Skip to content, or skip to search.

Skip to content, or skip to search.

‘‘It Was the Biggest Game of Chicken I’ve Ever Seen.’’

David Karp built a massive, culturally totemic company that was losing millions of dollars a month. After a huge infusion of Yahoo cash, he’s breathing easier.

ShareThis

Tumblr
Founded: 2007
Age of CEO: 27
Number of Tumblr users: 140 million
Lesson: Youth can be worth more than $1 billion to a twenty-year-old Internet company.

In mid-May, a few days before Yahoo announced it would be acquiring Tumblr, there was a housewarming party in Greenpoint. A Tumblr employee was moving into an apartment with a friend who happened to be dating another ­Tumblr employee, and the overlapping social circles resulted in a room full of Tumblr people. It was Saturday night. Late the previous afternoon, a cluster of posts had appeared on tech blogs with the announcement that Yahoo’s board would be meeting on Sunday to approve a $1.1 billion offer for Tumblr, and though everyone at the party had read the posts—or fielded texts from someone who had—nobody had really paid attention. Rumors skittered around the office on a weekly basis. Employees always joked that it didn’t matter what kind of options you had because Tumblr was never going to sell.

Plus: Yahoo? Really? When a similar idea circulated back in 2009, Tumblr’s then–lead developer, Marco Arment, summed up the party line in a scornful blog post: “I hope they let me work on some of the many exciting projects at Yahoo … I want to move to California and get stuck in traffic every day on the way to my midlevel engineering job where I sit in a cubicle all day and can’t make any product decisions while working on something nobody will ever see to manage regional ad clickthrough stats tracking.” Thanks, but no thanks. Yahoo was a lumbering Sunnyvale company with irrelevant products that no one used. Tumblr was a nimble startup in the nation’s greatest city with a boy-genius founder. An acquisition wasn’t just unlikely, it was insulting. The only company to whom they might have sold, an early employee said, was Apple (if Apple had asked).

Yahoo’s reputation as a wet blanket may have been allayed by the arrival of Marissa Mayer as CEO, but an acquisition still struck employees at the party as too icky to be true. (One guest summed it up: “No one who works in tech wants to work at Yahoo.”) As more wine and whiskey were consumed, however, the incredulity turned into fidgety speculation. One employee pointed out that Mayer had been dropping into the Tumblr office as far back as December; he remembered peering into the fishbowl conference room to see her meeting with their CEO, David Karp, and head of product, Derek Gottfrid. Nothing secret about it. Other employees were aware that after a hiring spree and floor-to-ceiling office remodel, the amount of cash left in ­Tumblr’s coffers was dwindling. At some point, partygoers who worked on the engineering side began forecasting how shitty the company would become if Yahoo were to buy it, and by the end of the night, guests were running numbers, trying to figure out how much their options might be worth. On Monday, Karp called an all-team meeting to announce the deal.

If low- and mid- and even some high-level employees were shocked—“I don’t think anyone saw it coming necessarily,” says Gottfrid—anyone paying attention to Tumblr’s burn rate should have been expecting an exit. Despite its popularity (it is the fourteenth-most-visited site in the U.S., according to Quantcast, a few slots above Wikipedia), Tumblr was a six-year-old blogging platform with disappointing revenue targets, no clear path to profitability, and alarmingly little cash in the bank (just $16.6 million when it was purchased). To stay afloat without selling, it would have needed a sixth round of funding, which, given the situation, might have led to a “down round,” and to Karp ceding a substantial chunk of his equity. As one person watching the deal unfold put it: “It was the biggest game of chicken I’ve ever seen in a startup. Literally months away from bankruptcy, and he manages to find an angel in Marissa Mayer.”’

On a smotheringly hot morning a few months after the acquisition, Tumblr’s 27-year-old CEO took a train from the Williamsburg duplex he shares with his girlfriend and bulldog into Manhattan’s Gramercy Park neighborhood for breakfast. Maialino—the Danny Meyer version of a Roman trattoria, with tourists and egg-white frittatas—is not a place Karp would have chosen for a social occasion. For that he prefers the Brooklyn outpost of Cafe Mogador, where he orders an “Über-breakfast” of pancakes, eggs Florentine, avocado, and bacon. But for work-related meals, Maialino is perfect: two blocks from the Tumblr office, with tables spaced far enough apart to furnish guests with privacy and the general sense that it has been zoned for high-net-worth individuals. (Mark-up on eggs: 5,000 percent.)


Related:

Advertising
Current Issue
Subscribe to New York
Subscribe

Give a Gift

Advertising