TIME Startups

This Budding Startup Is Changing How You Buy Flowers

BloomNation
BloomNation co-founders David Daneshgar, left, head of business development and sales, Gregg Weisstein, center, chief operating officer and Farbod Shoraka, right, chief executive officer

BloomNation empowers local florists to better show off their diverse offerings

As a world champion poker player, David Daneshgar could recall a hand from two years ago as if it were dealt to him yesterday. So it wasn’t exactly dumb luck when he made it to the final round of a 2011 poker tournament at Los Angeles’ Commerce Casino. Still, he took a risky gamble, going all in on a $30,000 pot. At the flip, his opponent misread the cards and threw a premature celebration. Daneshgar knew better.

“The guy doesn’t know he lost,” he said to his friends. “Don’t worry, it’s flower time.”

It was “flower time” because Daneshgar and his friends planned to use their winnings to launch an online flower market, even if they had only a passing familiarity with the industry. Farbod Shoraka was a 28-year-old investment banker who had worked on a single financing deal for a floral company. His co-founders, Gregg Weisstein and David Daneshgar, had no relevant experience to speak of.

“If you think about it,” Shoraka says, “three things are required to be successful: knowing the floral industry really well, knowing the e-commerce industry really well and knowing technology very well. We had none of the three.”

What they did have was $30,000 in poker chips, and that was enough to get BloomNation’s web portal up and running. They launched in 2012 and invited local florists to post pictures and prices of their floral arrangements to the website. “Like Etsy for flowers,” says Shoraka, BloomNation’s CEO.

The response was overwhelming. Roughly 600 florists signed up before the website had even launched. Today, more than 3,000 florists are on board, paying a 10% commission on every order. The company’s revenues have climbed by 15 to 30% each month, and its founders expect sales to hit $45 million within one year.

The team credits BloomNation’s rapid growth in part to their slow-moving competition. BloomNation has taken aim at three giants of the floral industry: 1-800-Flowers, FTD and Teleflora. Collectively these companies capture roughly two-thirds of online flower sales, a $2.3 billion market, according to research firm IBISWorld. Those sites are essentially middlemen, taking orders on one end and dispatching them to neighborhood florists on the other end. Florists, in turn, pay a 20 to 50% commission. It’s a time-honored business partnership dating back to the early days of the telegram, when FTD began wiring orders to florists across the country. To this day, florists refer to these companies as a “wire service” in a nod to their distant past. But in Shoraka’s opinion, they were stuck in that era.

“In a way they’re still using the Internet the same way they use a telegraph wire,” Shoraka says. Shoppers select a floral arrangement based on stock photos. Florists then match the photo, flower for flower. If they have an exceptional deal, a unique vase or a fresh shipment of flowers, they have no way of relaying that information back to the customer. “It’s fundamentally broken to take a picture of an arrangement and think that you can replicate this across the country when different florists have access to different flowers, a different talent pool of creative designers and different price point,” Shoraka says.

BloomNation breaks this model by essentially crowdsourcing its catalogue out to the florists themselves. The florists upload pictures and prices of their arrangements through the back end of the site. On the front end, customers browse photos of the very same flower arrangements that they might find in the window displays of 3,000 flower shops and studios across the country. As a result, BloomNation’s online catalogue is always up to date, constantly changing and hyperlocal. And that flow of local information from florists back to online shoppers was a key reason Kim Williams, owner of The Enchanted Florist in Burbank, California, started listing on the BloomNation website. She says she chafed at the wire services’ paint-by-numbers instructions. “Even if you want to put something prettier in, you can’t do it,” Williams says.

J Schwanke, a fourth generation florist and floral industry expert, offers more cautious praise for BloomNation. He believes its 10% commission was a welcome improvement over its competitors. “Their concept of making sure that more of that money goes to the florist is commendable,” he says. Still, he’d prefer to see shoppers circumvent middlemen entirely: “The best bet for a consumer is to find a true local florist and call them directly.”

But BloomNation’s founders argue that by getting the nation’s florists on a single cloud-based platform, they can spare them the trouble of establishing an online presence. They can also mine florists’ sales for intel that’s normally the privilege of multinational corporations. “I can tell a florist in San Francisco what’s trending in New York,” Shoraka says. “I can tell a florist where are the price points that are selling best in their catalogue. We get to see what’s happening on a national scale but also on a hyperlocal level.”

In a sense, BloomNation isn’t replacing the original idea of the wire services, which was to connect florists into a nationwide ordering system. They’ve only updated the idea for the modern era. “Ultimately if you strip away flowers and all that,” Shoraka says, “what we have really built is a way for a local business to be empowered and an individual to be empowered, and have the same tools as big e-commerce players.”

MONEY Startups

5 Ways to Tackle the Problem That Kills One of Every Four Small Businesses

Getty Images/Hero Images

Smart strategies for managing your cash flow

It’s a phenomenon that most people who have never run a business have a hard time understanding: That a seemingly healthy business—even one that is both profitable and growing—can go bankrupt.

