- Oracle completed its acquisition of the UK ad-tech startup Grapeshot last week in a deal that sources said was worth $325 million.
- Grapeshot’s technology helps brands avoid unwittingly showing ads next to embarrassing content — for example, airlines advertising next to news stories about plane crashes.
- The deal has turned Grapeshot’s executive team into millionaires and is another big Cambridge success, according to its investors.
- But they also said that Grapeshot could have one day been worth $1 billion and that the company fought off investment offers from private-equity firms.
- There’s a perception that promising European tech companies might be selling out to US tech giants too early, siphoning talent out of the region.
The startup investor Max Bautin popped open the Champagne when one of his investments, the British ad-tech company Grapeshot, finalized its sale to Oracle early last week.
Oracle announced the purchase in April but did not disclose the price. Sources said that the deal was worth about $325 million (£242 million) — including earn-outs, in which the executive team will be paid depending on how the business does in the future — and that it closed last Tuesday.
According to Bautin, the acquisition turns Grapeshot’s executive team into millionaires.
“It’s always amazing when that happens,” he said.
Oracle and Grapeshot declined to comment for this article.
It isn’t just good news for the new millionaires — Bautin and his fellow investors at IQ Capital and Albion Capital have seen strong returns on their original investments in Grapeshot.
In 2014, the Cambridge startup was worth about $15 million, a person familiar with the matter said. A $325 million price tag suggests its value has rocketed to more than 20 times that since then. The company raised less than $20 million in total funding since launching in 2004.
Albion Capital led an initial funding round in Grapeshot in 2014, then participated in a follow-up round in 2016. Albion on its investment.
John Snyder, the CEO of Grapeshot, “built a hugely capital-efficient business,” said Robert Whitby-Smith, a partner at Albion Capital. “The multiple on the capital invested is enormous.”
Bautin said Grapeshot’s acquisition helped IQ Capital’s first fund return 2x to its investors.
It’s the ideal outcome for a venture investor: Find an efficient startup with an outstanding executive team and amazing tech, and enjoy an exit that will pay off big on your original bet. Creating some wealth for a strong team that might go on to found new startups is a nice side effect.
But for all the Champagne, all three investors sounded a little wistful about the sale, saying Grapeshot had the potential to become a “unicorn,” or a startup worth $1 billion or more. The UK’s crop of startups at that valuation include Deliveroo and Farfetch, both of which are rumored to be nearing the point of going public.
Grapeshot ‘could have been in billion-dollar-plus territory in time’
Grapeshot took a long time to land on its idea. Its core technology was created by Martin Porter, a highly regarded Cambridge computer scientist who invented the Porter Stemmer algorithm, commonly used in information-retrieval systems like search engines.
“Martin Porter’s tech was always about contextual search,” said Stuart Chapman, a managing partner at Draper Esprit. “In some ways, you could say it was phenomenal technology trying to find a commercial application.”
Snyder eventually landed on advertising, . He noticed that the move toward real-time bidding, where ads are sold through auctions in real time, meant that digital advertising was growing at a rapid clip but that quality was declining. Because everything was automatic, there was no one to filter for nuance, resulting in awkward ad placements, such as commercial-airline ads appearing next to news stories about plane crashes.
Snyder spotted an opportunity for Grapeshot’s contextual advertising. As more brands redirected their ad spend to programmatic, they also found their ads ending up in awkward spots. Eventually, the concept of brand safety became one of the most talked about topics in marketing, and Grapeshot grew rapidly.
IQ led a funding round in Grapeshot in 2009, and by the time Albion and Draper invested in 2014 and 2015, the company was “going like a train,” according to Chapman. And more companies were increasingly turned on to brand safety in the wake of news investigations that found ads for big brands next to terrorist content.
When Albion invested in 2014, Grapeshot had revenue of £1.8 million. Filings show the company reported £9 million in revenue for 2016 on a loss of £1 million. Sources told Business Insider that revenue for 2017 was about £24 million and that the company was profitable.
“It had fantastic KPIs” — key performance indicators — “and it could have been in billion-dollar-plus territory in time,” Bautin said.
Grapeshot fought off offers from private-equity investors and considered staying independent
Bautin and Whitby-Smith said Grapeshot had considerable interest from multiple buyers and investors, including private-equity firms, but opted to sell to its long-standing partner Oracle. The tech giant kicked off serious talks in December.
“In some ways, it would have been great to see it stay independent, get unicorn status and IPO, which it had potential to do,” Bautin said. “But then there was Oracle — their software was good, the team liked the new home, and there was impetus to grow into a big player.”
The ad-tech market is generally undergoing lots of consolidation, especially with Europe’s new privacy laws about to come into effect. Bautin added that “things are not quite so certain” in advertising.
Draper Esprit, a proponent of long-term investing that was last to invest, was perhaps the most reluctant to sell.
“We were not looking to sell out,” Chapman said. “The approach was not what we were looking to do … That said, look at the industry at the moment and the issues that Facebook and Google have. Partnering with a major brand, the powerhouse of Oracle — as a businessperson, it doesn’t look like a bad decision.”
According to Whitby-Smith, there was unanimous agreement inside Grapeshot to sell, partly because it had built up trust with Oracle over time.
Superficially, the deal looks like another European startup selling out too early to a major US corporation. But Bautin argued that it had created several millionaires in the executive team who may go on to found other startups. Snyder is already a serial entrepreneur, having founded the natural-language search company Muscat, which he sold to Dialog Corporation in 1997.
It’s also yet another success to come out of Cambridge, alongside Autonomy and the chip firm Arm.
“This is another Cambridge success story,” Whitby-Smith said. “Both Martin and John were at Cambridge University. It’s another data point on the strength of Cambridge’s entrepreneurial ecosystem.”
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