Picnik CEO on Getting Bought by Google, and How It Affects Startups and Consumers

Google’s acquisition of Seattle-based photo editing company Picnik is the deal of the year—and maybe more—for the local tech startup community. It just closed this morning, and terms aren’t being disclosed, but suffice to say Picnik’s leadership and team of 20-odd employees will make out pretty well. What’s more, the acquisition adds a bookend to the company’s storied history, from a bootstrapped startup that never needed outside venture capital to become a profitable Web traffic machine. (Eat your hearts out, VCs.)

Picnik was founded in late 2005, became profitable in late 2008, and formed key partnerships with sites like Flickr, Facebook, and MySpace, on its way to having millions of users and more than a billion photos uploaded. The startup’s revenue model is a paid subscription service that gives consumers access to premium photo-editing tools.

Jonathan Sposato, Picnik’s chief executive, spoke with me in-depth today about the deal and what it means for his company, the tech community, and the M&A market. His startup perspective on “how Google works” is particularly interesting, as is his take on the importance of the culture fit between Picnik and Mountain View, CA-based Google. (One of Sposato’s previous startups, Phatbits, was also acquired by Google in 2005, and he worked there for almost a year before joining Picnik in its early days.)

Here’s an edited transcript of our conversation:

Xconomy: So how did the Google deal come about?

Jonathan Sposato: We’ve always kept a dialogue going with various companies. We’re high-profile, and we get lots of traffic. So the big companies are always, always talking with us in some shape or form. With this particular round, there was a lot of buzz starting to build around Picnik around mid-year/summer of ‘09. As some of the conversations got more codified, it became clear that Google was going to be the most interesting and fun option for us down the road. Also, some amount of my own past at Google—that both Google and Jonathan were known quantities to each other—had a very positive impact.

X: Were there other serious suitors when it came down to crunch time?

JS: There were. [Even as of recently.]

X: And how well did you guys make out?

JS: I can’t talk about the deal considerations. This is really the best deal—the return on everyone’s time and energy and money in for the three of us (the principals) is fantastic. In terms of deal size, it’s made us all very happy. Everyone on the Picnik team, down to the line-level folks, are very, very happy. They see a very nice financial result hitting their pockets as well. That has been a very satisfying feeling.

X: How long are the golden handcuffs on you? (Sposato has told us before about his desire not to work for The Man.)

JS: I wouldn’t put it that way. I, and everyone on the team, are very interested in giving Google a really, really great deal. The kinds of exciting things that Picnik and Google both bring to the table are going to be pretty darn amazing. I can’t think of a better synergy here. I would also say I’ve been really touched by the support of folks at Google. This is a homecoming of sorts. It’s been very heartwarming to hear from folks at Google who’ve been highly supportive. We’re really pumped.

X: So this acquisition feels different from the Phatbits acquisition?

JS: Every deal is different. This is, in every way, very different from Phatbits. That was a smaller company, it didn’t have the scale and traffic that Picnik does. The one constancy, where I could benefit with my previous experience, was that I know how Google works. They are an incredibly fast-moving, agile company with a great, great culture. We all felt the culture fit between the Picnik team and Google team would be an awesome fit—the delightfulness of the people and product at Picnik, and the smart, fun people at Google. There’s something very cool going on with their culture and the kinds of people they self-select for—ambitious and also fast-moving, optimistic, and very positive. It’s very easy for Googlers to see the upside in something great.

X: What does the deal mean for the Seattle tech startup community?

JS: In an M&A market that is supposedly down, there are deals that can and do happen. It’s not a complete doom and gloom scenario. I also think you can get very, very healthy, great valuations for your company as long as the fundamentals are sound. I’m trying to shed more than a ray of hope to my colleagues doing startups in Seattle. Focus on being profitable, having a viable business model, having a great product and great traffic—those are things that even in this down market can still translate to a very positive outcome. Picnik’s sister companies have a lot to be proud of if they’ve survived ’09.

X: Any other advice to your fellow tech startups?

JS: It behooves any small startup, if you’re focused on M&A transaction as your exit—and who isn’t?—to definitely manage your relationships very well with potential suitors. It doesn’t happen out of the blue or by itself. It’s always the result of some time and effort you’ve put in. For talks to get serious, you do have to put effort and time into managing those relationships.

X: Who at Google paved the way for the acquisition?

JS: It was a combination of Mountain View and locally. But it was definitely driven by folks in Mountain View. There were jaw-droppingly smart and fast-moving people on the corporate development team in Mountain View who worked really, really hard to put a deal together, and drove to get consensus in Google. There were product people in Mountain View and Kirkland, WA, who were convinced that Picnik will continue to be a groundbreaking service and add lift to Google. That’s not always the case—we got very lucky. What typically happens is you get bogged down by bureaucracy, or you need approval from some senior VP, or corporate development doesn’t talk to the product people.

X: How does Picnik becoming part of Google affect your partnerships with sites like Flickr and Facebook?

JS: What Picnik is bringing to the table for Google—added to what Google already has—will continue to push the envelope forward. Google has a very open model. They’re competitive with other companies, but they also have a very excellent way that they think of themselves as helping everyone. With all the different partnerships that Picnik has, we foresee a situation where we continue to push out value to all our partners.

X: But isn’t there a threat to your Flickr partnership, since Google’s Picasa photo service competes directly with Flickr?

JS: I don’t believe so. We have so many Flickr users that enjoy Picnik. I feel it wouldn’t make sense to me, or to Flickr, to anyone, if that changed. What’s important is that all the fun of Picnik continues to get enjoyed by users. Anything could happen, but right now, as I think through the issue, I think it’s millions of Flickr users—so you can’t really disturb that. That has always been our strategy from day one—be everywhere where your pictures are.

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