To those saying this is boring, there are some interesting tidbits, like this one:
> Should we decide to pursue an acquisition of Ring, we will need to move quickly. [redacted] and in order to pre-empt the closing of the Series E round, we will likely need to commit to making an investment [redacted] that converts into the next round of funding should we fail to close the acquisition. This may be required for two reasons: (i) Ring needs to raise capital by the end of the year, otherwise they will have to fund all of their Q4 with their revolver (projected to draw down $32MM by the end of November), and (ii) we will have to put some skin in the game to get them to walk away from the Series E investment.
It's useful to know how potential acquirers see transactions, and what they might be willing to do to get you to walk away from another opportunity.
A revolving line of credit with a bank. Basically, bank says you have (to make up some numbers) revenues of $15,000,000/year and profits of $5,000,000, so we think it would be pretty safe to lend you up to say $1,000,000 that you can borrow whenever you want to run your business and you'll pay it down on some agreed upon interest rate (which is likely not fixed, but some percentage over prime rate[1]). Notably, you don't have to borrow, it's just available with pretty much no questions asked whenever you need it. Kind of like a credit card, but with a lower APR. It's very commonly used even for profitable businesses since cash inflows often don't match expenditure flows, especially if your company is growing.
For example, maybe you grew your company a lot this year and ran out of money in November, but a bunch of your customers will be paying you large sums when annual renewals renew in January. You can't just not pay employees in December, so you borrow for a month or two in order to smooth over payroll and other expenses and then pay it back in January.
Typically, a revolving line-of-credit is going to help with month-to-month expenses, but won't be enough to massively grow your business. For example, if you are a startup, a bank won't give you nearly as much money as a VC, but at the same time, you probably don't want to give up equity in your company every time you are temporarily behind on payroll. If you are a very large and established company, you'll likely have other, cheaper ways of getting money for your day-to-day business. For example, Commercial Paper is basically a short term bond issued by large well-known and creditworthy companies that need to smooth over payroll and other operational expenses. But by the time you are doing things like that, you probably have an entire corporate finance department handling these sorts of things. A revolving line-of-credit is much simpler.
[1] prime rate is the interest rate that big banks can borrow at which is typically lower than what you can borrow at. They'll borrow at rate Y and charge you rate Y+Z.
I don't know much about this, but some quick research shows that it was actually for $525 million [1], and interestingly, they put up their intellectual property as collateral ("a batch of 10 Marvel characters, including Captain America, the Avengers... and Nick Fury").
It's worth noting that a line of credit can be against the business itself, the owner of the business, or it can be backed with specific collateral, such as stocks, for example. If you are large enough, the bank will get creative on what you can use as collateral, although I'd imagine that in general it's easier to borrow against a Manhattan office building (many possible buyers) than the intellectual rights to comic-book characters (very few possible buyers).
It's interesting that they were able to use creative assets as collateral but also the creative assets that would be worthless in a scenario where Marvel was unable to pay back the line of credit. If the movies do well, no problem. If they tank, who cares about the IP?
This is one of the many reasons I am not in finance.
I believe that by this point Sony had Spider-Man and Fox had X-men, both of which had proven to have legs. There was likely little doubt that a collection of other tried-and-true titles were worth a significant amount, even if Marvel Studios themselves failed to make a hit.
This is established IP in an adjacent media. Marvel first line of business used to be comics which in turn generated sales for tie-in products. In this context it was probably relatively easy to see how much these IP made every year.
Makes sense. The value is based on the IP assuming there is no successful movie franchise. Probably with some risk calculation as to the probability that the films would be successful.
A revolver is a line of credit that companies use for financing. You can think of it almost like a credit card for a company — they make some general purpose agreement with a bank for $X of credit at y% interest, and can use that at their discretion. Companies generally raise debt through specific bond offerings, so this is just a quicker way for them to tap capital instead of going to market each time.
In case the other answers are not obvious enough, a term loan is borrowed once; you borrow $X, and the pay it back before the end of the term. A revolver for $X can be tapped and repaid many times, so long as the total borrowed amounts outstanding at any one time do not exceed $X.
In addition to the other explanations it might be interesting to know that high net worth individuals tend to make heavy use of these. They have extensive collateral that is often less than fully liquid. They can borrow a relatively small amount compared to their holdings and fund most of their day to day costs from their line of credit. Paying down the line can be done in a tax advantaged way. The math works out that they may pay low or even no taxes as a result.