The explanation comes down to what’s known to accountants and business people as a cash flow problem. Your company might have a contract to deliver a gazillion widgets in December at a fantastically profitable price. But it’s July now, and in the meantime you need to buy the raw materials needed to produce those widgets and pay people to assemble them—and if you don’t have enough cash on hand to make it until December, well, let’s just say the holidays are going to be kind of bleak this year.

That’s why, for example, Chris Carey, CEO of Modern Automotive Performance, works hard to keep his cash flow as smooth as the rides his customers crave in their souped-up cars. Carey’s 40-employee company, based in Cottage Grove, Minn., provides auto and truck parts to owners of vehicles like the Mitsubishi Evo X and Dodge Neon SRT-4, allowing them to do things like handle better and accelerate faster.

It’s a seasonal business that peaks in the spring, when drivers get ready to hit the roads—and sometimes the racetrack. One way Carey avoids running short of cash to pay his bills during the frigid winter months is by charging all of his customers in advance. “We’re being paid for the products before we have to pay our vendors,” he says.

By keeping a close eye on cash flow, Carey has enough available cash and access to credit to keep Modern Automotive Peformance well stocked with the type of inventory that keeps customers flocking. He has grown the business to $11 million in revenue annually since 2006.

Unfortunately, his attention to cash-flow is rare among entrepreneurs. “It’s not something most small business owners think about,” says Dave Kurrasch, a former senior vice president of Wells Fargo who is now vice president and general manager of Small Business Payments Company, a financial technology provider.

That can be a fatal mistake. Recent data compiled by the research firm CB Insights found that 29% of startups fail because of a cash crisis. It was the second highest cause. (The number one factor, at 42%? A lack of a need for their product in the marketplace.)

So how can you make sure your business beats the odds? Here are five strategies to keep your cash flow healthy.

Strategy #1: Choose a lower-overhead business. It may seem obvious—and for some businesses, simply too late—but the fact is that certain enterprises require much more or less cash to launch and grow than others. If you don’t have much access to startup funding, your best bet may be business you can fund mostly through the revenue you receive from customers.

“Consultants, if they’re good at what they do and are well known, can be instantly cash-flow positive,” says Kurrasch. That’s because they tend not to have a lot of inventory and if they hire people, the team members often contribute directly to producing revenue. “Most businesses that have inventory—restaurants, retail outlets, manufacturers—tend to be negative cash flow producers, at least for the first three to four months, if not longer.” Which leads us to our next point….

Strategy #2: Secure credit before you need it. By talking with experienced business owners in your intended industry before you open your doors, you can find out how much cash you’ll likely need to survive until revenue starts coming in the door—and finance your operations accordingly.

Start by being realistic about it. “If you own a restaurant or a Hallmark card shop, a real traditional small business, [venture capital giant] Kleiner, Perkins isn’t going to come along and put a bunch of money into your company,” says Kurrasch. “Either you have cash reserves or you have friends and family you can call on.”

Start your money hunt long before there’s any chance you’ll run short of cash. “Try to get as much credit as you can before you enter the business,” advises Nat Wasserstein, managing director of Lindenwood Associates in Upper Nyack, N.Y., a provider of services such as crisis management. If you wait until you’re in a jam, you’ll find it hard to get anyone to lend to you.

Strategy #3: Find your ideal dashboard. By keeping keep close tabs on the money coming in and out of your business, you’ll reduce the chance of getting caught short when it’s time to meet payroll or pay a key supplier. “A lot of entrepreneurs don’t even understand that they could be profitable and strapped for cash at the same time,” says Wasserstein. If you need money now to pay your bills and don’t expect customers to pay you in the immediate future, you’ll find yourself in a crunch where you need to borrow.

Fortunately, there are simple tools to help you keep on top of cash flow without spending a lot of time on it. You can get a free excel worksheet to figure out your cash flow through from the CCH Business Owner’s Toolkit. Or, if you want a more automated solution, you can use inexpensive accounting software such as QuickBooks to create a “statement of cash flows.” Kurrasch’s company offers a cash forecasting app, called Small Business Workbench, that costs $6 a month for the basic plan.

Strategy #4. Put your credit card to work for you. Carey has found that one of his most valuable tools in managing his cash flow is his business credit card. He happens to use the American Express Plum card, which offered him 2% cash back if he paid the balance in full when he signed up in 2006, and now offers users 1.5% back. Carey will often spend as much as $750,000 a month on his card to pay for inventory and other expenses, enabling him to get anywhere from $10,000 to $15,000 a month once he pays the bill on time. That gives him a big incentive to keep on top of the money coming in and out of his business. “Everything in our cash flow revolves around making that payment for the American Express card,” he says. The American Express Plum card is one of many cards offering cash back, so shop around for a good deal.

Strategy #5. Know when to say no. It’s easy to get excited if a big retailer offers to carry your product or a big contract drops in your lap at a professional services firm. But before you say yes, make sure you understand how quickly a client will pay you—and figure out if you can manage the outlay to fulfill the deal in the meantime. If you won’t be seeing any cash for 120 days, it’s very possible to run out of money and find your company on life support. “Not every sale is worth taking,” says Wasserstein.

Of course, before you turn down business, it’s worth exploring creative ways to get customers to pay you more quickly. For instance, some small vendors offer early-payment discounts to big suppliers to get them to cut checks more quickly and sign up for direct-deposit payments to their bank accounts, which may speed payments by a few days. These approaches are often a lot cheaper than borrowing.

