In this interview, I talk with Raj Kapoor, co-founder of Snapfish, about what lead him to co-found Snapfish, and how he ultimately orchestrated its sale to HP for $300 million in 2005. Raj also tells us who has inspired and influenced him, what motivates him, and much more!
About Raj Kapoor
Raj Kapoor is currently a Managing Director at Mayfield Fund, and is in the rock cover band Coverflow. Prior to joining Mayfield Fund, Raj was co-founder and CEO of Snapfish, a leading online photo service. Raj orchestrated the acquisition of Snapfish to Hewlett-Packard in March 2005. Prior to Snapfish, Raj was an executive at Excite@Home. Raj also held positions in strategic planning, business development and product management in consumer interactive television services at Bell Atlantic Corporation, which is now Verizon. Raj received an MBA from Harvard Business School and a BS with honors in mechanical/robotics engineering from Carnegie Mellon University.
Jay: Hello everyone, I’m Jay Gould and welcome to Foundville. Today I’m joined by Raj Kapoor, the Managing Director at the Mayfield Fund. Prior to Mayfield, Raj was the founder of Snapfish.com, the popular photo sharing community that he founded back in 1999. Raj successfully sold Snapfish, eventually to HP for $300 million in 2005. Raj, welcome to the show.
Raj: Thanks. Great to be here.
Jay: So, you know the purpose of the show. Really, it’s all about trying to understand the founders and really that innate kind of hustle that we all have. Some have more than others. I found your story interesting when we met back in 2006. It was fascinating because you could have quit on Snapfish at one point, but you didn’t. It ended up being a huge success. There was probably success prior to that, but it became a huge financial success at some point. I want to get into that, but before we get into that, I want to learn a little more about you. Where did you grow up?
Raj: I grew up in a little town in eastern Pennsylvania called Bethlehem. It’s right next to a town called Allentown, which Billy Joel made famous about factories closing down and all that stuff. It was kind of a steel town. There weren’t that many ethnic minorities there, so I was one of the few there. My parents were immigrants from India, hardworking and very entrepreneurial. My dad was analytical engineering minded. That really inspired me early on.
Jay: So your dad was an early inspiration into getting into computers and things of that nature.
Raj: Actually, he was involved in the first infrastructure, which is cement. It was about creating infrastructure back in the 1960s when everything was booming in terms of roads, worldwide, including the U.S. He has an engineering background, but realized after being an engineer that he’s much more about the hustle and the sale and was really good at it.
He ended up getting shipped off to Greece, and he said to the company that sent him, “Give me a couple of weeks to close the deal.” They doubted it, and said, “Go on a plane and don’t come back.” A couple weeks later he came back with a huge multimillion dollar contract. He learned on the go, his business side. He started with an engineering background.
Similarly, I ended up going to Carnegie Mellon University in Pittsburgh. Did mechanical engineering, dabbled in some robotics projects. It was fun. It was interesting about problem solving, but it wasn’t really that fulfilling. I joined the entrepreneur club, and the key point that I want to bring out is that early role models matter a lot.
I met some interesting people at Carnegie Mellon, not in Bethlehem, Pennsylvania, who I saw were leaders. They were starting businesses. They had the hustle. They started a few businesses in college, and I thought, “This is so much more fun than doing some finite element analysis model on a robot.” So, I helped to start a bartending school and tried that out. I helped to start a student recruitment agency and became president of that club. That really got me going. I knew at that point in college that I was going to be an entrepreneur.
Jay: When did you go to college? What year did you graduate undergrad?
Raj: I graduated in 1992.
Jay: And then you went to business school?
Raj: Actually I worked for two years. I knew I liked the business side of things even though I got an engineering degree. I got some offers to work at a plant for Proctor and Gamble near Cincinnati, and another to work in a chemical plant in Fayetteville, North Carolina for ICI. That all sounded pretty boring, and then I got this offer to go to work at Telecom, which is now Verizon, and used to be Bell Atlantic. It was called the executive development program. They said they’d train me to be an executive. I thought that’s cool. I didn’t know about an MBA, and I thought this would be neat.
