With Buyback, 16-Year-Old Startup WhitePages Is Doing Something Very Rare With $80 Million

Most times, when a venture-backed startup grows up, it provides a profit to its financial backers by selling to a larger company or going public.

Either that or it doesn't grow up at all. It goes bust, and provides zero dollars back to investors.

WhitePages, founded by a Stanford student all the way back in 1997, is an anomaly in startup world.

It's forgoing all those routes. Nearly 20 years old, it's plenty grown up. It's not going bust anytime soon. And it has provided a return for its investors - but not through a sale or an IPO. It's buying shareholders out.

A couple months ago, WhitePages CEO Alex Algard and CFO Jason Eglit used company profits and some debt to buy all the WhitePages stock owned by outside investors TCV and Providence for $80 million.

TCV and Providence, late stage private equity firms, originally bought their stakes in WhitePages for a combined $45 million in 2005.

WhitePages wouldn't reveal the valuation at which it bought its stock back. It said its current revenue run rate is $60 million, so you can figure the company is worth a couple hundred million. WhitePages is a private company, so there's no way to be sure.

WhitePages has three lines of business. It has its consumer business on WhitePages.com, 411.com and a bunch of other domains. It sells access to its data to third-parties, like ecommerce merchants who need to validate card-not-present transactions. It makes mobile apps, like a popular Caller ID app for Android.

Algard and Eglit gave three reasons for completing the buyback:

• TCV and Providence were in White Pages for seven years. They wanted out.They have their own investors that want a return on their capital.
• Debt is cheap right now, especially compare to equity costs.
• With no outside investors to answer to, WhitePages can now invest its profits however it likes. Right now, it's investing in recruiting talent. It just spent $2.5 million re-doing its office. It's taking all employees on a trip to Vegas in th enext couple months. There's also a plan to spend another $5 million on building mobile apps.
• One added bonus of the transaction is that, because there are no more outside investors with liquidation preferences, employees saw a 10% increase in their equity value overnight.

It's been a wild 16-year journey to this point for CEO Alex Algard. He started WhitePages as a student at Stanford in 1997. After graduating, he decided to get a real job in New York. He went into investment banking for Goldman Sachs. He'd spend 90+ hours a week on his day job, and 3 hours a week working on WhitePages.com. Eventually the income from those three hours surpassed the 90 hours. Algard quit the day job.

He moved to Seattle in 1998, which was then still a startup hub on par with Silicon Valley. In 2005, WhitePages raised $45 million.

Somewhere in there, Algard quit working on WhitePages and focused on another company, CarsDomain, which he'd founded in 1992. He came back to WhitePages in 2007.

From 2008 to 2010, the company struggled. During growth years it had hired poorly, and didn't have the right team in place. Plus lots of its big customers in the online yellow pages space collapsed under pressure form Google.

The last couple years, things got going again.

Now the company has 130 employees. It's using its profits to invest in building the company over the next 15 years.

Someday, Eglit and Algard hope it will go through a traditional startup exit - a big sale or an IPO.

Eglit expects that to happen in the next 3 to 5 years. That's not to say a sale sooner sounds terrible.

"If somebody wants to make us a stupid offer, we'd be happy to take it."