Tiny acquisition of Dribbble (yes 3 B's)

Today’s investment comes from Tiny - a Holdco started by Andrew Wilkinson and Chris Sparling set up to invest the excess cash created by their design agency Meta Labs.

Origins of Tiny and its predecessor Meta Labs

Andrew Wilkinson and Chris Sparling started a web and app design agency called Meta Labs as teenagers. The company’s history has been covered extensively, given Wilkinson’s many podcast appearances - and he wrote a book called “Never Enough” which explains his story - which I have heard is entertaining, but I haven’t read it myself.

Eventually that design agency became very profitable. Wilkinson and Sparling built a great company and had a client roster with companies such as Google, TED, Slack and Coinbase. But it still wasn’t massive. It was ticking away adding a few million to the bank account per year (not bad from where I’m standing!).

So the question to anyone at this point is - do you hang up your boots, put some of the excess cash into T-Bills, and the rest into index funds? Or do you try do something else with the money?

Dribbble (with 3 b’s)?

Dribbble is a design community. Originally it started as “invite-only”, and famously Chris Sparling of Tiny had to buy his own invite on E-bay because demand outstripped supply massively.

Dribbble is a place for designers to share ideas, companies to hire design talent, and designers to give feedback to each other. It’s also a marketplace where designers can sell fonts, graphics, etc. to each other.

It was launched by the two co-founders Cederholm and Thornett in Salem, MA. The two were neighbours. It started with exclusivity as they apparently sent out 50 t-shirts and invite codes to members of the design community.

Dribbble.com

Tiny and Dribbble

Wilkinson and Sparling had been huge fans of Dribbble for a long time, getting inspiration and new hires from the invite-only design community for years for their own agency businesses.

Andrew Wilkinson explains in his Medium Post how the deal came about:

Like any good fanboy, I’ve been an early user of all of Dan’s projects over the years, but Dribbble, which he co-founded with Rich Thornett back in 2009, has always been a daily visit. I’ve used Dribbble to hire some of our best designers, it’s been a great source of inspiration when I get stuck, and the community always brings me back down to earth whenever I start thinking I’m a good designer. Which is why I’m insanely excited to share some big news…

For years, I’ve been bugging Dan and Rich, begging them to let me invest in Dribbble. I’ve been like Dennis The Menace, poking them every month or two asking them to let me know if they ever think about partnering with someone or selling the business.

This September, my moxie finally paid off. Dan sent me an email saying that he and Rich were thinking about taking on a partner. My business partner Chris and I hopped on the phone with Dan and Rich, and they told us that while they loved running Dribbble, they had been at it for eight years and were ready to team up with someone who could help them take things to the next level.

**They told us that they wanted to work with someone who:**

1. Understands the Dribbble community and won’t mess it up.

2. Has a long-term time horizon and no need to sell the business in the short-term (private equity) or turn it into a unicorn moonshot (venture capital).

3. Wants them to stay involved and continue to own a large chunk of the business and will keep the team together.

In January 2017, Tiny and Dribbble shook hands and made a deal for $5.5M for 70% of the business.

The Dribbble co-founders wanted help with scaling the business into its next phase of growth - and on a personal level were probably happy to cash out some of their equity and de-risk their personal lives.

The Next Phase of Growth 📈

When Tiny acquires something, they try and pull a couple of major levers to create value from their investment. In this case it came down to three major things that Dribbble needed:

• Management and mentorship

• Growth through SEO

• Product iteration

Management and Mentorship

Dribbble had a crew of 8 people - and under Tiny that expanded to 50 remote workers over time. Here they hired on the SEO, content marketing and product development areas. They also hired a new CEO into Dribbble to professionalize the management for growth, and potentially give the co-founders the break they wanted from day-to-day management after selling.

Additionally, Tiny already had Meta Labs design agencies underneath it. Which meant it had experience in running design businesses. This meant it could offer mentorship and a talent pipeline to Dribbble (where needed).

Growth through SEO

Content marketing and SEO were big gaps in Dribbble - however, here’s where Wilkinson and co had good experience and capability. Investing here would immediately create value, and that’s exactly what Tiny did.

Growth in users accelerated - though it had to be done carefully not to spoil the community dynamic. Since 2017 they have more than 5X’d the users on the platform, growing across all geographies in almost 200 countries.

Product iteration

Under Tiny (though this stuff may have also happened under the co-founders too) Dribbble launched video in 2018, allowing designers to showcase motion work. They also launched physical meeting events across the globe, allowing designers to meet in person and establish relationships.

In summary, with people, management, and fresh investment, the product side of the business received a lot of love, enabling them to make the platform more engaging and current for the community.

How has the Investment Performed? 💰

Very simply the investment in Dribbble has been a home-run. The company can’t have been earning too much in 2017 - otherwise the business wouldn’t have been on sale for a market valuation of $7.9M ($5.5M for the 70% acquired by Tiny).

