How Wharton helped three bright young business minds build—and eventually sell (at enormous profit)—their unique Internet-based companies.
By Kimberly Marselas
Photos by Bill Wadman
Just six short years ago, one-time investment banker Marc Lore, WG’07, created a corporation to house his burgeoning online business. He named the firm Quidsi—Latin for, “What if?”
As in, what if he took a low-profit product like diapers and sold them with such reputable customer service and super-fast shipping that he could move a half billion diapers in a single year? What if that diaper business could grow into an all-things-baby sales empire with expected annual revenues topping $300 million? What if he could use his diaper delivery model to roll out vertical operations in the household cleaning and beauty markets?
Lore and his partners got the answers to those questions this year, as their innovative techniques and market saturation attracted the attention of none other than online retailing giant Amazon.com, leading to a $545 million acquisition deal that closed in February. It was a huge deal. But at Wharton, at least, it was hardly unique. Because as it turns out, Quidsi was one of three businesses founded by former Wharton students bought by Internet behemoths in the past year. Combined, their deals reportedly totaled more than $700 million.
In June, Google announced it was buying display ad company Invite Media, founded by Nathaniel Turner, W’08. And in December, eBay announced it had purchased Milo.com, a local comparison-shopping site founded by Turner’s classmate and friend, Jack Abraham, W’08. Both bona fide businessmen before they were teenagers, Abraham and Turner spent their undergraduate years taking entrepreneurship classes and participating in formal business-building programs as they began to envision the companies that would make them millionaires in their 20s. Lore, for his part, had already created and sold one online venture and in 2005 entered Wharton’s MBA Program for Executives in San Francisco, looking for connections and inspiration while diapers.com was still in its infancy.
By combining savvy ideas, round-the-clock commitment and hands-on experience, all three were able to navigate the recession, win over investors at some of the nation’s top venture capital firms and cash in on their user-friendly concepts.
“The most rewarding thing is to see how students connect and link what they learn in the classroom and apply it,” says Raffi Amit, the Robert B. Goergen Professor of Entrepreneurship and Academic Director of the Goergen Entrepreneurial Management Program. “That’s basically the heart of what we do in all of our outreach programs. We facilitate the dreams of our students.”
Born to Build
Jack Abraham, W’08
Abraham grew up with the Internet.
In 1999, his father, Magid Abraham, created comScore, the first company to measure e-commerce trends and a global leader in digital marketing intelligence. “When I was 12 or 13, my dad said, ‘We’re going to measure everything that everyone does on the Internet. Is that something you’d like to do?’” remembers Jack, now 25. “It’s where I fell in love with programming and technology.”
While in high school, he ran a custom-computer configuration company and hired other teenagers to serve as tutors in a Washington, DC-area test-prep service. By the time he arrived at Wharton, he knew he would be a lifelong entrepreneur. And he figured if the Internet and social networks were fueling consumers’ decision-making, there must be some way for him to capitalize on the trend.
“I was puzzled that no one was doing anything in shopping,” Abraham says, recalling how once-novel sites like Shopzilla began lagging behind consumer demand. “Shopping was where all the businesses had been built … but there didn’t seem to be much innovation there anymore.”
As he wrestled with ideas, he dropped in every two weeks or so to get advice from Leonard Lodish, the Samuel R. Harrell Professor of Marketing and Vice Dean of the Program for Social Impact. Lodish knew the Abraham family through a previous venture and wrote a letter of recommendation for Jack when he applied to Wharton, a step he rarely takes. He saw great possibilities in Abraham’s passion for business and competitive nature. “It was really a lot of fun,” Lodish remembers. “His ideas were good. My job—and I do this for a lot of students—is to find holes [in those ideas], and ways to improve them.”
After about a year, Abraham settled on the concept that led to Milo.com, eventually adopting a Jack Russell mascot—and a live dog—to bring home the website’s “Go fetch it” philosophy.
Around the same time, Turner was filtering through his own tech-based ideas. His previous experience ranged from breeding 600 rare and exotic snakes to a trading card operation to a Web design shop. In 2004, a site he created to enable customers to swap gift cards landed him a TCU Texas Youth Entrepreneur of the Year Award.
Wharton, he says, didn’t make him an entrepreneur, but it gave him “access to people.” Wharton Entrepreneurial Programs (WEP) also gave him and Abraham the guidance and financial support to pursue the concepts that eventually morphed into Invite Media and Milo.
WEP began in the 1970s as a curriculum focused on theory for undergraduates, MBAs and Ph.D. candidates. In 1997, a gift from Robert Goergen, WG’62, provided additional resources, and the first dot-com era sparked new student interest. During the 1997-98 academic year, students formed an entrepreneurship club, which launched the business plan competition—now part of WEP. In 2001, the Entrepreneur-in-Residence program began, offering students speed-mentoring sessions with successful business owners—including Wharton alumni.
