They Brushed Off Jeff Bezos, Then Sent an Absurd Price, and He Accepted It
The overvalued offer became one of Bezos's best investments, and gave two founders the cushion to say no to everyone else.
David Senra · DHH: How to Build a Profitable Company Without Losing ControlIn 2005, David Heinemeier Hansson and his business partner Jason had a problem most startup founders would envy. Their project management software, Basecamp, was taking off, and about 40 venture capitalists wanted in.
Hansson, a programmer who cofounded the Chicago software company 37signals, did not want them. Hansson said he still had a "vivid memory of the dot-com boom and bust," and he disliked what he had seen of how venture funded companies worked inside.
He also worried about his own resolve. Hansson said he "didn't fully trust myself not to get tempted by a $20 million check, a $50 million check" when his bank account held about $8,000.
They brushed Bezos off at first, assuming his interest was the same pitch. Then his team replied politely that Bezos would really like to meet, so Hansson agreed to talk.
In Hansson's telling, that meeting was worth taking because Bezos was a builder. Hansson said he prefers talking to builders over money people, and Bezos appealed to him because he thought differently, having raised huge sums and not minding if his company earned nothing for 20 years.
So they sent what Hansson called a ridiculous term sheet, a written offer setting the price they would sell a stake for. Hansson said it was "almost offensively" overvalued.
They had only a little early traction but priced themselves as if enormous future growth had already arrived. Hansson said it was "such a stupid number for the time" that he was certain Bezos would refuse.
Bezos accepted. Hansson said "it turned out to be an amazing investment for him." They have returned his money many, many times over, he still owns his stake, and every quarter or so they send him another dividend check.
The money mattered less than the reassurance. With cash in the bank, they no longer had to worry about looking for jobs the next Monday, and they could say no to everyone else. Once a year in those early years, they met Bezos for dinner, described their problems, and asked what to do.
He would ask what they thought, listen, and then say that was a good idea and they should do it. Coming from Bezos, the most famous name in their field, that vote of confidence was rocket fuel for two founders who already had plenty of self confidence.
Hansson now says he regrets not being more grateful. Without Bezos, he believes a big venture check six months later could have destroyed the business, cost them their independence, and left them miserable.
Questions people ask
What does Basecamp actually do?
Basecamp is software that helps teams organize projects, share files, and communicate in one place. 37signals, now also called Basecamp, sells it as a subscription, which is why it can generate steady profits and pay dividends instead of chasing a sale or public offering.
Why would taking venture capital money destroy a business like theirs?
Most venture investments fail, so firms push the winners to grow extremely fast and aim for a huge exit. For founders who want to stay small, profitable, and independent, that pressure can force hiring sprees, feature bloat, and a sale they never wanted.
How can a startup still be sending dividend checks years later?
As a private company it can share profits with shareholders whenever it chooses. Many profitable private companies pay regular dividends, and 37signals has continued to send Bezos checks because he still owns his original stake.