TIME Startups

These Are the Best Cities to Launch a Business in the U.S.

female-coworkers-moving-office
Getty Images

From Memphis to Tulsa

When you think of the prime place to start a business, what springs to mind? If it has the word “Silicon” in front of it, the findings of a new study from Washington, D.C.-based personal finance platform WalletHub may surprise you.

The survey took a look at the 150 biggest cities in the United States to figure out where new companies were most likely to succeed and where they were most likely to fail. The city of Shreveport, La., came out on top, while Newark, N.J., came in at the bottom.

The cities were ranked based on their business environment and access to resources. WalletHub and 13 professors of business from colleges and universities across the country used a methodology system of 13 points, which included the cost of office space, employee availability, annual income, taxes, cost of living, the education level of the population and the number of small businesses per capita, among others.

If you’re looking for the least expensive office space, you might want to look into Toledo, Ohio. Meanwhile, Salt Lake City was found to have the most accessible financing and you’ll find the highest employee availability (the number of open positions minus the number of out of work residents) in Fresno, Calif.

For more information, check out the full list over at WalletHub.

Best Cities to Start a Business Worst Cities to Start a Business
1. Shreveport, LA
2. Tulsa, OK
3. Springfield, MO
4. Chattanooga, TN
5. Jackson, MS
6. Sioux Falls, SD
7. Memphis, TN
8. Augusta, GA
9. Greensboro, NC
10. Columbus, GA
141. Anaheim, CA
142. San Jose, CA
143. Santa Ana, CA
144. Oakland, CA
145. Ontario, CA
146. Fremont, CA
147. Yonkers, NY
148. Garden Grove, CA
149. Jersey City, NJ
150. Newark, NJ

This article originally appeared on Entrepreneur.com.

More from Entrepreneur.com:

TIME Startups

How Startups Have Impacted the Hotel Industry

bedroom
Getty Images

Hotel industry is the prime example of startups making significant impact

startupcollective

If you’ve been keeping up with current events, you’ve probably heard about Airbnb’s recent legal problems. For those who aren’t aware, cities like New York have been going after Airbnb because it hasn’t paid taxes (such as the New York City Hotel Occupancy tax of 5.875 percent) and it’s violating the New York State Multiple Dwelling Law.
Startups like Airbnb are under fire by certain cities because they are absolutely disrupting the hotel industry. If Airbnb wasn’t listing over 800,000 homes or rooms and attracting more than 20 million guests, do you think people would be so concerned? Probably not as much. But how exactly have startups disrupted the hotel industry and what can we expect in the future?

Affordable Accommodations

This has probably been the most impactful disruption that startups have had on the hotel industry. For example, you could save money during a business trip by spending $50 a night for a room on Airbnb as opposed to spending $100 or $150 on a room at a hotel, which doesn’t include added costs like taxes. If you’re a college student wanting to explore the world during summer break, you can budget your trip by finding hosts on Couchsurfing.

With Millennials becoming more conscious about their spending as a result of the recession, it’s not surprising that most people seek out the best deals possible. Which is great news for Generation Y, but not so much for the hotel industry.

Personalized Hotel Pricing

The days when we’ll all be paying the same for a hotel stay are numbered. Companies like Duetto make it so hotels can enable dynamic pricing models that constantly change based on demand, weather patterns, events, online shopping behavior, and numerous additional data sets. Based on this information, they can tell hotels when to drop rates and when to increase them to always have the optimal price.

Cultural Experiences

One of the best perks of traveling is the chance to absorb the culture. Whether you’re a New Yorker visiting San Francisco or a Chicago native heading to Italy, the chance to chat with locals, eat regional cuisine and take in the sights and sounds unique to the area are what makes traveling worthwhile.

While you probably aren’t spending that much time in your hotel room, startups are offering travelers a richer experience by connecting them with local hosts. Take for example Homestay or Onefinestay. These companies allow you to have an authentic meal at someone’s home, receive recommendations off the beaten path or just live the daily life of local residents. Hotels just can’t offer these type of cultural experiences.

Lodgings Suited to Your Needs

What if you’re traveling with a large group of people? Do you know the organization it takes to block out several hotel rooms for a family vacation or getaway with your friends? Being able to rent out entire houses on Airbnb allow you to find a place that can accommodate your entire group.

Besides giving you the opportunity to rent houses, you can also find places that match your interest and preferences. For example, you could rent a home in a treehouse catering to travelers looking for a relaxed vacation with amenities that include a meditation room and yoga classes. That is definitely more appealing than a bland hotel to someone who wants to escape city life.

Last-Minute Options

We have all had those times when we have to dip out of town for a few of days because of a last-minute emergency. Or you just found out you have someone to watch the kids or have received bonus vacation time. Instead of scrambling to find a last-minute hotel, which could be booked or more expensive, there are plenty of homes and rooms that you can find on sites like HotelTonight. Startups can help put our minds to ease if we ever want to book a last-minute room.

