Phil Libin and the Refusal to Pivot: Evernote Now Valued at $1 Billion
Today, 30-million-user strong Evernote announced it had received $70 million in Series D funding from Meritech Capital, CBC Capital, T. Rowe Price Associates, Harbor Pacific Capital and Allen & Company at a valuation of Dr. Evil proportions: One billion dollars.
Unlike many other companies of this era, Evernote has known exactly what it was since the beginning — it just took some time for users and investors to catch on.
A while back I interviewed Evernote CEO Phil Libin about Evernote’s steadfast strategy for both its product and business model. On the occasion of Evernote’s sky-high valuation, Libin’s experience seems particularly compelling — and unusual.
“It’s almost like if you don’t pivot three or four times you’re doing it wrong,” he joked about today’s tech start-ups.
But in fact, Evernote had the tagline “remember everything” on the first day the company was formed in 2007, and it planned a freemium payment model from the beginning, Libin said.
“We said we wanted to make an external brain for everyone,” Libin said — as he has said many times in the past five years. “The driving force was no one is really happy with biological memory.”
But a good idea and a business model weren’t enough. Libin tried to raise money in the summer of 2008, a few months after Evernote launched and before it had much traction. He had a funding deal set up, set to close the day Merrill Lynch went bust. The investors told him they’d just lost 60 percent of their value so were pulling out.
At that point Evernote had four weeks of money in the bank.
Libin looked around for other investors for a week. Some potential investors told him they would fund Evernote if the start-up switched its business model from users paying for premium features to selling advertising about users’ interests.
“They said if you’re successful, you will have the holy grail of targeted adverting because people are telling you what’s important to them,” Libin said. “We considered that very briefly but I was never comfortable with that model. I always thought it would undermine the trust. We turned that down. We’d said we’d rather shut the company down.”
Other investors suggested an enterprise product, but Libin thought that would be odd because Evernote is, by design, made for both professional and personal use. Splitting the product into two versions felt false.
With three weeks left before forced shutdown, Libin was awake at 3 am. He said he told himself, “I’m going to go into the office and act like an adult for the first time in my life” and tell the staff it’s over so the company could close down on its own terms.
Sitting at his computer thinking his company was done, Libin noticed a new email from someone he didn’t know. Turns out it was an Evernote customer from Sweden saying how much he loved the product and wondering if the company was looking for any outside investment.
“Twenty minutes later we were on a Skype call,” Libin recalls. “He wired us half a million dollars within two weeks.”
The Swedish investor has asked to remain unnamed, Libin said, describing him as a computer nerd who started and sold a company. The two men have never met face to face.
The emergency funding from the mysterious benefactor paid off. A few months of keeping the company alive delivered the data to show that Evernote’s product and freemium model were working. It was able to raise its first institutional funding from Troika Ventures (which earlier this year sold its stake to Sequoia Capital for what’s estimated to be more than $45 million).
“I think if that email had come 10 minutes later I probably wouldn’t have seen it, and I probably wouldn’t have opened an email from a name I didn’t recognize in the morning,” Libin said.
Libin believes the fact that Evernote was saved by a happy customer was a proof point, in and of itself. “The guy from Sweden might not have fallen in love if it was an advertising company,” he said.
Why was Evernote, at the brink of being shut down after barely getting started, able to brush off potential investors who wanted to change its core premise? Libin said he could think of two reasons.
First, Evernote put a ton of work into building its own analytics tools and figuring out what to measure.
“I think the most important thing for us was really having a set of metrics and measurements so we didn’t have to make any blind, panicked major turns,” Libin said. “If you can’t see where you’re flying, it’s easier to start panicking and turn the flightstick around.”
And second, Evernote is not Libin’s first company — he’d previously sold two others — so he had confidence in himself and his convictions, and he didn’t necessarily need the job.
“It was easier to say ‘no one is forcing me to do this,’” Libin said. “We don’t want to get into targeted advertising? That’s fine.”
“I think if this was my first time around I’d be a lot more eager to please the market and the investors,” he added. “Maybe that’s a luxury.”