They said, “Do you want to be in capital budgeting or in information services?” I had no idea was information services was, but I didn’t want to be in capital budgeting. I ended up doing that, and that ended up being interactive TV. A lot of the early trials in that, I was investigating a music on demand service over ISDN. In 1992 to 1994, I got the bug around new media and networked media. This was obviously before the internet, but I knew that there was something around this industry, but I also knew that it wasn’t going to be a telecom company that was going to make it happen.
That’s why in 1994, I applied to business school, got into Harvard and went there. I started the internet club and got that going and saw that the internet was really becoming a commercial medium. One interesting point here that I want to mention is that if you can create a category as an entrepreneur, you can call yourself the self-proclaimed expert in that category.
I didn’t create the internet, but I did create the Harvard internet club, and so as a result, I went to Silicon Valley, where I wanted to be, and I went and talked to a lot of the VC’s, Kleiner Perkins and all the top ones and said, “Hey, I’m the internet guy back in Harvard”. No one was really experienced in the internet, so they said, “Sure, come on in and meet me.” I was able to meet a ton of companies and VCs and got a lot of advice, and I knew I was going to come out to Silicon Valley.
That’s where I looked at a couple of job offers, did a field study with this company called AtHome. That was my first job, which was basically doing what we were doing at the telecom side, but doing it in a startup and bring broadband out to the masses using cable modems.
Jay: And what year was that?
Raj: That was 1996.
Jay: So that was after the Netscape IPO. At this point it was validated.
Raj: In fact, the funny decisions you face when you go through life, that was when I got out of HPS I had a couple of offers. The three that I were focused on, one was joining Bill Gross to be one of the early business guys at IdeaLab. I went and spent time at his house. He’s an amazing individual with so many ideas, but I wasn’t sure what value I’d add as a fresh MBA and whether he’d really listen to me either.
The second was working with Steve Ballmer. I got an offer to work with him and he interviewed me directly, which is pretty amazing. The energy that he has outside is the same energy that he had in the interview with a little schmuck like me. That was effectively helping him argue against Bill Gates on strategic points in creating slides and presentations, and I thought that sounds like a glorified consultant. I didn’t think Seattle was where it’s at.
The third was a company at home, and also there was Netscape, where I got an offer to be a product manager, which seemed like the hot easy thing to do, but I wanted to do something a little more startup-y, and that’s why I went to AtHome.
Jay: It’s funny, because today, everyone is like, ‘Silicon Valley is the place to be.’ and certainly Silicon Valley was way before the internet companies. But, the proliferation of new startups being founded today, nobody would have ever foreseen that, so there were very few really big Silicon Valley startups, at that time, that became big companies.
Raj: I would say there were burgeoning companies in the internet. Yahoo is here. I remember we brought the Yahoo guys into HBS when there were three or four people. Netscape, obviously. And a lot of the computer companies were out here. Everyone tried to pooh-pooh the internet early on, especially big media companies, but there was clearly something happening at a ground swell.
Jay: I just recently saw Katie Couric. They showed a clip on a video site I was watching, and they show her from 1994 or 1995, and she asks somebody, ‘What is this internet thing they’re talking about?’ They described it as, ‘I think you send things to each other or something.’ So, they didn’t understand at all, particularly mainstream media. How did all that lead you to Snapfish. What was the Aha moment for you?
Raj: I knew that when I came over to Silicon Valley that I wanted to start a company. I followed some advice that I also give to young people that if you can, it’s a great thing to go into a super high growth, high profile company. At the time AtHome was relatively high profile, with good backers, [??], changing the world, bringing broadband to the world. They had lined up all the big cable companies to do it. There were some really talented people that joined. I knew I wanted to join that type of company, get the network, build the network out and really understand what it means to be part of a hyper growth company.
Get some management chops, because you don’t really learn that in business school or at my last job at the telecom company. That was more of an industry exploration than learning how to manage. I thought I’d do that for a couple years, and while I’m there, think about ideas. That’s exactly what happened.
My co-founder was someone I brought in from HBS, Suneet Wadhwa. He came in and was also very entrepreneurial. He had a ton of ideas earlier than most people at HBS around the internet. We both brainstormed. In 1999, a couple years after working there and running the ecommerce for Excite and AtHome after we merged the two companies together, I thought this was the time to do it.
It was lucky, because if we had waited six or nine months it may not have been the time to do it. We got together. He came up with the idea that new media is cool, music and movies suck because rights owners control everything, and I think that’s played out, but there this thing called photos.