Personal Connections

While review sites have helped travelers by providing feedback, they doesn’t always provide you with personal connections. On Airbnb you’ll find authentic reviews and be able to contact the host from the start of the booking process through departing the residence. Furthermore, hosts can provide personal concierge service, such as picking you up from the airport or driving you home from a local winery. And they are more than happy to recommend restaurants or attractions that you may never have had the chance to discover.

As Vikram Singh from Skift puts it so perfectly “Do I remember the guy who checked me into my last hotel room? Nope. Do I remember my last Airbnb host? You bet I do.”

These are just five ways that startups have disrupted the hotel industry. But what can we expect in the next couple of years? Maybe we will begin to see high-tech hotel rooms, data that can be used for personalized experiences and the ability to have all of our travel plans located in centralized portal. Only time will tell.

Peter Daisyme is the co-founder of Palo Alto, California-based Hosting Inc, a hosting company specializing in helping businesses with hosting their website for free, for life.

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

This article was originally published on StartupCollective.

TIME Startups

Why Investors Say Warby Parker Is Now Worth $1.2 Billion

Warby Parker founders David Gilboa (L) and Neil Blumenthal attend the 17th Annual ACE Awards in New York City on Nov. 4, 2013.
Evan Agostini—AP Warby Parker founders David Gilboa (L) and Neil Blumenthal attend the 17th Annual ACE Awards in New York City on Nov. 4, 2013.

The startup launched in 2010

Add hip eyewear startup Warby Parker to Fortune’s Unicorn List: the company has raised a new funding round of $100 million that pushes its valuation over the $1 billion mark.

The new valuation of $1.2 billion, first reported by the Wall Street Journal, comes after a round led by T. Rowe Price, the publicly traded money management firm that had revenues of nearly $4 billion last year. T. Rowe Price has invested recently in other notable tech “unicorns” including Flipkart and Lookout. The founders of those two companies—Sachin and Binny Bansal and John Hering, respectively—have all landed on Fortune‘s 40 Under 40 list in the past few years.

We named David Gilboa and Neil Blumenthal, the Warby Parker founders, “Ones to Watch” in 2012.

Warby Parker launched in 2010, selling designer eyeglasses for under $100, with a “one for one” model that the founders said was directly influenced by Toms and its founder, Blake Mycoskie. Toms began in shoes but soon launched additional product lines with the same one-for-one model, including eyeglasses and sunglasses—which makes it a Warby competitor. (In an interview with Fortune last year, Mycoskie said that the Warby founders reached out to him for guidance before they launched, but because Toms was already planning its eyewear line, he couldn’t respond or help them.)

Like a handful of other businesses that began with a web-only model but have since opened brick-and-mortar shops—dress rental site Rent the Runway, for example, or pants retailer Bonobos—Warby eventually began opening up store locations (its flagship location is in Manhattan’s SoHo neighborhood) and now has 12 of them in the U.S., with plans to open eight more this year.

In June of last year, the company announced it had given away one million pairs of eyeglasses, meaning it had also sold one million pairs.

Blumenthal and Gilboa have described their company to Fortune as more than a consumer brand. Blumenthal said he believes that investors look at the company “through the lenses” of social enterprise and e-commerce company, as well. “What they’re finding,” he said, “is our metrics and performance is best in class in each category.”

Achieving a billion-dollar valuation after five years puts Warby Parker at about the average compared to young companies that reached the milestone very rapidly, like one-year-old Slack and three-year-old Tinder, and others that took longer to get there, like Shazam, which has been around since 2002, and Quickr, founded in 2008.

Warby Parker still is not profitable, but says that its sales are growing each year.

This article originally appeared on Fortune.com.

TIME Careers & Workplace

Why You Should Start More Than One Business

businessman-looking-out
Getty Images

Because one company is not enough

There are two types of entrepreneurs: Those who start one company and those who start lots of companies.

Those who start lots of companies like to describe themselves as “serial entrepreneurs,” which may or may not be slightly fatuous. Those who start just one company may think of themselves as “business owners” once the thrill of the entrepreneurial journey has ebbed.

If you’ve started one company, you can do it again. And you probably should. One company is not enough.

I will explain why.

Starting multiple businesses guarantees that life will never be boring.

Let’s face it. Entrepreneurship is a rush. Whereas most people get into business to make a living, I find that a life worth living includes starting businesses.

After having started a few, I want to start more. Running a business is exciting in its own right, and I continue to do so on a daily basis. Starting them, however, has a set of unique challenges and thrills.

Keep starting companies and you’ll never live another boring day in your life.

Multiple businesses can provide financial security.

If excitement isn’t your thing, then maybe financial security is more palatable.

According to CrunchBase, the average successful U.S. startup raises $41 million and exits with $242 million. Notice, however, that is only successful startups. For every one successful startup, there are as many as nine unsuccessful startups. Angel.co puts the average valuation of their startup list (not all successful) at $4.3 million.

Not every startup turns out like Apple ($590 billion valuation), Facebook ($200 billion valuation), Airbnb or Uber. Those companies are the rare exceptions, not the general rule. If you want to sit on a future mountain of cash, you may have to start more than one company.

Starting multiple businesses allows you to stay fresh.

Every time you start a new company, you learn something new.