I think it’s actually a reference to Amazon being forced to invest, in case the acquisition falls through. Otherwise Ring could have been left high and dry had they abandoned fundraising to pursue an acquisition that failed.
This is sort of oddly reassuring that they invested just because they think home protection is a good market and not because they value the generated data.
"Don't write the embarrassing parts down" is probably SOP for these sorts of things.
But honestly, even from a non-nefarious motives perspective, that's one of the things that Slack and similar logged-forever-use-us-as-your-knowledge-base conversation tools scare me on. The risk of someone saying something that could be taken wrongly by a journalist or a court one day even if not meant that way goes up the more conversations you record between the more people.
Most tech companies make use of short retention policies for this exact purpose. 18 months to 2 years by default, otherwise anything longer goes through an exception approval process.
As far as data goes, amazon only really cares about the stuff you buy. Their advertising segment is growing, but even then most of it is targeted towards things sold on Amazon.
An observant person knows that in any corporations there are things that are not to be written or implied, some are implied are others are written.
"We should enter soon into the home appliance market" can mean "We have already privately discuss that we need to enter the IT equipment at home so we can gather home consumer habits at home not observable through purchase, credit card data and internet tracking".
It requires a very detailed investigation of written documents, chats, management actions, private accounts, cross checks and all to really understand what such documents mean.
Who knows? Let's say they wanted to do some shady shit, is writing an email(with the possibility of discovery) on that, is the only way to go about it?
I'm probably more cynical than most, but I'm willing to allow that they seriously wanted to just get into security cameras quickly. It probably started "innocently" as that, but then once the deal was done, the others in the org could start seeing how to use things to their advantage.
I was even thinking it would help their "alexa, open the door for UPS" home system as their point. Again, giving them the "good idea" initial thoughts before someone else took elsewhere.
I really don't know why I'm being so generous to AMZN today
No, but we've seen that even high ranking executives who really should know better really often do that.
I would expect at least something that hints at it, e.g. the absence of another good reason, a hint at other reasons, "synergies with" mentioned etc.
Of course, as you mentioned, there could still be such motives, but with this trending on HN I expected some bombshell where they more or less obviously state that, not such a mundane assessment.
I don't know that we can infer that from this. They refer to a pre-existing (but here unstated) rationale for wanting to be in the camera market, which could include that it fits with some broader data strategy. I'm not saying that's true per se, but just that I don't think this really goes into much interesting detail about why they wanted to enter this market.
Well Amazon are interested in breaking down of social cohesion and trust because it reduces the risk of unionization. Perhaps it increases crime rates or the perception of crime rates as well, also a win for a home protection business.
My view of corporate culture at that level is that they all know what they're after, it does not have to be said. They use politically correct language like growing their home protection segment but they all know that they will use any data available to make an extra profit.
At the end of the day a business only has one goal, growth.
> because they think home protection is a good market
it does say a lot, however, about the current state of community policing, the rise of private "neighborhood patrol" security services, gated communities, economic disparities between upper middle class and poor, in north american society as a whole.
and what trends that investors in home security technology startups see it going in.
I am sure in a memo like this they need to lay out all the practical business reasons why their company should make this move, but ever since this news [1] came out in 2019 I've suspected that Ring had other uses to the then richest man in the world, as a massive private surveillance system.
"Beginning in 2016, according to one source, Ring provided its Ukraine-based research and development team virtually unfettered access to a folder on Amazon’s S3 cloud storage service that contained every video created by every Ring camera around the world."
Now, you can easily imagine that this started as some engineers' innocent attempt to improve their machine learning algorithms. But at the same time, this system was purportedly active at the time of the Amazon acquisition, and while there is no way to prove their motives, this seems to me like a huge perk for someone who is one of the most powerful people in the world.
I’ve followed this story as well, and while I wouldn’t really put anything past Bezos (or any other member of a certain social class, really), I always interpreted this to be a simple Intelligence Community operation through-and-through. Select Amazon employees and Bezos having the (same?) access is the layer on top of the cake that is merely the continuation of PRISM (and all other “tailored” access programs i.e. mass data collection). AWS being awarded the recent DoD contract(s) for cloud service read to me that they were simply formalizing arrangements that had long been in place in the shadows.
