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“The TENN” Follow-up: Bhatia shares insights on negotiating with Microsoft

The TENNBy Tom Ballard, Director of Innovation and Entrepreneurial Initiatives, Pershing Yoakley & Associates. P.C.

Another of the featured speakers at late August’s “The TENN” event in Nashville told a fascinating story about negotiating to sell his company to Bill Gates and having his father more or less describe him as crazy.

The individual was Sabeer Bhatia, a co-founder of Hotmail, who found himself with a rapidly growing service on his hands at the time that he met with Gates. The date – October 13, 1997 – was obviously etched on Bhatia’s mind.

He told “The TENN” attendees that the discussions initially focused on an investment by Microsoft in his company that had reached one million subscribers within six months of its launch and had grown to five million six months later.

“Sabeer, I really like your company,” Bhatia recalls Gates saying. “I hope we can do business. You know we write software, too.”

Immediately after the conversation, Bhatia and two of his colleagues went to another room at the Redmond, WA headquarters where they started negotiating with 14 Microsoft executives.

“They suggested we were worth $160 million,” Bhatia said, adding that he refused to accept the figure and convened his board to discuss the offer. Microsoft came forward with a revised offer of $350 million which he again declined, causing a number of people – board members, employees and even his father – to question his sanity.

Bhatia said his father, who still lived in India, wondered what was going through his mind in making such a decision even as the father tried to convert the $350 million into rupees.

“Everyone deserted me except Tim Draper,” Bhatia said in referring to an early investment by the legendary Silicon Valley venture capitalist. “For a week, I was staring at the ceiling, thinking I had made the mistake of my life,” he recalled.

The deal was executed about a week after the $350 million offer was presented and rejected. All along, Bhatia said his goal was $450 million, so settling on $400 million was a win for all parties.

It was clearly a wild decade for Bhatia who came to the United States in 1988 to pursue his undergraduate degree at the California Institute of Technology. After graduating, he stayed in California to pursue his graduate degrees at Stanford, but caught the “entrepreneurial bug” and dropped his academic pursuit.

Bhatia started at Apple, left after a year to join Firepower Systems, and eventually joined with a colleague at Firepower – Jack Smith – to found Hotmail in 1996 after Firepower built a company firewall that blocked their access to personal email.

After founding Hotmail, he told “The TENN” crowd that he bought a suit and started trying to raise money while his co-founder wrote code.

“Nineteen VCs turned us down for all kinds of reasons” before Draper invested $300,000, Bhatia said.

Today, he is running his latest start-up, Jaxtr, which makes a SIM card for unlocked mobile phones so they can be used in any country without incurring huge bills for text, voice and data usage. Bhatia is also involved in Sabse Technologies, Inc., which is a cloud technology platform.

Like many entrepreneurs, Bhatia cited his “factors of success.” They include: (1) the idea – “you have to have one”; (2) technology – “you have to have the technical knowhow to solve a problem”; (3) financing; and (4) people.

“One stands out . . . the quality of the people you hire,” he said, adding they have to have both a technical and start-up mindset.

As far as emerging opportunities, Bhatia cited mobile in general, mobile broadband, convergence, developing countries, and drug discovery.

His closing advice was simple: “think globally.”

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