During his freshman year, Turner was matched with Half.com founder Josh Kopelman, W’93, who was just launching Philadelphia-based First Round Capital. After one 30-minute meeting, Kopelman offered him an internship. Then, in 2006, Kopelman helped Turner secure a second summer internship at VideoEgg, where Turner learned what it took to launch a start-up. The School supplemented Turner’s meager paychecks by granting him a Wharton Entrepreneurial Intern Fellowship.
When he left the VideoEgg office each night, he often went back to his apartment with future Invite Media co-founder and classmate Zachary Weinberg, W’08. There, the two brainstormed business ideas until 4 a.m. Sixteen-hour workdays were a habit he and Abraham would share for the next several years.
In 2007, Turner and Abraham both landed coveted Wharton Venture Awards, allowing them to commit to developing their business in the summer between their junior and senior years. Each summer, a total of five $10,000 awards are granted to undergraduates and first-year MBA students. The awards, funded in part by the Heller Family Foundation, free students up from the traditional internship to pursue their own concepts while still earning money and gaining experience.
“It legitimizes the work that they’re doing,” says Emily Gohn Cieri, managing director of WEP. “A successful launch isn’t critical. we’re not making an investment in the companies. We want it to be an educational experience.”
Turner and Abraham pooled their resources, renting a Northern Liberties office that doubled as an apartment and hiring a group of engineers from other Penn programs.
Turner’s team was “throwing spaghetti on the wall to see what stuck,” meeting with potential investors and companies like Facebook, as well as creating “random” coding, much of which was eventually scrapped.
“That’s the good thing about undergraduates: they’re fearless,” says Amit. “In some sense, they may be naïve. And I see that as an asset. They don’t take no for an answer.”
The Value of Persistence
Nathanial Turner, W’08
Abraham had tweaked his plans for Milo.com and began seeking capital in late 2008—that is, just as the economy tanked and many investors grew hesitant about new ventures.
Which, of course, was a problem. Milo.com was designed to let shoppers find out the cost and availability of electronics, clothing, household goods and thousands of other items at local brick-and-mortar stores. Taking it live required massive amounts of inventory data and the creation of a new search engine. The need for time-consuming development by skilled computer engineers meant a “decent upfront cost” was unavoidable.
Although a mutual friend had introduced him to Keith Rabois (who had previous successes with the likes of PayPal and YouTube), the investor refused to meet with Abraham for two weeks and then ripped his business plan apart via email. Abraham won’t soon forget Rabois telling him, “You’d have a better shot playing for the Dallas Cowboys.”
“It’s really important to be persistent,” says Abraham, who eventually got his meeting. “Never give up when you’re going out for capital. I know teams that have pitched 50 investors and been turned down 50 times. They got a ‘yes’ on the 51st try and never had trouble raising money after that.”
His selling points for Milo: 87 percent of U.S. consumers research products online before buying them in-store and “research online/buy offline” is estimated to be a $1 trillion market by year’s end. Abraham had an obviously large market that brought with it the potential for large returns.
With that in mind, he convinced Rabois to help him build Milo. In his first tranche, he secured $1 million from Rabois and other key venture capitalists, closing as the stock market suffered its worst week in three years. In total, he raised $5 million in the company’s three-year history. Once he started taking investors’ cash, he left school to concentrate on the venture full time.
Companies like Best Buy flocked to the site, paying commissions. In its first year, Milo went from zero users to a million a month. This year, Abraham expects to have 10 million a month, shopping more than 140 retailers in 50,000 locations.
Turner went after capital earlier, and though investors liked his approach, he found constantly raising money, traveling and haggling over terms to be time consuming. So was managing a company that suddenly had several million dollars in the bank and 20 employees ready to work on Invite Media’s many technical challenges. “We had a hundred things we could build,” he says. “Where do we start?”
They picked the brain of any would-be investor or advisor.
“We were so passionate about what we were doing and we knew how to make the technology work, even though we didn’t know the industry,” Turner says. “We had competitors who were in their 30s and 40s who had been in the industry for years. We played the student card. We were young and hungry for it. And every door was opened to us.”
In 2008, the team created its signature program, Bid Manager. The technology allows advertisers and agencies to bid on online display ad space across exchanges using the same interface. By February 2009, engineers scaled it up and secured the first customer. Just two years later, Invite Media was coordinating display ads on more than 10 million websites, with reported revenues in the nine figures.
And instead of struggling through the economic downturn, Turner found his company uniquely positioned to take advantage of slimmed-down, targeted advertising budgets. For example, using real-time bidding, a retailer running a display ad campaign for a shoe sale could bid $5 per 1,000 impressions on a particular news website, but specify that it will bid $10 and show an ad for running shoes if it knows that browser has previously visited the athletics part of its website.
“Invite benefited because our clients were trying to become more efficient,” Turner says. “We were all about driving action and conversions. We could walk in anywhere and make that point.”
