Tumblr Inc. Chief Executive Officer David Karp, a 26-year-old who started the company in 2007, signed a note announcing Yahoo! Inc. (YHOO:US)’s $1.1 billion acquisition with the closing, “F--- yeah.”
Beyond just expressing elation, Karp was making a statement that the New York-based company will retain its distinctive and irreverent character under a new owner. The phrase is common parlance at the social-media upstart, used in the titles of some of its most popular blogs. In its own statement on the deal, Yahoo echoed the idea of giving Karp and Tumblr a wide berth, saying it “promises not to screw it up.”
“Our headquarters isn’t moving. Our team isn’t changing. Our road map isn’t changing,” Karp said. “Our mission -- to empower creators to make their best work and get it in front of the audience they deserve -- certainly isn’t changing.”
Karp, who will remain CEO at Tumblr, is getting $209 million in cash from the transaction, according to PrivCo, a New York-based research firm specializing in closely held companies.
For Yahoo CEO Marissa Mayer, the purchase adds a service with more than 13 billion monthly page views and brings more young entrepreneurs into the fold. Yahoo bought Summly, the developer of a news-reading application, for $30 million in March, a person familiar with the transaction said at the time. That deal made 17-year-old founder Nick D’Aloisio a millionaire.
Karp received his payday after taking pains not to emphasize revenue at Tumblr, a network of more than 108 million blogs. The company, popular among teens and 20-somethings, only started accepting advertising last year. Karp told the Los Angeles Times in 2010 that he was opposed to Web advertising, saying “it really turns our stomachs.”
Tumblr ultimately adopted an approach to advertising that lets users pay money to make their posts more prominent on the site. The company expanded the program to the mobile version of its service, a bid to get closer to profitability. The company had about $13 million in 2012 revenue, according to PrivCo.
For now, the company hasn’t been able to break even. That made the Yahoo deal more compelling, even though Tumblr didn’t expect to sell out so soon, Karp said in an interview.
“We are not cash-flow positive yet, which means we are always running out of money,” he said. “There was no expectation we were selling the company -- certainly not this year. This was our providence.”
Karp has emphasized user experience, more than gaining market share, money or press coverage, said Bijan Sabet, a general partner at Spark Capital who sits on Tumblr’s board. The founder is meticulous with anything that affects users -- including personally editing the company’s terms of service so readers aren’t forced to decipher legal jargon, Sabet said.
Tumblr’s backers include Union Square Ventures and Spark Capital, which led the startup’s first two financings -- a $775,000 round in 2007 and a $4.5 million round the next year. Sequoia Capital joined as an investor in late 2010 as part of a $30 million funding round. Tumblr then raised $85 million the following year, with firms including Greylock Partners, Insight Venture Partners, and Draper Fisher Jurvetson’s Growth Fund joining the existing investors.
Karp founded the company using money and experience he had acquired as a software consultant for the website UrbanBaby. The CEO grew up on Manhattan’s Upper West Side and dropped out of Bronx High School of Science before moving by himself to Tokyo when he was 17. He founded Tumblr after returning to New York and learning computer programming. He still hasn’t earned his high school diploma.
Karp updates his own Tumblr with quotations, photos, animated GIFs and snippets of conversations with girlfriend Rachel Eakley. He lives a minimalist existence in an apartment in Williamsburg, Brooklyn, Sabet said.
“It’s this beautiful one-bedroom loft, beautifully designed, but it’s not this megamansion thing,” Sabet said.
The company, which provides the building blocks for popular blogs like Reasons My Son is Crying and Food on My Dog, has been expanding to new floors of its headquarters in New York’s startup-friendly Flatiron District. The offices are adorned with eclectic artwork, with beer on tap.
In accepting a takeover from Yahoo -- a company that thrived in the initial dot-com boom only to lose ground to Facebook Inc. and Google Inc. in the social-media era -- Karp risks alienating some users. After reports of the deal broke over the weekend, the number of Tumblr posts switching to WordPress, another platform, surged to 72,000 per hour on Sunday night. That compared with the usual 400 to 600 an hour, founder Matt Mullenweg said in a post. Still, he doesn’t expect an exodus from Tumblr.
One user responded to the situation by creating a Tumblr spotlighting outrage about the Yahoo deal. The blog, “Meltdowns About Yahoo Buying Tumblr,” includes reactions such as, “This is like going out to see a movie, and when I come back my entire family has been sold into the slave industry.”
In his negotiations with Yahoo, Karp said he asked for as much stock as the company would give him. He sees that as a sign he’ll stay with Tumblr for years to come.
“This is something I’ve been building for the last seven years and hope employs me 30 years from now,” he said.
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