> AWS being awarded the recent DoD contract(s) for cloud service read to me that they were simply formalizing arrangements that had long been in place in the shadows.
Sounds spooky!
However, having worked in said environments, it's really not.
Ah yes, then we will take your word for it.
After Snowden there's no reason to trust anyone in the government saying they are not funding a massive spying operation.
It's a fair point (which makes everything worse). It was illegal for the government to do a lot of the surveillance (which didn't exactly stop them) but having a private company do it insulates the intelligence community from backlash. Plus Amazon is needed to handle the actual production, sales, and marketing of the devices.
The government can't direct a company to do surveillance that the government itself couldn't do. If the government were just going to flaunt the law anyways there'd be easier ways to get after the data in these buckets. And none of this would insulate the government from backlash anyways.
Likewise, if you're Bezos and you have unfettered access to PRISM-tier data that AWS employees are just going to say "OK!" for, you don't need to buy Ring. Just grab the data! It's sitting on your S3 buckets!
At most the government might be able to use data that Amazon would willingly turnover for whatever reason, assuming they're not contractually prevented from that, but you can't hardly build a surveillance program around the idea that Amazon might allow you to luck into data you need.
Ring also provides a persistent delivery check to cut down on fraud/theft. Not sure if you’ve seen it, but there’s internet video of a delivery driver setting the package down, taking a picture, and then picking it back up. With Ring, you can now monitor delivery drivers like the warehouse workers.
It takes a lot of energy and coordination to create functioning software. To suggest that this is being used for a private surveillance system for one individual is ridiculous. Engineers are constantly throwing items without much thought into storage buckets. I’d attribute this to ignorance over malice.
I've been wondering why Amazon acquired and still maintains both Ring and Blink. The screenshots in the first tweet answer this quite well:
> We also believe they are potentially complementary assets. Blink provides proprietary low-cost, long life wire-free camera IP that differentiates our offering, while Ring provides a more complete solution today and a head start via the larger existing installed base.
> Discussions have pivoted recently as Jamie (CEO) has expressed interest in pursuing an acquisition with Amazon. He has been consistent from the beginning of our relationship [referring to a $1M investment via Amazon's Alexa Fund) that he sees Amazon as the preferred home for his company, with the only other path being an IPO.
Is it normal/wise for a CEO to give a potential acquirer this vibe? I would be worried that it comes off as desperate. It's also possible that he said this to multiple potential acquirers, to make them all feel special. But if each suitor thinks that it is the preferred option, that might lead them to offer less than if they thought the CEO didn't have a preference.
Inexperienced negotiators believe that you should primarily get better deal terms by bluffing more leverage. Experienced negotiators know that you get better deal terms primarily by having more leverage and the bluffing is optional.
I agree that having leverage is better than bluffing it. But under what circumstance is it advantageous to tell a potential acquirer that you think you'd either get acquired by them or go IPO? Isn't it better to let the acquirer think that you're open to transactions with other possible acquirers?
Or was the strategy here that he wanted to make them think they're competing with the massive riches received in an IPO?
I wouldn't question the strategy as much if it had just been executed during the acquisition courtship period. But it sounds like he made his feelings clear from the beginning, when he raised $1M from them (presumably quite a while earlier).
keep in mind that in this case Amazon probably has better market analysis and information than ring. It is pretty tough to bluff a negotiating partner like that.
Meanwhile, there is a lot of value in communicating intent and maintaining their interest.
Well it's partly self-fulfilling isn't it. Amazon isn't going to do early stage investments in companies that aren't open to the prospect of eventually being acquired by Amazon. So of course the emails about the acquisition are going to include the CEO of Ring being very open to the acquisition, you just don't get into this situation otherwise. It's also a smart move on the part of the CEO since you need to have an exit plan and the smart home market is in extreme danger of being commoditized over time - I'm sure that people have seen the struggle of GoPro and learned some lessons. Not every company is going to become a S&P500 company, and it's good strategy to be aware of that and plan for realistic outcomes.
However, as you can see - he leaves on the table the option of an IPO which is basically sending the message "I would love to work with you... but I have another option if you don't give me what I want." That's a pretty standard negotiating tactic.
the question I ask myself is, "did the CEO walk away from this with enough amazon stock/equity to buy a great house, live a very comfortable lifestyle and never have to work another day in his life unless he wants to for fun, even if he lives to age 95?" and the answer is almost certainly yes.