The other thing we realized sitting in a broadband company is that at the time, in 1999, there weren’t a lot of broadband users, so you can’t build a business only on broadband. Photos could be mid band or narrow band because they didn’t take that much bandwidth and it was UGC. At the time we didn’t call it UGC, we just knew that consumers owned the content. That means that you won’t have the rights issues and it can be viral.
We did recognize that early on and we thought that in this cluttered world of ecommerce, even in 1999, a way to get it going is to have viral photo sharing, then you can convert them into paid users. That was the genesis of the idea. We got two other friends to do it. The four of us started Snapfish.
Jay: You said you were thinking about viral. Were you inspired in any way by Hotmail, which was about a year before you?
Raj: Definitely inspired by Hot Mail. Clearly at the time, social networking wasn’t there as much, but the idea that something can spread by its use versus word of mouth I think was really intriguing. And by definition when you take a photo, most of the time you want to share it.
Raj: And that’s what we thought was key. But the other point on Snapfish is that we thought there was an interesting issue there of the fact that there weren’t a lot of digital cameras in ’99 and we couldn’t predict how quickly that would take off. And so rather than our competitors, which there ended up being 110, focused on digital cameras, we focused on film cameras. And we said, look, we’ll take your film, put it in the mail to us, and we’ll develop and put it online. And before we get you the prints we’ll send you a link, so we know they’re going to jump online and look at the links and they’re going to share it, and then we’ll send you the prints.
And then we didn’t even think that was enough so we said, we looked at Free PC and what Bill Gross did and we said, and we’ll give it away for free. And what we’ll do is we’ll charge just shipping and handling so that we have a credit card so it makes the purchase of other products easy, but we will give away the free film processing and prints. And it was a pretty disruptive model at the time. We thought we could make the money up on transactions in the back and on advertising, which didn’t end up working, the advertising piece.
And the interesting lesson in those early days is that we found that it was extremely hard to change consumer habit. People were used to taking their film to a drugstore. And when they had a film camera they weren’t really thinking about online, it was a relatively new thing to them.
Even though there was, You’ve Got Pictures, I think was the hot thing from AOL, at the time. So it was very hard, even with our proposition to get a lot of users. And one of the things I heard constantly from consumers was, what’s the catch? You know, I’m not going to give you. Even though this film doesn’t cost that much and the processing doesn’t cost that much it’s super valuable. How do I know I’m going to get it back? You know, once you hand it in the mail we could lose it. And so trust was a key issue and changing habit.
Jay: How did you do that? Were you able to overcome?
Raj: We were not able to overcome it frankly. And what we ended up doing was plowing a ton of money we raised into marketing. And it proved not to be sufficient. Because this was the whole idea of like, one of my big lessons was you’ve got to get product market fit early on, and I think back in those days people were spending money before they had product market fit.
Jay: Everybody was doing that. It wasn’t like there was this terrible…
Raj: Everybody was doing it but you know I take blame too. And so we ended up raising, I think between our A and B, around 43 million before we launched the service on the site. And we ended up, so ’99 we got together, 4 people. We grew it to 40 people in a couple of months. Then we raised that big round right before the June, 2000 implosion, the dotcom implosion. And we were lucky, we were just literally a week or two into it, into the implosion, when things…
Investors were having second thoughts. I got a call from our lead, this was the big, I think this was my 35 plus million dollar rounder series B. And I thought the guy was going to call and basically walk away. And they called and said, well, we’re going to have to reduce the valuation by 15%. And I was like, excuse me, Yeeaahahh. OK. And so we closed that round and it’s obviously a good time to raise money is when you don’t have data. And then we proceeded to launch.
Jay: It’s not that scary, right?
Raj: Yeah, in 2000. And until 2001 we found that it was very difficult to get users to change. And so what we ended up doing then, and then the cash reserves were going down, we weren’t out of money but our investors were worried that because of then, it was then 2001 things were looking very dark. And we all decided that, look, this film thing’s not working. And we’re not sure how quickly digital’s going to take off.
I kind of put my hand up on the board and said, look I still believe that there’s a business here in the long run, but I honestly I can’t tell you when digital’s going to take off. And I know that the film thing doesn’t work. We did start charging for film developing and lo and behold, our demand did change in the sense that it was still whatever it was, so it didn’t go down. Which is a funny thing, I learned that you could charge for something.