In my entrepreneurial pursuits, I’ve launched businesses in industries that I knew nothing about going into. Learning is half the fun of doing, and keeps your mind sharp and your skills fresh.

Not starting another business is a waste of your personal experience.

One of the worst things that you can do with your experience is to let it waste away. Experience is meant to be used, shared and acted upon — not stifled.

When you have the experience of starting a successful company (or an unsuccessful company, for that matter), you can turn around and use that experience to do it again. Or, you can use that experience to teach others how to do it.

Experience is one of the most valuable takeaways from founding a company.

Starting a business creates a valuable network that makes it easier to start another company.

Another valuable entrepreneurial asset is your personal network. When you start a company, you meet investors, advisors, other entrepreneurs, vendors, service providers and other people who help to grow a business.

These relationships are highly valuable. They enrich you personally and they allow you to create the platform upon which to build more companies.

Starting a network from scratch is tough. The game of who-do-you-know-that-I-can-meet gets old fast. Owning such a network, however, has value that goes way beyond money.

Starting more businesses gives you exponentially more influence.

Revenue isn’t the only thing that grows bigger with more businesses. Your influence grows, too.

Serial entrepreneurs don’t remain out of the limelight long. Because of their experience, they are called upon to share their experience, speak at conferences, participate in panels, provide interviews, and write blogs.

Such influence can be exhausting, but it’s also rewarding. Influence is part of your personal brand, which you can then leverage to earn even more.

The more businesses you start, the better you become.

The first time you do anything, you’re barely hanging on. The second time you do it, you get a little bit better. The third time, you’re starting to develop confidence. The fourth and fifth time, you feel like you’re getting the hang of it.

This is true for starting businesses, too. With every new business, you’re building on knowledge, brand visibility, marketing experience, and other resources, creating a business that is even better than the one before.

Why would you do it only once when you can get better with each successive attempt?

You can build every successive business faster than the one before.

Everything about building a business takes time — funding, marketing, development, research, strategizing, etc.

These time-consuming activities become easier and quicker every time you do it. You can spend less time finding VCs, writing proposals, searching for vendors, hiring developers, developing a marketing plan or researching your target market.

Each new attempt goes quicker, meaning that you can launch a successful business in just a fraction of the time. Starting only one seems like a definite lack of strategy.

Some warnings on serial entrepreneurship.

Starting lots of businesses is every bit as exciting as I’ve indicated. That being said, you need to keep in mind that there are risks, disappointments and stressors. Let me provide a few disclaimers.

  • Beware when starting any business. To be an entrepreneur is to take risk. To live life in general is to have risk. Based on my experience and disposition, I tend to think that to be an entrepreneur is to take less risk than, say, giving your life and livelihood to work for someone else’s company. Entrepreneurship has its own sets of risks.
  • You don’t have to break up with your old business. When you start a business, you become deeply invested in its success and future. When you start a new company, you aren’t neglecting the old one. You can still run it, coach it, advise it and profit from it.
  • Take a break between businesses. Even though starting businesses is fun, you’ll benefit more if you unplug now and then. I suggest taking a nice, long break between business ventures. You’ve earned it.

Conclusion

The more you start, the better you get. Launching a single business is only the start of a promising and successful future as a serial entrepreneur.

If you’ve started one business, good for you. Now, go and do it again.

This article originally appeared on Entrepreneur.com.

More from Entrepreneur.com:

Read next: The Amazingly Simple Way to Be More Productive at Work

Listen to the most important stories of the day.

TIME Companies

Workplace Collaboration Startup Slack Valued at $2.8 Billion

Stewart Butterfield, co-founder and chief executive office of Slack.
Slack Stewart Butterfield, co-founder and chief executive office of Slack.

Slack CEO thinks the funds will serve as "a good hedge about what might happen in the future"

Workplace collaboration platform Slack today made official what has been rumored for weeks: It has raised $160 million in new venture capital funding at a post-money valuation of $2.8 billion.

But one big question remains: Why?

Slack raised $120 million just last October at a $1.12 billion valuation and, at the time, didn’t even need the money. Instead, it simply wanted to join the (then less) exclusive unicorn club. So why go back to the well?

Company co-founder and CEO Stewart Butterfield explains: “We’re kind of in the best environment ever to raise money and while things could always get better and we’ll wish we had waited another six months, having a couple hundred million bucks in the bank is a good hedge about what might happen in the future.”

(If this argument sounds familiar, it’s probably because we put it forth last month)

Butterfield, who says Slack still has not tapped any of last October’s $120 million, adds that he’s not terribly concerned that macro pullback might lead to Slack later raising new capital at a lower valuation. “There’s always some downside risk to any business deal, but we’re very capital efficient and never really need to raise money again,” he says. “This valuation helps us recruit new employees and gives a high value to our stock when contemplating acquisitions… It would have been imprudent of me not to take it when it was offered.”

Does that mean Butterfield would raise another $160 million at a larger valuation in six months?

“If we could double our valuation again, I’d certainly think about it,” he says.

New investors on this funding round include Li Ka-shing’s Horizons Ventures, DST Global, Index Ventures, Spark Capital and Institutional Venture Partners. Return backers were Andreessen Horowitz, The Social+Capital Partnership, Google Ventures and Kleiner Perkins Caufield & Byers.

