoverability piece—if you like this book, you will also like that book.
“So we loved everything we saw, and then the financial crisis hit. The company had always been basically profitable; they never burned a lot. In 2008, Phil and I looked around at our Fund 1 companies, and we said, ‘Look, we recognize there is a meltdown, we don’t have any companies that are ready to go public, so we are going to take 10 percent of our fund and invest it in a series of very promising companies. We are not going to shore up the weak ones; we are going to make the strong stronger.’ Goodreads was one of those companies. So we invested $1.7 million in 2009, in the depths of the downturn. The company used the capital to do more of the same, and grew dramatically.
“So, the story touches on a couple of things about True Ventures: the original vision to back brilliant founders to create new things in very capital-efficient ways; funding from the inception; and the trusted source of the introduction. Also we stuck with it and doubled down.
“We ended up with roughly $2 million invested and had another $5 million to $10 million reserved for Goodreads to go forward, but we were very happy with Otis’s decision to team up with Amazon. It’s a great company. We know them well. We would also have been happy to continue building the business, because what is important to us is to back great people and stick with them for the long haul.
“So it’s a really great example of what we are about. Also, we invested in 2007. So good things take time.”
