MONEY MOVES: How Google made $15B Off an entrepreneur

Serial entrepreneur and investor Gil Elbaz is the creator of today’s highly popular Google AdSense, and the current founder and CEO of location data company Factual. What is he working on now? How has he built and sold his businesses to the likes of Google? What does he predict is next for big data?

Gil Elbaz was recently featured on the DealMakers Podcast, where I had the pleasure of interviewing him to get a behind the scenes look inside the mind of this business builder and his advice for other founders (listen to the full podcast episode here).

The Stepping Stones of Entrepreneurship

Just as recently as 1991, the economy in Los Angeles was quite poor. In terms of tech, it was dominated by the defense industry. Companies were laying off. Gil’s friends were going to Silicon Valley. That’s where the jobs seemed to be. With an engineering background from Caltech, he jumped on that train with an offer from IBM in San Jose.

It was working on mainframes, back when you’d need a moving truck to take your computer anywhere with you.

Then he was on to Sybase and working at tech startups. Though Gil says his affinity for entrepreneurship goes way back before that experience back to childhood where he was just really interested in economics. It was kind of a game. There were baseball cards. Buying and selling and trading and predicting which players are going to improve with an increase in value.

Applied Semantics

Gil’s interest in starting a company like his first business, Applied Semantics, started from childhood with a deep fascination and love for data. He was the kid that was constantly bugging his parents to take him to the library so he could just spend time in the reference section. Then came cable TV and all the streaming news and weather data it beamed and Gil started thinking about all that data.

When he finally got a computer, he realized it was a much better tool than pen and paper to store, chart, graph, and make predictions. That data felt like power. It felt like control over his universe; maybe the universe.

Gil and his four friends set out to solve text-based searching and turn it into a meaning-based search, or Natural Language Technology. Through a pivot, Applied Semantics became a pioneer in contextual advertising and built a product called AdSense that would choose the most relevant advertising to align within a web page.

You’re probably seeing that technology in action on this page right now. Google made them an offer they couldn’t refuse and Applied Semantics was acquired for around $100 million.

Today AdSense generates over $15 billion in revenue for Google which represents around 23% of the total revenue for them.

What’s Your Plan B?

Raising money was not easy, because in Los Angeles, in 1999 and 2000, there weren’t very many angel investors.

Applied Semantics ended up doing a Series A in the summer of 2000, which turned out in retrospect to be very lucky. Months later, the NASDAQ crashed, the capital was scarce.

As a founder, you have to accept the fact that there might be a period of time that springs on you where funding freezes.

Gil says, “you always have to have that Plan B in mind. What happens if you can’t raise any more capital? On one hand, there’s an incredible pressure to grow the top line, to spend aggressively, to build new products and hire new salespeople to grow revenue lines. On the other hand, it may be the case that the money that you have in the bank is the last money you’re going to see. You have to constantly have your Plan B and continue updating it.“

Plan B might not be a healthy, happy one, but without one, you might not make it to the next chapter. One of the toughest things this founder faced was having to do a round of layoffs.

Still, Gil believes if you don’t run across those obstacles, then there’s almost something wrong with your journey. If you don’t encounter those obstacles, you’re probably not pushing hard enough, or you’re working on something that isn’t going to distinguish yourself from the field. From his point of view, you have to learn to get comfortable with the fact that even though a particular choice feels and seems painful, it’s the right one for the company, and for the highest percentage of people as possible. As Gil states, execution is just about moving forward.

There’s not really a tool or a class to prepare you for being a founding CEO. You’re just thrown into it, and every experience is a little different. Like presenting. Gil Elbaz says he got all the way through high school and college never having made a presentation in front of a group of people.

On at least one occasion, Gil had a panic attack and forgot his lines, and just stopped speaking. From Gil‘s perspective, over time though, you get addicted to improvement. Optionality is another tool that will help. Keeping your options open to the outcome and not being too married to any particular exit or tangent.

Raising & Investing

After spending four years at Google, Gil left to start his current company, Factual, which raised a Series A of $25 million back in 2010. Aside from the capital, experienced founders know that much of the value in raising from top tier VCs.

For Factual, in the case of Andreessen Horowitz and Index Ventures, they were able to offer guidance and a large network.

A16Z has different teams they make available to the founders they invest in. They were among the first that were revolutionizing the idea of having teams that were available to help with marketing, with recruiting, with business development. So, there’s a lot of support there.

Also, the employees are happy to know that this isn’t just a founder’s game or love. It’s a business. As Gil states “In order to attract top employees, you have to show that you are very focused on building a real business that’s going to ultimately be a great growth opportunity for this top talent.“

Gil took a slightly different route to fundraising than most. He was investing too. He said, “I loved angel investing, so I had the opportunity to pay it forward a little bit. It was also a fantastic financial opportunity to invest in other founders. Maybe through some of those founders, I got to meet some of these investors. I enjoyed that process.”

Today Factual is about 200 employees, with headquarters in LA, offices in New York, and people in Chicago, London, Singapore, and San Francisco. The company has raised $104 million in total funding and Factual’s location data is used by the world’s leading technology businesses and apps, while powering location-targeted campaigns for over 6,000 top brands and advertisers, including 42 of the Fortune 50.

The Future Of data

We’ve all recently seen the issues Facebook and Mark Zuckerberg had with third-party data. Now Equifax and FICO have announced selling data to banks.

Companies are therefore investing more in collecting, organizing and activating their first-party data, and Factual makes its customers’ first-party location data more useful. Factual’s founder thinks it is still very early innings in terms of companies investing in first-party data.

“They want to strategize and have very personalized one-to-one messages delivered, and you can only do that through the power of big data.” He sees location-based data as some of the most pertinent. Instead of just walking by a Starbuck’s and being none the wiser, Starbuck’s marketers can then give you an ad that says, “Walk into our store, and then we’ll give you this discount.”

Advice From Your Younger Entrepreneur Self

Asked what advice he would give his younger self before starting a business, Gil flipped it on its head, saying “I think I need my younger self to give me advice today and to remind me to go after big ideas. It’s hard to remember that risk-taking and doing a few crazy things, allowing for some moon shots is where the most exciting success comes from.” With passion and grit, there’s every opportunity to prevail in David and Goliath situations.

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