This article originally appeared on Fortune.com.

TIME Silicon Valley

How Google Perfected the Silicon Valley Acquisition

Signage outside the Google Inc. headquarters in Mountain View, California on Oct. 13, 2010.
Tony Avelar—Bloomberg/Getty Images Signage outside the Google Inc. headquarters in Mountain View, California on Oct. 13, 2010.

As tech's largest firms grow in scope and age, acquisitions have become an increasingly important maneuver

Correction appended, April 21

In late October John Hanke and several of his co-workers met for a reunion of sorts at Fiesta Del Mar, a Mexican restaurant near Google’s Mountain View headquarters. Hanke, a 10-year Google employee who led initial development of Maps, was once the founder of a small geodata startup called Keyhole that Google acquired in 2004. The fact that the one-time entrepreneur has stayed with the search giant for more than a decade makes him and his colleagues oddities in Silicon Valley. “There are quite a large number of [us] who are still at Google, and I have to say I don’t think anyone expected that when we first came in,” he says.

Google has used acquisitions to expand its workforce and launch new products since before it was a household name. Recently that strategy has become the modus operandi for technology firms in Silicon Valley. Facebook is using its fast-growing cash hoard to take control over sectors both adjacent to its core product (WhatsApp for $22 billion) and far-flung from social networking (Oculus VR for $2 billion). Microsoft, Yahoo and Amazon are doing the same, making big-ticket bets by buying Minecraft developer Mojang ($2.5 billion), Tumblr ($1.1 billion) and video game streaming site Twitch ($970 million), respectively. Even Apple, which long eschewed splashy acquisitions in favor of much smaller, less public buys, says it bought at least 30 companies during the last fiscal year, including the $3 billion purchase of Beats.

Overall spending on tech acquisitions topped $170 billion in 2014, up 54% from the previous year and more than double the amount spent in 2010, according to PrivCo, a research firm that tracks investments in private businesses. As the core of dominant technology companies get larger, they have come to depend on acquisitions not only to broaden their businesses but also to sustain the pace of innovation. “Companies are buying innovation,” explains Peter Levine, a general partner at venture capital firm Andreessen Horowitz. “As large companies need to be competitive and want to increase their footprints in a variety of different areas, one of the best ways to do that is through acquisition.”

The deals are a boon for startups as well. Venture capital is abundant, and companies can rely on investment rather than revenue to keep growing. If it’s not clear how a startup will eventually convert users into revenue, a buyout from a large firm can render that problem irrelevant—or at least less urgent. While investors and founders insist that launching a thriving self-supporting company is still the end-goal in Silicon Valley, “exiting” via a sale rather than an initial public offering can still net a lucrative payout. “It’s almost a goal for some of these companies as they start, to have that exit event,” says George Geis, a business professor at UCLA whose upcoming book, Semi-Organic Growth, analyzes Google’s acquisition strategy over the years.

But while snapping up a startup is now easy, holding onto its key employees is more difficult. Startup founders, who often think of themselves as entrepreneurs before engineers, are notoriously difficult to keep at large firms long. Partly, this is cultural: striking out on one’s own, idea in hand, is a fundamental part of the Silicon Valley ethos. The widespread availability of funding doesn’t hurt, either. That has left firms struggling to keep the expertise they may have spent millions acquiring. “When a firm is making a tech acquisition, they’re buying the talent as much as they’re buying the technology,” says Brian JM Quinn, a law professor specializing in mergers and acquisitions at Boston College.

A TIME analysis of startup founders’ LinkedIn profiles found that about two-thirds of the startup founders that accepted jobs at Google between 2006 and 2014 are still with the company. Amazon has retained about 55% of its founders over that time period, while Microsoft’s rate is below 45%. Facebook, with a 75% retention rate for founders, is beating its older competitors, but the company only began acquiring companies in significant numbers around 2010 or so. Yahoo and Apple, which have both gone on acquisition sprees under new CEOs Marissa Mayer and Tim Cook in the last two years, now have a similar retention rate to Google.

Google stands out among this cohort in large part because of the massive number of acquisitions it’s conducted. Overall at least 221 startup founders joined Google’s ranks between 2006 and 2014. Yahoo, the next closest competitor, added at least 110 founders to its employee roster in that time. Google’s internal calculation of its overall retention rate for startup founders through its history is similar to TIME’s, according to data provided by the company. Apple, Facebook, Yahoo and Microsoft declined to share any information on the retention of founders; Amazon did not respond to a request for data.

An examination of the ways Google tries to retain employees provides a window into the increasingly ferocious battle among the tech sector’s giants to expand through conquest. “Google,” says Geis, “has done a pretty good job—among the best in Silicon Valley.”

‘The toothbrush test’

Even when Google was small, it wasn’t shy about spending. The company’s first startup acquisition, the 2003 purchase of Pyra Labs, forms the backbone of what is today Blogger, an online publishing platform. Since then, many of Google’s most well-known products, including Android, YouTube, Maps, Docs and Analytics, have originated from acquisitions. “M&A has obviously been a huge part of Google—and, I think, Google’s success—for a long time,” says Don Harrison, Google’s vice president for corporate development, who oversees the company’s acquisitions.

