When a big company says it will build your idea itself
REA Group told 1Form's founders it would build their idea itself. Eight years later it bought the company, and cut the price a week before signing.
Soon after 1Form launched in 2006, while the site still looked rough and only a handful of tenants had used it, Chad Stephens and Chris Koch booked a meeting with realestate.com.au. Their rental application product was a natural add-on to rental listings, and they wanted it on every one.
They got in front of people senior in the company and made an offer. REA could have 50 per cent of the business in exchange for putting 1Form on its rental listings. Chad now calls that very naive and very green. REA's answer was that it was a great idea, thanks for the idea, and they would build it themselves.
Keep building while they're still planning
They went home deflated. Telling a company that size exactly what you're working on was a risk, and it seemed to have backfired. Once they got home, they decided to keep going. The product was already built, which put them ahead of anything REA had started. They also knew real estate agencies were unhappy with the portals raising their fees every year, which gave them an angle: win over the agencies directly.
Build for the buyer from day one
Even after that meeting, Chad and Chris saw REA as their most likely acquirer. It was the biggest real estate business in the country. They designed 1Form's logo and branding in black, red and white so it would sit comfortably inside REA's world.
Over the following years 1Form ended up on the rental listings of both realestate.com.au and Domain. By the time they were ready to sell, REA was sending them around half their traffic.
Selling to the company that controls your traffic
REA had always said to come and see them if 1Form was ever for sale, but the approach still carried risk. If REA wanted to lower the price, it could switch 1Form off for a while and wait. It didn't, and talks began.
Chad and Chris tried to create competitive tension and couldn't. Domain said it would like the business but wouldn't get into a bidding war with REA. RP Data worked closely with REA and stepped aside. They brought in PwC to help with the sale, but the valuation range was wide because the business was hard to value, and they ended up negotiating the price themselves.
Seventeen million, then fifteen
After about a year of negotiation, with due diligence and legals complete, the parties had agreed on $17 million. A week before signing, REA came back and said it would not pay more than $15 million, take it or leave it. Chad still isn't sure whether it was a bluff. With no other buyer and a year already invested, they took it. REA announced the acquisition in January 2014.
The lower price worked out better for them personally. Chad says the smaller amount brought each founder's share under the threshold for a small business tax concession, which gave them a 50 per cent tax break, and they each walked away with more than they would have at $17 million. Their investors didn't get that benefit and were happy for the founders to have it. The concession rules are specific, so any Founder heading towards an exit should get tax advice early.
The clean handover
Once the deal was signed it went smoothly. REA was buying the technology, so the handover ran for six months and Chad and Chris kept their office and their staff. That suited them, because they were already building their next company, Fillr, which Rakuten acquired in 2020.