The Odd Tale of Facebook, TipJoy, the Deal that Didn’t Happen and the Hire that Did

What’s next for the team behind Tipjoy, a micropayments service that closed its doors this week? For one of the company’s founders, it’s a job at Facebook–the social network that offered to buy the start-up this summer, then walked away from the deal.

In fact, co-founder Ivan Kirigin’s first day at Facebook was last Monday–four days before he and his wife, Abby, announced that they are shuttering their start-up.

Confused? You should be: This is one of the odder M&A stories I’ve seen in a while. Not surprisingly, the tale differs depending on who’s telling it.

Some basic, undisputed facts: Sometime this spring, TipJoy, a year old start-up that lets Web surfers “tip” bloggers and publishers, shopped the service to multiple parties, including Twitter and Facebook. By July, Facebook had offered, via a term sheet, to buy the company. Facebook then pulled its offer, and shortly after, offered Ivan a job. Now he and his wife are shutting TipJoy down and returning what’s left of the $1 million they had raised to their investors.

Also undisputed: No one has accused anyone of violating any laws, or contracts. Facebook’s offer was nonbinding and nonexclusive. And it’s not unheard of for companies to walk away from an M&A deal late in the process. That’s what happened, for instance, when Google (GOOG) bailed out after deep talks with Digg a year ago.

You could see why some of TipJoy’s backers, which include BetaWorks, the Accelerator Group, ex-Googler Chris Sacca and the Y Combinator start-up factory, might cry  foul. The argument would be that Facebook’s actions effectively prevented the company from finding another buyer. But even if that was true, it doesn’t mean that Ivan Kirigin had to accept Facebook’s job offer and/or shutter his company.

Facebook spokesman Larry Yu declined to discuss the negotiations in detail, but offered this statement via email: “We take pride in operating in a transparent and ethical manner. We can’t offer any specifics here, but to suggest anything untoward occurred on our part simply ignores the facts.”

I’ve sent the Kirigins repeated requests for comment but haven’t heard back. Their statement announcing the decision to close their company doesn’t mention Ivan’s new job. But it does hint, obliquely, at their future plans:

When we evaluate why there’s been so much hype about payments on Twitter, and yet so little traction for us (and even far less for our competitors) it is clear to us that the reason is that a 3rd party payment service doesn’t add enough value. We strongly believe that social payments will work on a social network, provided that they’re done within the platform and not as a 3rd party….the only way to get around this is for the platforms themselves to control payments–then all people wanting to operate on that platform would have to play along. We believe that a payments system directly and officially integrated into social networks such as Twitter and Facebook will be a huge success.

UPDATE: Y Combinator founder Paul Graham, commenting on this story on his Hacker News site, says Facebook hired Ivan at his urging:

Facebook didn’t do anything wrong. Tipjoy was out of money. They’d been talking to several potential acquirers, including Facebook, but those deals all fell through. So the Tipjoys were going to have to get jobs somewhere. Since they were worried about money and Ivan admired the hackers at Facebook, I asked FB if they’d offer him a job, and they did.

It doesn’t portend anything for the future of startups, as this story seems to imply. If your startup tanks, you have to get a job somewhere, and lots of hackers get jobs at Facebook. There are several other YC alumni working there.

Ivan Kirigin also weighs in within the same comments section, and says that my report “completely doesn’t tell the whole story.” Ivan, I’m all ears, so either drop me a line or leave a comment below.

Note: I’m assuming that the commenters identifying themselves as Paul Graham and Ivan Kirigin in the comments section are indeed Paul Graham and Ivan Kirigin. But I’ve sent emails to both men so I can verify that. Update: That is indeed Paul Graham.

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