Before any deal is finalized, it has to pass what CEO Larry Page calls “the toothbrush test”: is the product something you use daily and would make your life better? “If anything matches the toothbrush test and relates to technology, then Larry has an interest in it,” explains Harrison.

Typically, Google buys occur in sectors where the company has already been experimenting itself. Harrison points to YouTube as a prime example. Google already had a video sharing service called Google Video in the mid-2000’s, but YouTube’s fast-growing user base convinced the firm to offer a then-eye-popping $1.65 billion for the startup, even though it was barely a year old and earned no revenue. Today, YouTube brings in billions of dollars of revenue per year and is the third most-visited website in the world, according to Web analytics firm Alexa.

But the return on investment on an acquisition isn’t only measured monetarily. It’s important to Google and other tech giants that the founders behind ideas worth paying for stick around as well. Harrison says founder retention is one of the significant factors Google measures as part of the “scorecarding” it does to evaluate its purchases. “We hold ourselves accountable to make sure that the founders are able to be successful within Google,” Harrison says. “It’s something that we’re not only working on at the time we buy the company but we work on for years after as well.”

Cash alone can’t convince the top startup founders to join Google. 2014 was the most active year for IPOs in the U.S. since the year 2000, according to IPO tracker Renaissance Capital, and Chinese online retailer Alibaba had the biggest public debut in world history, raising $25 billion in September. “As aggressive as we’re willing to be, we probably can’t match public company premiums right now,” Harrison admits.

So Google tries to find other ways to lure key talent.

‘A True CEO’

For Tony Fadell, the CEO of smart home company Nest, the decision of whether or not be acquired by Google was really a question of how he wanted to spend his time.

Google had begun courting Nest almost from the company’s inception, ever since Fadell showed Google founder Sergey Brin a prototype of the Nest Thermostat at a TED conference in 2011. At the time, Fadell wasn’t interested in a buyout. “I wanted to keep it as a startup as long as possible,” he says.

But as Nest grew, so did Fadell’s logistical headaches. By 2013, he says he was spending 90% of his time on what he calls “back-of-house stuff”: managing finances, talking to investors, wrestling with taxes and fending off patent lawsuits. “There was a lot of selling to multiple entities that we were doing the right thing,” he says.

When Google came knocking again, offering a big payday and the chance to keep Nest’s name brand intact—a key requirement for Fadell—an acquisition seemed more appealing. Now Fadell says he spends 95% of his time focused on product development and key relationships. Nest, meanwhile, has gotten access to resources that would have taken much longer to accrue independently. The company launched in five new countries in 2014, but Fadell thinks they would have only reached two without Google’s help.

In many ways, the Nest acquisition is the ideal scenario startup founders envision when they agree to be swallowed by a larger company. Harrison, Google’s M&A head, calls Fadell a “true CEO” and says Google execs serve more as a board of directors for Nest instead of supervisors. Fadell says he hasn’t had to get formal approval for anything from Google, though he reports directly to Larry Page and meets with the Google CEO a few times per month. “He’s like, ‘Call me when you need me, but this is for you to run,’” Fadell says of his relationship with Page. “He gives us the freedom, so I run with that. Only when it’s really major decisions do I really touch base with him.”

Some founders who don’t quite have Fadell’s free rein are still granted a certain level of autonomy. Skybox Imaging, a satellite manufacturer that Google acquired for $500 million last summer, reports to the company’s vice president of engineering for geo products but maintains separate offices from Google in Mountain View. “We kind of get a little bit of the best of both worlds,” says Ching-Yu Hu, one of the four Skybox founders that now works at Google. “We’re all Googlers now so we have access to all the infrastructure there, but at the same time we’re semi-autonomous.”

The company has experimented with more direct incentives to maintain an entrepreneurial spirit. For a few years in the mid-2000’s Google handed out Founders Awards valued at as much as $12 million in stock to teams that developed successful new products like Gmail and Google Maps. Today awards are a little less explicit, in the form of more traditional of raises or promotions. Google works closely with founders in their first 90 days on the job to insure they’re getting acclimated well, but check-ins on founders’ progress can continue for years, depending on the acquisition.

At the core of Google’s pitch to founders is the opportunity for bountiful resources. Sure, those can be scratched and clawed for independently, but going it alone requires a lot more time, money and luck than hitching your wagon to one of the richest companies on Earth. “It was a pretty compelling pitch,” Hanke recalls of his own deliberations about whether to sell Keyhole to Google. “We could achieve a lot more standing on the shoulders of all that was going on at Google versus trying to do it on our own as startup.”

When Founders Leave

Still, even Harrison admits that not every acquisition goes smoothly. Because California is an at-will employment state, workers can generally be fired or choose to leave at any time. Tech companies try to ensure founders stick around for a while by offering a stay bonus or using “golden handcuffs,” which often meter out the payday for a big acquisition in company shares that vest over several years. Facebook’s acquisition of WhatsApp, for instance, includes $3 billion in restricted stock for WhatsApp employees, but they can’t fully tap into those funds unless they stay at the company for four years.