And then so what happened is we ended up basically going back to our investors and saying, look, we should sell the company. But who’s going to buy a company that was hemorrhaging money and didn’t have product market fit? And it was on the belief that digital was going to happen. We hired a banker which unfortunately wasn’t that helpful. When you don’t have something that people want to buy, a banker doesn’t help you. A banker helps you when everyone wants to buy you.
Jay: Then you probably don’t need him.
Raj: You don’t need him. And so it was a waste but regardless we found at the end of the day it was our supplier. District Photo was a private company that did all of our photo processing. And the owner there, it was owned by a family, and he was a believer. And he said, look it you can take the burn down pretty darn low I’m willing to wait it out with you. Because I do believe digital is going to happen. And from his perspective it was the future for him.
Raj: Because he saw the writing on the wall for film, too.
Jay: Yeah. What was that company again?
Raj: District Photo. They’re based in Beltsville, Maryland.
Jay: And he had a lot of like, one-hour photo kind of places?
Raj: He had a mail order photo processing, which he did for a lot of the retail establishments that were there. So regardless, what happened then is, at the end of the day he ended up purchasing the company and it was the only available offer. We lost money. We returned $0.25 on the dollar invested in Snapfish. It didn’t feel great at all.
I had to take the company down from 120 people down to 20. We went into windowless offices, we cut the burn dramatically. He and his team taught me the value of pennies and the value of really understanding cost and making a real business work. The good news that happened in the background was that digital started to take off.
So then we got rid of features on the site, we focused on a customer named Emily who lives in Iowa with 2 kids and we just really ramped up on marketing and were very analytical just like people are today around customer acquisition cost, lifetime value. We used a lot of search tools. We did a lot of business development tools and the virility started to kick in with our users and the revenue started to grow.
Then we found the real business opportunity we were able to price prints really low to get people in and then we would upsell them into the gifts and the photo books and all the things that are possible.
Jay: Exactly. That’s how my mother uses it today.
Raj: Exactly. And people are not as interested in 4×6 prints anymore. So the company really started to take off. As soon as we got profitable I went back to our owners and they were able to negotiate with it, carving out a piece of the company for the team, for the employees and management, which was great. Not the same as founding, but we were all motivated then to continue.
Then what happened is that things were really going well. He was pretty happy, the owner. As soon as that happened I said, look, let’s get unprofitable. Now we know we can do it. Let’s go international, let’s go mobile, let’s go retail because we saw that retail was going to eat our lunch unless we provide a private label service, and I need $6 million.
So we went out and look at raising some money and people were pretty excited about it, but at the end of the day the owner went, why don’t I just fund this myself? So we ended up doing that. It wasn’t clear to me that he was going to be aligned with liquidity at the end of the day. Did he just want to operate this as a business?
So I got an interesting call from Mayfield in 2004 where they said, hey, Internet is back, we’re interested in bringing you on into Venture. I never thought about it, but I thought I had another start-up in me, but it was exciting and I knew the Mayfield people. They backed me at Snapfish.
I had to really think hard about it. Are we really aligned and I wasn’t sure what the future was going to be and I felt like I did a good job in building Snapfish. So I ended up taking the offer, but I did a very long transition to find a new CEO to come in to Snapfish.
Jay: So you sold it? You sign your definitive and sell the business at the same time?
Raj: so, actually what happened is I decided to leave and join Mayfield.
Raj: During that 6-month process of finding a new CEO a friend of mine, who is a banker, and said hey, I’m representing HP, can you give me some advice? I said, wait a second, I’ll give you more than advice.
Jay: I’ll give you advice, buy my company.
Raj: They didn’t know that we were still potentially up for sale.
Raj: At District Photo. And District Photo wasn’t interested unless the number was pretty big. I went back to my partner at District Photo and said, look. what if it’s $100 million? Even though he bought if for literally $10 million or less. I was like, look, things are going well, I’m not sure. So I knew that I could get the number a bit higher because Shutterfly had turned down some numbers. So I went back and instead of having a banker I did it myself this time. We ended up getting a $300 million offer for cash and a long-term relationship with District Photo.
Jay: Did you already have your deal in place for your management team though before you had your offer?
Raj: I’m sorry? Yes we did.
Jay: You did. So you made sure you had that first, then you got your offer.