Beyond The Baby Basics
That same factor helped Diapers.com grow exponentially in the late 2000s.
“We were able to recruit more talented folks to the company and maybe gain more share as others pulled back on advertising,” says co-founder Lore. “The economy did hurt us with respect to consumers, but because it was a new market, we were able to maintain growth.”
In 2010, about two-thirds of the site’s sales were in non-diaper categories. Quidsi added gear including strollers, car seats and cribs in 2009. It was a far cry from the early days, when Lore purchased diapers in bulk from warehouse stores and resold them online to prove that it could work.
Cieri says Lore is part of an Executive MBA applicant pool eager to surround itself with other business leaders and faculty with far-reaching marketing and investment knowledge. As Vice Dean of the San Francisco campus from 2001-2009, Lodish also made it a priority to coach returning students. He calls Lore’s initial business plan “one of the most well-crafted I’ve seen.”
Customers, Lore theorized, would pay a slight premium for convenience and great service. Becoming a father of two solidified the idea.
“Seeing my wife having to keep us in stock with diapers and formula and stuff—it wasn’t easy for her,” he wrote in a 2009 Inc. magazine article. “I thought, if we could make this an easy experience for Mom, offer premium service and speedy delivery, we could extend into other high-margin baby products.”
His customers became known universally as “Mom,” and Diapers.com representatives were empowered to meet their needs and address complaints with few constraints. Word of mouth quickly spread, and, along with service codes, drove the business. With more customers, he was able to attract manufacturers including Procter & Gamble, Nestlé and Johnson & Johnson. Then came overnight and two-day shipping, free with a minimum purchase.
Lore, who once headed risk management for London’s Sanwa International Bank, put his analytical skills to work. When he wasn’t figuring out the most-efficient size boxes to stock or comparing his margins to those of other successful web companies, he was working up monthly projections for investors. It was a method he developed after creating The Pit, an online trading card company, with Diapers.com co-founder Vinit Bharara, C’93. The partners sold the pit to Topps in 2001.
“What we learned the first time around and corrected was that, when it came to projections, we always made projections that we knew we could meet,” Lore says. “We would show the VC funds what we were going to do, come back in a year and beat it by 10, 15, and 20 percent. that becomes your currency.”
In all, Quidsi built $60 million in equity with the likes of Accel Partners, Bessemer Venture partners and NEA, but Lore says they always “left some money on the table” to ensure solid returns for all of their partners. The product base continued to expand, and then went vertical. Soap.com and Beautybar.com launched in 2010 using the same shipping and service standards.
Today, Quidsi is the nation’s fastest-growing e-commerce business and Lore remains on leave from Wharton as he focuses on his company’s future.
Quidsi’s five-year plan didn’t call for a sale at any particular point, but Amazon was a logical partner for customer service-oriented Lore. The two business cultures meshed, and Amazon agreed to allow Lore and Bharara to run their ventures independently. This summer, they will roll out yoyo.com and another vertical Lore was unable to disclose, bringing Quidsi’s suite of online services to five.
Now that he no longer has to raise equity, Lore spends 90 percent of his time planning one to two years ahead.
“A lot of our discussions revolve around the realm of possibilities,” he says. “How can we push the envelope?”
Turner and Abraham, for their part, don’t plan to let up now that they’ve teamed up with Google and eBay. Each still maintains his previous role with the company he built.
Turner was looking for a very large company with the resources and “symmetry” to help his own product evolve. “We recognized that we’re not going to be Facebook,” Turner says of Invite Media. “There’s going to be a point in this growth in which we’re going to need to sell.”
A reported acquisition by Omniture was squashed when the web analytics company was bought by adobe. But then Google came calling, seeking an ad-services company to complement Double Click. After a three-to-four month process, Google announced its purchase of Invite Media on June 3, 2010—three years to the day after Turner incorporated. Terms of the deal were not disclosed, but reports put the sale at more than $80 million.
Abraham’s goal was to build Milo into a “big, enduring internet company,” like his father had done. But after partnering with other web businesses—including eBay for six months—he realized how much he could accomplish with the resources of a larger corporation.
The resulting purchase, reportedly for $75 million, wasn’t the first time Abraham made money through the online auction leader. During a computer class at Wharton, Abraham built a program that automatically bought and resold Xbox 360 consoles on eBay. Abraham says officials eventually figured out what he was doing and asked him to stop.
The reception was considerably warmer when his company moved to eBay’s San Jose campus and took over a building once occupied by Skype. As director of Local at eBay, he’s focused on rolling out Milo-like services for his new employer. He’s still coming up with a new business idea every four of five days, but for now he’s too busy to think about another start-up.
Turner, though, is thinking back as he thinks ahead. The two men invested in each other’s businesses and celebrated their mutual successes with a trip to Mexico.
“Our goal,” he says, “is to start the next one together.”