In some cases, golden handcuffs aren’t enough to keep founders on board. Kosta Eleftheriou joined Google in October 2010 through the acquisition of his keyboard app BlindType, but life at the massive company wasn’t what he envisioned. Eleftheriou says he was relegated to maintaining Google’s stock Android keyboard rather than envisioning ways to improve the product. He left after one month, leaving half of his compensation package for the acquisition on the table (he says the total acquisition price was in the seven figures). Now he’s a founder again, with a new keyboard app called Fleksy that has been downloaded 4 million times.

“It was a mismatch between what I was expecting and what happened,” Eleftheriou says. “I think that was partly due to maybe some unrealistic expectations on my side on how much creative freedom I would have. I was hoping to be part of a bigger picture than just some engineer working on something by themselves.”

As the founder of a small company that didn’t make huge headlines when it was acquired, Eleftheriou’s experience isn’t uncommon in the Valley. “Unless they’re sufficiently large, very few acquisitions continue to run independently,” says Justin Kan, a partner at the venture capital firm Y Combinator and cofounder of Twitch. “Oftentimes founders are rolled up inside another group inside of the company. They can’t make decisions as freely as when they were entrepreneurs. That affects people’s willingness to stick around.”

Sometimes founders simply crave the excitement of starting something new. Uri Levine was the only one of Waze’s three founders who chose not to join Google when the traffic app was acquired for $1 billion in June 2013. Instead he launched a new startup—his sixth—called FeeX, which aims to help people reduce investment fees in their retirement accounts. “Entrepreneurs, they are driven by a passion for change,” Levine says. “As soon as you become part of a large organization, you cannot change anymore.”

Google’s also had some more high-profile misfires. When it made its largest acquisition ever, the $12.5 billion purchase of handset maker Motorola Mobility, Page hailed it as an opportunity to “supercharge the Android ecosystem.” But Motorola’s phones failed to gain traction, the subsidiary racked up $1.4 billion in losses for Google, and the company offloaded the handset division to Lenovo for $2.9 billion in 2014. Harrison defends the deal as a smart acquisition because of the patent portfolio that Google acquired, helping the company defend itself from lawsuits by Apple and Microsoft (Geis, who has studied the transaction closely, called it “a wash” for Google).

The Spree Continues

At Google, at least, there are opportunities for change for some founders who join the company. Hanke, the former Keyhole CEO, spent several years heading up Google’s geo services, but now he’s in charge of Niantic Labs, a separately branded unit that Google bills as an “internal startup.” Hanke’s team develops apps that increase the opportunity for digital interaction in real-world environments, like InGress, a mobile game that requires players to visit physical locations to gain power ups. Android founder Andy Rubin also took on a role far removed from smartphones when he became the head of Google’s robotics division in 2013. (Rubin eventually left Google in October after nine years at the company).

Google is constantly making these kinds of bets on the future, and it needs new blood with fresh ideas to sustain them. The company is currently wrestling with multiple threats to its core business, search, including a declining share of desktop searches and a mobile market where Amazon is stealing product search queries and Facebook is taking ad dollars. If Google is to maintain its steady growth, it will eventually have to tap into a new revenue source somewhere, and that may well stem from an acquisition. The company may view Nest as the key purchase that ensures its future dominance, given Fadell’s perch. “Founders and everyone else at these startups, they want to be businesspeople,” he explains.

And the big businesses themselves? They want to ensure they don’t miss out on the next big thing. “The ability to move quickly in rapidly changing markets is one of the major drivers,” says Geis of the acquisition spree. “If you want to effectively compete and innovate continually, it can’t all be from within.”

Correction: The original version of this story incorrectly described George Geis. He is a business professor at UCLA.

TIME Startups

Snoop Dogg Just Invested in a Weed Delivery Startup

2015 iHeartRadio Music Awards - Arrivals
Steve Granitz—WireImage/Getty Images Snoop Dogg arrives at the 2015 iHeartRadio Music Awards at The Shrine Auditorium on March 29, 2015 in Los Angeles, Calif.

Eaze promises to deliver medicinal marijuana in less than 10 minutes

Snoop Dogg is one of several investors helping to fund Eaze, a California-based startup that promises to deliver medical marijuana to your doorstep in less than 10 minutes.

Eaze has raised more than $10 million in funding from DCM Ventures, Fresh VC, 500 Startups and Snoop Dogg’s Casa Verde Capital, Quartz reports. Founded by former Yammer employee Keith McCarty, Eaze raised $1.5 million of seed funding in November and became one of the first pot companies to get international investors, perhaps because the business only provides the technology, not the marijuana itself. In the nine months since its launch, Eaze has made 30,000 deliveries, and now the startup is looking to expand its team by hiring 50 people in the next 50 days.

The legal marijuana industry is growing fast: Alaska, Washington D.C., Colorado and Washington state have all legalized recreational marijuana, and 20 states have legalized medical marijuana. And other pot companies are also getting in on the action—according to CB Insights, weed businesses raised a total of $104 million in 59 deals over the course of 2014, with Privateer Holdings (the company selling Bob Marley-branded weed) raking in a $75 million investment from Peter Thiel’s Founders Fund.

[Quartz]

Your browser is out of date. Please update your browser at http://update.microsoft.com