Raj: Yes, and then I basically put Mayfield on hold until this transaction happened.
Raj: It was those rare instances where I could tell the buyer upfront that, look, I’ve already taken another opportunity so they didn’t expect me to stay and we made sure that the management was excited about going forward with HP and I promoted our CFO Ben Nelson to be the president and take over rather than hiring someone from the outside and he did a phenomenal job. He took the company from where we were at about $30 million going to $60 million when we sold to now it’s several hundred million without disclosing the amount.
Jay: That’s amazing.
Raj: Almost 100 million users worldwide in over 20 countries. So I think we’ve exceeded our expectations, especially the first couple of years for HP under management. It was a wild ride and then I was able to go to Mayfield and have been doing that for 6 years.
Jay: How did you come up with the name Snapfish?
Raj: The first name was Hotshot and we thought that was a little too cheeky and we knew that moms would be a big target for us because they were very interested in printing and creating stuff of their families. We knew early on that if you’re going to take photos of your friends, you’re not going to buy them. That’s where I think the prominent use of Facebook is. If you really want gifts and photos, it’s going to be your family or big events like a triathlon or something.
So, we wanted to come up with a name that was inviting and friendly. We had a statement called DIFFET, Dynamic, Inviting, Friendly, Fun, Entertaining and Trustworthy. We had a third party that came in and brainstormed with us. Snap was the ease of use and the fish added some personality. We didn’t want to be just photos, because we thought the world of video may come, too.
Jay: You were really thinking ahead, because it took a while for that to happen.
Raj: It took a long time. We didn’t know that this site called YouTube would win that.
Jay: A couple more things before we get off the call here, because I know you’re pressed for time, and I don’t want to take up too much of your time. You talked about some of those great influences. You talked about your parents, your father in particular early on. What about when you went out to the West Coast, and you were running Snapfish at this point. Did you have advisers? Who were some of the great advisers and influences in your life professionally?
Raj: I think early on I had a number of people who helped out from the AtHome world. For example, someone that I worked with, Charles Moldow, who was early on and now is a capitalist at Foundation. He was very helpful, and made the introductions at Mayfield and a lot of the VCs that were there and gave a lot of good advice. Also through the years, I found my board to be very helpful, especially Yogen Dalal, who is a partner here with me at Mayfield Fund. He was very instrumental in terms of helping me to lead the board and guide through some very difficult times and trusting and believing in the team.
Jay: For motivation. I talk about this quite a bit. What was it for you? Was it fear of failure or were you driven by passion? What made you so motivated?
Raj: That’s a good question. I can’t honestly say that I was a passionate photographer. It wasn’t about that. It was about finding a business opportunity. I think it was a combination of fear of failure, I certainly didn’t want to fail.
Secondly, it was the belief that it was a timing issue more than anything else. What we had learned early on with the digital users is that when there isn’t a habit and you get this new digital camera and you get this little memory card and you don’t know what to do with it, they’re looking for a solution. They’re looking for an online solution because they’re going to plug it into their computer anyway. That was the big Aha, the belief that there’s a fundamental need for the digital user, and I believe it’s just a timing issue and we can make the business work.
Jay: A lot of people who are founders of companies will say they had some close calls over the years, financially. Like they put it all on the line or they were bootstrapping it or it could all have just imploded on them. You obviously almost imploded with the company. You had some VC money in there, so it wasn’t necessarily financially on the line, although you were betting your career on this.
Raj: Right. There were a lot of points where if we didn’t have that buyer at the last minute we would have shut down. The other interesting thing that happened was that on literally the day after we closed the district photo first sale, the fire sale, was the anthrax scare in the mail system.
Jay: And you were doing mail.
Raj: We were doing a mail order business. I got a call from the owner of District Photo who said, ‘If we had waited 24 hours, I’m not sure we would have done the deal.’ Some things you can’t control. There’s luck involved, but it’s also putting yourself in the face of life, in the face of opportunities which is important and being really creative around understanding what are all the different levers that you have.
Jay: You’re a venture capitalist today, and you invest professionally. Some people risk their own money to start these companies. What is your perspective on folks that got out and bootstrap it or try to raise the money from the angels and then eventually go down the line to the VC’s.
Raj: We had put our own money into this. We effectively angel invested our own money to bootstrap the initial piece of Snapfish. Then we raised a quick series A.