As a practical matter, that makes sense. But what about the employees who have 1% or .1% of the equity that the CEO has? Getting 20% more could lead to meaningful changes for them, even if it wouldn't materially affect the CEO's lifestyle.
If I were a long term employee with a lot locked into private stock I'd want an exit ASAP. I see employees upset about companies who stay private 'too long'. Secondly, I don't expect a VC funded company to prioritize their employees over the CEO or investors, I'm sure some companies are like that but joining a company thinking that would be very naïve.
Right. Generally what happens is before a doc is presented to X level, it is reviewed with stakeholders at X-1 beforehand, they do a review and gather feedback, iterate, and then present to X level.
> This approach appears to be resonating as all of Ring's products have at least 4 stars on Amazon.com
I found it interesting that Amazon considers its public star ratings a high-signal indicator of customer satisfaction and product quality. Not everyone does!
I can't recall roughly when public sentiment of Amazon ratings really went south, but this was 5 years ago, and even if Ring product ratings were being gamed at the time, extending the benefit of the doubt to Amazon M&A staff in having done their SNR due diligence of ratings that they have full internal control over before committing over $1 bil doesn't strike me as charitable.
I'm still amazed by how separate my Ring and Blink products are. The Blink app has an Amazon logo and a dormant Neighbors tag and that's .. that's it for integration?
Yeah I was wondering what the point was. This all sounds pretty well thought-through and reasonable. I was expecting it to reveal something sinister. But this is just what I would have expected of an acquisition discussion.
One thing I would be interested in and it doesn't elaborate on is why they are so focused on getting a foothold in the home security market and how this fits in to their strategy. But I guess this was a strategy defined at a higher level and these guys are just implementing it.
> We have been impressed with the Blink team's technical expertise and believe they are missionary about solving camera problems.
What does "missionary" mean in this context?
edit: thanks for the replies, this is what I would have guessed. Is this a common usage? I've never heard the word used this way before and am curious if it's a common usage in particular circles/industries/regions.
I assume "acting as if driven by a mission to do fundamental work in solving camera problems" -- as opposed to just looking for a quick product opportunity.
I'm quite happy with my Ring security system. I wish they had a real human alarm response here in Europe though like they have in the US. Here you can only get automated calls to 3 numbers and we pay the same as in the US.
But still it managed to scare off the burglars that broke my door open 2 weeks ago. Nothing was taken, just the broken door. This was with the alarm. I have cameras too but I disconnected the microphone as I could hear myself word for word in the next room.
I totally agree that Ring's mix of battery and mains cams is a great one and I have both types myself.
The first image actually provides a very good TL;DR. Here it is, OCR’d by my phone:
> We will need a full suite of camera products as well as more
traditional security products to succeed in the home
protection market segment. Given our current position and
desire to get a complete solution in a short amount of time,
we believe that M&A is the best option to accelerate our
progress. No single company would put us in a leadership
position in the all of the areas where we are behind and need
to accelerate. However, Ring and Blink each provide an
opportunity to expand our offering and increase the likelihood of succeeding in cameras and home protection. We think that both have merit and are worth pursuing independently
tldr; they have cameras, we want cameras, we should buy them
1. Amazon would like to compete in home security, cameras, and doorbell cameras.
2. Amazon could build these themselves, but it'd be time consuming and costly.
3. Amazon would like to act fast.
4. Ring and Blink have wireless cameras and doorbells and they believe this is where the market is headed.
That's about it, tbh. There's some stuff in there about how commoditized the hardware is and some fairly obvious details about the Ring and Blink business themselves, but its all fairly self-evident.
> Should we decide to pursue an acquisition of Ring, we will need to move quickly. [redacted] and in order to pre-empt the closing of the Series E round, we will likely need to commit to making an investment [redacted] that converts into the next round of funding should we fail to close the acquisition. This may be required for two reasons: (i) Ring needs to raise capital by the end of the year, otherwise they will have to fund all of their Q4 with their revolver (projected to draw down $32MM by the end of November), and (ii) we will have to put some skin in the game to get them to walk away from the Series E investment.
It's useful to know how potential acquirers see transactions, and what they might be willing to do to get you to walk away from another opportunity.