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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Happy Birthday Return Path

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Yesterday was Return Path’s 10th Birthday.  Matt Blumberg, Return Path’s CEO and founder, wrote a great reflective post on his blog titled A Perfect Ten. Among other things he covers what he is proudest of from Return Path’s first decade as well as what he regrets or would have done differently.

Matt and his team have created a significant company that is profitable, a market leader in its segment, and is growing nicely.  It has a strong balance sheet and an excellent leadership team. While the business has evolved significantly from its creation a decade ago, it has always has a clear sense of purpose and vision which has stayed pretty steady, in large part due to Matt and his executive teams’ leadership and stability.

Since I’ve been involved in Return Path since 2000, I thought I’d tell my story of how I recall my initial involvement.  Some time in early 2000, we (Mobius) met with three entrepreneurs (Eric Kirby, George Bilbrey, and Kevin O’Connell) about an idea for a company they had created to provide “Internet Email Change of Address” services.  This was a process similar to what the US Post Office does when you physically move – where you fill out a change of address form – but for email when you change your email address.  The business was originally called IECOA but fortunately was changed to Veripost about the time we invested in it in 2000.

Veripost was physically based in the Mobius Colorado Incubator that we ran from 2000 to 2004.  Since it was one of the first companies in the incubator I got to know the founders and the early team well.  Veripost quickly grew to about 20 people, built a neat service, and started signing up partners.  They had one competitor – Return Path.  At first, Return Path was demonized, as in “those guys are giving away the service for free and are going to ruin the market” or “their technology sucks – they are just spending a lot more money than us to get visibility”.  While there were elements of this, it was more a function of a deep seated early rivalry than anything else.  Matt and Eric had met each other a few times and it turned out that Matt and George both knew each other from working together earlier in their careers at Mercer Management Consulting.  So, even though there was healthy competition, there was open contact and mutual respect.

When Veripost went out to raise their Series B financing, they met with a few investors that had recently met with Return Path, who was also out raising a round. I recall at least one of them giving feedback to the Veripost team that the two companies were identical in this very early market and rather than bludgeoning each other over the head, should consider joining forces.

Eric knew that I was good friends with Fred Wilson, one of Return Path’s investors through his fund Flatiron Partners (I was also a small investor in Flatiron Partners so indirectly a tiny investor in Return Path.)  Matt and Eric encouraged us to talk in the context of a merger and financing.  I can’t remember who initiated the call, but Fred and I had a typically frank conversation where we quickly cut to the chase and agreed that it was worth exploring merging the companies and doing a financing behind one company.

If I remember correctly, the call took less than 15 minutes.  It went something like this:

Brad: “This feels like a 50/50 deal – let’s just keep it simple.”

Fred: “I want a little more for my side because we’ve invested a lot more money than you have. How about 55/45.”

Brad: “Done.”

Matt and Eric had similarly effective conversations and agreed early on that there would be tough cuts on both sides with the goal of ending up with one company rather than two companies pretending to be one.  As part of that, they got comfortable with the idea of having two locations (NY for headquarters / sales; Colorado for engineering and ops).  Matt would be the CEO, the Veripost executives would transition out of the company with the Colorado engineering leadership becoming part of the management team.  The combined company would end up at 20 people which was the right size for the business.  Given that the Return Path brand was better known than the Veripost brand (and frankly was a better name) the combined company would be called Return Path.

Matt and Eric quickly built a joint plan and presented it to several of the VCs they had each been talking to.  Greg Sands at Sutter Hill totally got it, agreed with the thesis behind the merger, and put down a term sheet to lead a round of the merged company.  After some legal mechanics, the new Return Path was born to go after the ECOA market.  Eric, George, and Kevin transitioned out of Return Path as expected and the company began gaining ground quickly.

Simultaneously, George started a new company (with support from Eric) called Assurance Systems.  With it he tackled a new email related problem that he’d come up that he was calling “the email deliverability problem” – specifically that desired email was increasingly getting caught in spam filters, especially as more focus came on the “spam problem.”  Even though we (Mobius) hadn’t invested in Assurance Systems we gave George space in our incubator and stayed close to what he was doing, including plenty of “hey – how’s it going” moments in the bathroom.

Return Path helped out with the early sales and marketing and Assurance Systems was pretty quickly generating more revenue per month than the Return Path ECOA product.  It quickly became obvious that Assurance Systems should be part of Return Path and Matt and George worked out a deal for Return Path to acquire Assurance Systems.  Today, Assurance Systems is the core of Return Path (we sold off the ECOA business several years ago) and George and his co-founder Tom Bartel are still key members of the Return Path team.

I’ve got many other Return Path stories – many good, some bad – but most are instructive.  But I’ll let this one stand as a tribute to Return Path on its 10th anniversary.

Finally, in Matt’s post he thanks his investors and board members for our “unwavering support” over the years.  Matt – right back at you – thanks to you and everyone at Return Path for the incredible effort you have put in to building this great company.

Special Bonus Feature: Matt knows I Hate Powerpoint and I encourage you to read his post Powerpointless and Fred Wilson’s post Presentations vs Discussions.  Matt took a hint from my post The Best Board Meetings and ran the entire eight hour meeting without a single powerpoint slide.  It was awesome.

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