Jay: Was that prior to the first 40 that you did?
Raj: The first round was seven and a half. Prior to that we had each put in some money to get it going. In those days, it was very difficult to start a consumer internet business without several million dollars. Today it’s super easy and I think it’s a really logical route to go out and get angel rounds, and who it’s from really depends on the circumstances. It could include VCs, and we’ve done some seed deals. It could include angels.
Bottom line is if possible, for some people it’s just getting the money, but if you have a lot of options and people that can help you to get you to your next goal, to the series A if necessary. I strongly encourage it. In fact, I think most opportunities are not necessarily venture capital opportunities. We try to, the entrepreneur may force fit their business into a venture capital model when it doesn’t need to be. There will be a lot of successful businesses that don’t require VC.
Jay: I agree with you. I mean I tried to raise money for the company that I run the advertising business but it’s really cash cow, right? Most advertising networks, unless you’re building some type of a unique product, they’re kind of self sustaining advertising cash flow generative businesses that probably don’t need venture. They could be lifestyle business, right?
They don’t need to do that.
There are a lot of other staff companies that could be the same way and it also depends on your goals. I remember Russ Fraden [SP] said to me on a call, he’s like what are you personally trying to accomplish, right. Like what are you personal goals? Financially what are you personally trying to accomplish? Or is it not about the money and you just want to have a billion people using your service, right. You may need to…
Jay: …raise the money for something like that. Maybe that’s what it is. Or are you trying to change some particular industry. Like you are, trying to change behavior you know. So I think all those kind of points are really, those are things that people really should think about because I think people watch the news feed coming through TechCrunch and they just feel like that need to compete. Like, I have go raise money and they don’t all need to do that I guess.
Raj: Yeah. I think the, one of the key things just comes down to businesses. Usage proceeds monetization. You typically have to raise money. If you’re in a business where monetization is aligned with usage then you raise less or not necessarily.
The second point is, if you believe that, if your business is growing relatively well but you need to make significant investments to keep up or to expand your opportunity then you should be raising money as well. So like in the ad text space, you can’t get by without raising money because it’s changing so much.
You constantly need to reinvest in new technologies and people and basically be building ahead of the monetization growth curb that’s there. Whereas in your business, like you mentioned, in ad networks, you can really align the monetization with growth and usage. The key question is just whether you need to expand the opportunity or to defend yourself to raise money.
Jay: Yeah. I mean we certainly come up against the guys that have raised money and they’re constantly building different products and stuff like that. It’s true. It’s not as if tomorrow we go away, but BrightRoll and Tremor, they’re growing at rapid paces, right, because they have platforms like market places and stuff like that that are making them more differentiated to the advertiser. So we’re kind of a dinosaur in some ways but it’s a profitable dinosaur.
Raj: That’s great.
Jay: It’s OK, right. It just depends on, again, what those goals are. Do you really want to run a company of 100 employees, multiple offices around the country, just depends what you really want to do and what you want out of life at that point in your life. Last question I want to ask you is, what is the one piece of advice you would give to other founders?
Raj: I think the most important thing was hiring people that were better than me, especially in a lot of other key areas. You know I brought on people and was surrounded by great senior team that complimented my weaknesses. I have a blog post about this which is one of the key traits I look for in a CEO, is self-awareness. I want to know, and that’s not just on the bad side, it’s the good side.
Raj: Know what you’re good at, know what you’re weak at and then surround yourself that can compliment your weaknesses to do it. I am amazed and shocked at how people can do a single founder situation. I couldn’t do it without a strong senior team. There’s no way.
Jay: And why did you choose to be a guest on Foundville?
Raj: To me, I really do believe in pay it forward. Through the non-profit activities I do at dosomething.org and helping young social entrepreneurs, was in the U.K. two weeks ago with Reid Hoffman and his crew and touching over thousands of entrepreneurs. To me it’s all about the ecosystem. I think this is the future of our economy and I feel strongly about entrepreneurship so anytime I can help, I’m there.
Jay: Raj, thanks for coming on the show. You’ve been a great inspiration to me in the last five or so years that I’ve known you. I thank you again for coming on the show and spending time with me today.
Raj: Thanks for doing this for everyone. Take care.
Jay: Take care to everybody who watched.