I think the investments made into the business by Tiny around people and management were done under Dribbble’s P&L - but even if so, any incremental capital invested would have been minor or approaching zero.

The last time I checked, Dribbble was earning >$8M in 2022. If you slap an arbitrary valuation of 10x on it (going concern with growing earnings and a moat around the community) then you’d arrive at a $80M valuation for the whole company.

That’s a 10x in around 7 years - which is 58% annualized. Amazing! And it looks like the platform still has healthy growth ahead.

Key Takeaways from this Investment

Start with a real deal, not the “idea” of a holding company

Andrew Wilkinson didn’t set out to intentionally build a holding company. As with the best things in life, the Dribbble deal fell straight into his lap. He had been an admirer of the product, the community, and the founders, and was in contact with them - writing to them already for some time before the acquisition came about. He had an idea of how to add value to the company, and what a successful partnership with the Dribbble founders looked like.

This is quite opposite to the SPAC fever of 2021, or the current trend of raising an acquisition hold-co (e.g. the many software roll-up companies trying to copy Constellation Software).

Raising capital to chase after a deal is usually a terrible way to go - giving the buyer too many temptations to make a poor deal:

• Investment bankers and brokers goad buyers into making any deal so they can earn a fee.

• Selling managements usually dress up their business to look better than it is. (When we’re dating, we dress up well - but once married are wearing sweatpants every single day).

• M&A statistically has a poor hit rate of success - because of the above and other factors…

Raising capital first, and then acquiring later typically leads to bad results.

Finding value levers to pull after acquisition

Another lesson the Dribbble investment is finding a way to create real value.

The typical corporate justification for an acquisition is “synergies” - which typically never materialise unless there is some real duplicated cost between two businesses. For example, in the auto business it added value to standardise manufacturing and product platforms (e.g. Volkswagen and Audi being made of essentially the same parts) after an acquisition.

But very often “capturing synergies” doesn’t work because there’s no real value to add. Instead the deal is being done for the empire-building tendencies of the high-ego acquiring CEO. Any slides or excel models claiming synergies are usually being done to justify the acquisition for the CEO.

It’s a really fine line that’s hard to manage.

Even Warren Buffett, the GOAT, acknowledged in 2024 that his strategy of buying and letting the managements manage themselves led to quite a few “coasting” - despite creating incentive structures that encouraged good behaviour, and removing extensive reporting requirements that wasted management time and energy. Berkshire has, however, succeeded due to a handful of big winner investments.

Tiny’s acquisition approach is to find 1-2 main levers that can be pulled post-acquisition. These are usually in areas where Wilkinson and co. have extensive domain knowledge - and the acquisition target has a clear gap.

In the case of Dribbble, it was pumping up investment in SEO, driving growth and ad revenue - clear shortfall areas of the Dribbble selling management.

Tiny bought another website called We Work Remotely from Jason Fried of Basecamp for around $1-2M. Here, they basically decided that raising prices and investing a little in growth was all they needed to do. Therefore they more than doubled the job placement commission fees. Now annual profits approach $4M. On a recent MFM podcast, Jason Fried acknowledged that selling We Work Remotely was one of his regrets.

Deal Pipeline

Learning about Dribbble and other Tiny acquisitions shows just how shrewd Wilkinson and Sparling are. They’re constantly getting in touch with people who have businesses or products they like, and getting in touch periodically to explore potential of doing business.

In the case of Dribbble, Wilkinson admitted that he had been “begging them” to invest in or buy Dribbble. The begging, though, probably served two functions:

1. Remind the Dribbble founders that if they felt the urge to sell, Tiny would be there to buy.

2. Constant communication probably helped the Dribbble founders that they had found the right buyers for the business - given how in-love with the community Wilkinson and Sparling were.

Side note: Many investors have the same with public equities to a certain extent. My best investments have always been companies that I would love to own, and have been on some short of wish-list for years, waiting for the right price. 

Dribbble was one such case, but they’ve also tried things with famous podcasters like Andrew Huberman, helping them build their E-commerce business.

Wilkinson’s pipeline of irons in the fire is massive, and constantly growing. Having a giant network combined with ambition is a great way to ensure that he has huge upside potential if he explores even a handful of these in his lifetime.

He says it himself. Namely, that there’s a low-intensity daily work life of contacting people and coming up with ideas, combined with highly intense periods of closing deals and capturing opportunities. Then in newly-acquired businesses, figuring out ways to add value in Y+1 post-acquisition.

Final idea on the pipeline:

How did I hear about this guy at all?

Podcasts.

This guy is a prolific podcaster so basically everyone in the online small business community knows who he is - and what Tiny stands for. That expands the potential deal funnel - and therefore the likelihood of producing another hit investment in the years to come.