Bootstrap First, Raise Money Later: Ben Hodson, CEO of JobNimbus (Part 4)

Sramana Mitra: Let’s go back to the 2004 timeframe when you were leaving this company. When you left, what did you do?

Ben Hodson: I had the entrepreneur bug. I was saying, “Oh my gosh, I really want to do another company, but I need to find a problem that I believe in and care about.” I was doing some consulting while figuring things out. At the time, eBay was popular. My wife was really into eBay. I started looking at eBay and there were several times that fraud had happened. PayPal didn’t really solve it.

I thought, “Wouldn’t it be great if there was some way through social proof whether or not the seller was trustworthy?” If you could track every transaction that they have done with other buyers and rate them over time, you have social proof. I wrote a browser plugin called Auction Trust Network. Every time you want to buy an item on eBay, the plugin on the right side would show that seller’s rating and trustworthiness.

eBay got really interested in this. They had a subsidiary company that they bought here in Utah called MediaForge. That company ended up acquiring us after only 11 months since I left Venify. We ended up being acquired by Media Forge less than a year after we started that company. It was not for a particularly huge amount. We made some money on it. They were acquiring us more for the talent and the technology.

I went over to MediaForge. One of the rules of that acquisition was that I needed to work at MediaForge for 12 months. They made me their CEO. I ran their Dev team. They were struggling to get output and velocity. I helped them get in motion. I built a good process there and helped them hire a new CTO when I exited. 

Sramana Mitra: How long did you have to stay?

Ben Hodson: I had to stay there for 12 months.

Sramana Mitra: Within 11 months, you sold and then you had to stay for another year. So the journey was a couple of years?

Ben Hodson: That is right. 

Sramana Mitra: You didn’t raise money for this company?

Ben Hodson: We completely bootstrapped that company. 

Sramana Mitra: Smaller exits are still lucrative because you have no investors involved. Do you want to disclose how much you made out of that acquisition? 

Ben Hodson: I made about $85,000 or so. It wasn’t a huge amount of money. I think the total acquisition was around $300,000. It was somewhere around that ballpark. Some money went to other employees and the cost that we had in the company to pay off debt and things like that. When I moved to the new company, they gave me a huge salary. It was this golden handcuff situation. I felt that I was ahead. I sold the company and got an extra $85,000 in the bank and also still had a job in this new company making good money. 

Sramana Mitra: When was this?

Ben Hodson: This was in 2006. 

Sramana Mitra: What did you do next?

Ben Hodson: I love music so much. I have record label contacts. I have always wanted to do software that would enable you to listen to music in real-time. I would drive around my car and I would have books and books of CDs. Every time I would get into my car and listen to a specific album, I would need to look at my album and it would be the one CD that I didn’t bring with me. I don’t know why.

My brain always wants to listen to one thing that I didn’t have with me. That frustrated me. I bet that a lot of people had the same frustration of wanting to listen to a song and not being able to get access to it quickly. This later became Spotify, Apple Music, and others, but this was way earlier than that. We had a similar concept. I called the company Sound Crank. I spent about a year building a product. I built a plugin.

Everybody was using iTunes at the time and they were taking all the music they were pirating and putting on iTunes. They were buying a lot of music from iTunes directly. I said, “Wouldn’t it be great if you could see the artwork and lyrics of the album, see who the producer was, who played the guitar, and all the metadata? Secondly, why not make it a social network where I could follow friends and they could follow me and they could get music recommendations?”

I coded all these things and built a platform. I put it out there just for free. By 2008, this had over 400,000 users on it. This was just through organic growth. It was becoming quite popular. I was like, “Oh man, I really want to do this company.” I was still living off of savings and it was starting to cost a lot of money to host it all, so I said, “Let’s go and raise some money.” I went out and talked with equity firms and venture capitalists. I ended finding a private equity firm in Utah, and they offered $10 million on really good terms.

I said, “I want to establish this company in Seattle. It is a much more hip area. It had record labels up there. There was a lot of music industry in Seattle that I knew as well. I moved back to Seattle. I convinced a bunch of other people to come and move up there as well. We raised the money. We had the term sheet signed. The close was going to happen and I had office space set up. I was doing all of this on myself because I knew we had money raised, so I was just going to pay it off.

I already talked to the investors about it. You probably see what is coming here. The day that we were supposed to fund the round, no money came in. I am calling up the investors and nobody is answering. This was very strange. They had an incubator with several other companies and nobody was answering there either. I had a friend here in Utah and I just asked him, “Hey, can you go over to their office to find out what is going on? It’s been a day and no one has contacted me. “

I started to get really stressed because I was in debt. I spent $400,000 on all the stuff that I set up. I also convinced a bunch of people to move and quit their job. My friend went over there and said, “Hey, the security administration of Utah is in the office right now. The two owners of the private equity fund have been arrested and charged with securities fraud. It looked like they were running a giant Ponzi scheme.”

This was all on me. I was just naïve. I should have done more vetting. I didn’t even think that fraud was an option considering how many companies they were working with. I talked with their financial people and other venture capitalists who knew them. I should have tried to vet them more. Long story short, we didn’t get any money. When I went out to raise a different round, everybody was saying, “Oh, that is a bad situation that you were in.”

It tainted the whole deal. No one wanted to touch it once this fraud had happened even though we didn’t do anything wrong. Now, I had 400,000 users and was incurring a lot of costs. I was in huge debt. I paid out of my own pocket to help some of those employees move back to Utah. I tried to help them find new jobs and try to make it right.

After about a year of continuing to try to raise money, I had to abandon it because I had no more money. I didn’t even have anything to live off of. It was my dream and I believed in it but I had to stop and just do consulting work. I started a consulting company because I had so many consulting projects that I could go after. I needed to generate money and start paying down the debt. 

This segment is part 4 in the series : Bootstrap First, Raise Money Later: Ben Hodson, CEO of JobNimbus
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