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From Brink Of Bankruptcy Towards An IPO - The Evernote Story

Evernote is perhaps the single most persistent program I have open on my computer each day. I use it almost equally in comparison to Safari, my browser and Sparrow, my mail client. I caught up with Phil Libin the CEO of Evernote in Amsterdam last week, at TheNextWeb conference. I wanted to talk to him how he has guided the company through the early days into what it is today. Today, Evernote has over 25 million users using the service in more than 30 languages. About a million users are paying users who chip in around $5 a month.

The concept of the service is extremely simple. One could say that at its core it is a note taking application that works on multiple platforms and syncs your data to the cloud. You can access this data through the Evernote application on different platforms, be it Windows or Mac, iOS or Android, or through your browser. The service also accepts various kinds of content, text, audio, images and so forth. Perhaps the best part of all this is that it makes everything searchable through OCR.

For years the company kept growing quite moderately, but Libin said he always had hope in how the company would grow. This hope was based on the metrics the service usage created. He showed some of these metrics on stage in Amsterdam. Before getting into these though, I'll have to tell a story Libin shared with me. It's one that hasn't been heard too often. It's how Evernote was saved from the brink of bankruptcy at 3AM one morning by a user from Sweden.

3AM fan e-mail
Libin told me the company had run into trouble in 2008. They had been trying to raise a round of financing towards the end of 2008, when the financial crisis hit the fan and all financial activity ceased. This put Evernote in a difficult position. They had about 2 weeks worth of money in the bank, but to shut down a company in style - you can't run to the wall, you need to prepare for a shutdown.

Libin told me he had been thinking about what he could do, but with no avail. It was 3am and he was ready to go to bed and tell his staff next morning the miserable news. Just as he was about to get to sleep, he received one final e-mail. It was from a user who wanted to thank Libin for the great work with Evernote. The user really loved the product and said he could even invest if the company needed the money.

At 3AM Libin and the Evernote fan, who happened to be from Sweden, opened up Skype and in 20 minutes the basic details of the agreement were done. Next week, the fan wired $500 000 to Evernote and basically saved the company from bankruptcy.

The smile graph
One of the graphs that made Phil Libin always believe in Evernote was the one he referred to as the "smile graph". It represents a smile and has the percentage of sign-ups on the Y-axis while months form the time factor on the X-axis. It shows us how many users keep using the service as each month passes. In the first months the usage is relatively high, but lowers as time goes by. However, after enough time has passed some of those people who signed up during that specific month, begin to come back. This creates the smile shape.

As an example, Libin used a certain month in 2008. As those people begin to come back to the service after months and months, they also begin to pay for the service. After a couple of years the people who signed up during that specific month in 2008, were creating about $16 000 in revenue each month. And it was rising, as more and more came back, began using it and paying for it.

This is pretty much my use case for Evernote as well. I first discovered the app sometime in 2008 and began to pay for it only a couple of months ago.

Financing the growth
Evernote has taken in some $166 million in venture financing from various investors over the years. Their recent round was announced just yesterday. The $70 million the company closed, values it at around $1 billion. Together with that announcement, the company has stated it will aim for an IPO in a couple of years, based on a recent TechCrunch article.

Naturally a growing amount of the money to finance the business comes from revenues. Libin told me in Amsterdam that they know that the pricing of the service is far from optimal, but now is not the time to optimise it. Another important decision they made very early on was to put a price on the product. Users could purchase the premium product from very early on that also gave confidence there was something the company was aiming to solve.

Transparency towards the four segments
Another issue I had to have a talk with Phil was the fact that he has always talked about the company very openly in all occasions, our talk was no different to this. He openly shared company facts and figures. The reason he told me was that he wants to communicate the same information to the four most important segments; customers, employees, press and the board.

He told me the reason behind this is that it is easier for everyone. You can't fake your company in the end you never know what happens. A great reminder of this is that if Libin hadn't been as transparent as he is with that Swedish user who wanted to invest, the company could be bankrupt by now.

However, despite the exceptional transparency in today's technology world, Libin states that you can definitely win by going down both tracks. Evernote doesn't need to protect any trade secrets as the product is really easy to understand anyway. All Libin is concerned about is protecting customer data.

The story has just begun
Despite an exciting experience already so far, the story is far from complete. The obvious reason why the company is far from ready is tied to their vision: they want to build the second brain of humanity, a place that securely stores everything from your life.

With the recent amount of fresh funding, a huge vision and an exciting product - this company is one to watch, but also to learn from.

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