No investment I’ve ever made has had the ups and downs of Yevvo / Air / Meerkat and then Houseparty. Ben Rubin, the founder of the company, managed to build three B2C phenomenons, copied multiple times by the industry giants. It was a roller coaster ride of kids being thrown out of school for using Yevvo, reaching 300,000 users, and then shutting down because growth stalled. This was followed by Meerkat, a backup strategy (!) created by a single brilliant hacker (!) turning into SXSW breakout success, and then regular 1 am to 5 am calls with Ben as Twitter shut down the company’s API access and thus app growth. Then the release of Houseparty under the name of the co-founder & COO’s husband, a social networking neophyte, and overnight growth to over five million users, followed by a $50M round closed within seven days. To put this in perspective, just before that round, Houseparty was growing so fast that the $4M remaining in the bank from the Greylock investment were projected to (optimistically!) sustain the company for two more months, just paying the communication and server bills.
In retrospect, like every other crazy never-seen-before growth cycle, the company experienced meltdowns. It’s like it never expected its own success. Right before Meerkat took over SXSW, Ben had just downsized the company by 50 percent. I had to convince him to take Oona, our marketeer in residence, to be his sidekick in Texas. Later, as Houseparty blew up, our two EIRs (Entrepreneur and Engineer In Residence) Nadav Wizman and Mor Sela first helped scale the servers, and then joined them full time. (In another broken record, it was the shortest EIR tenure in Aleph history.)
But then growth stalled. We still had millions of coveted 13–18 year olds coming back on a weekly basis, using Houseparty for an average of 50 minutes a day — more than the time spent on Facebook. But with over $70M of raised capital, you need to show extraordinary growth and potential to continue to thrive. As well said by Chris Dixon: “Ten million users is the new one million users.”
Thankfully, even after the insane amounts of money spent on infrastructure, the funding still provided the runway required for the team, led by Sima Sistani as CEO, to pivot the company slightly to become a synchronous video gaming platform. It was the first time the company generated revenues.
Largely due to that crucial pivot, it was announced that Epic is buying Houseparty to integrate video chat into its products. Being a gamer myself, Epic for me is all about Unreal (circa 1998), but your kids probably know it because of their popular game, Fortnite. Epic’s offer was not the only one the company received, but was perceived as optimal by management because it was clear Epic cared about the product. The team will continue building Houseparty, but as part of Epic. Deals where the team joins the acquirer provide for long-term retention as they need to incentivize staying around for 3+ years. Even though we as investors won’t even be getting our full investment back, the team deserves to celebrate.
And this is why it’s not black or white. Exits can be good for some, and not for others. So why am I happy about this?
As a venture capitalist, I can’t be happy about the transaction. The bottom line here is that I lost money for our Limited Partners, who entrusted us to create outsized returns. That said, venture is an iterative game based on repeated failings in the search for home runs. Houseparty, sadly, won’t be one. It’s said that failing as a VC is the modus operandi, it’s the norm. VCs are portfolio builders, and you strive for success, all the while knowing that 50%+ of your investments will fail. The dissonance between that and what’s communicated is mostly due to brand building. Success begets success.
I am happy that a team I love will now play a central role in the ecosystem, where they can be helpful to the next generation of entrepreneurs seeking collaborations and acquisitions.
As an ex-entrepreneur, I can’t help but think that unlike VCs, as a founder, you have a portfolio of one. It’s your only child. It took me years before I could wholeheartedly admit that Shells, my first company, was a failure. Instead, I would say, “It was a great product and a technical success.” At the end of the day, the product wasn’t taken up by anyone, the team didn’t land anywhere and the investors didn’t see any of their money back. It was hard to admit to myself that I wasted six years of my life and many millions of dollars in building something that at the end, didn’t live on. I am in awe of the work that Ben, Sima and the entire team have done together. I am ecstatic to know that not only will the team stay together, but will continue working on Houseparty at a vehicle with far wider distribution than ever.
Finally, as a friend, I will say that no one can endure a six-year intense relationship like the one involved in building a startup without discovering all the good and the bad, and becoming friends in the process. I am happy to call Ben, Sima, Uri and Wiz my friends. I will cherish the relationships we built and the lessons we learned together.
At the end of the day, the questions still remain: do we need synchronous group video? Can it form a habit for a significant percent of the population? That is what’s required to build a social network and not a feature.
