'Startup' podcast offers a rare fly-on-wall view of tech M&A after Gimlet's $200 million sale to Spotify

Key Points
  • Seven months after selling Gimlet to Spotify, the creators of the "Startup" podcast published a three-episode series about the process.
  • What started off as an audacious effort to create a podcasting company ended over five years later with a $200 million acquisition.
  • The show is wrapping up because "we have now graduated from being a start-up," said CEO Alex Blumberg, at the conclusion of the series.
Gimlet co-founders Matt Lieber (left) and Alex Blumberg
Gimlet Media

It's been over five years since Alex Blumberg, of radio program "This American Life," awkwardly pitched venture capitalist Chris Sacca about an idea for a new podcasting company, and recorded the experience for the world to hear.

The episode, which became the first for a series called "Startup," was A+ entertainment, filled with humor, drama and tension. But given Blumberg's struggles to construct a complete comprehensible sentence for Sacca — "I want to start a company that will create the content for all these people to listen to who are, like, moving into the digital future slash present" — it was hard to envision the aspiring entrepreneur meeting a lucrative ending and hiring over 100 employees along the way.

On Friday, "Startup" aired the concluding episode of its final season. It wrapped up, not because Blumberg's company, Gimlet Media, is closing or downsizing, but because it's now a division of music-streaming service Spotify, which acquired Gimlet earlier this year for $200 million.

Spotify announced the purchase of Gimlet on the same day it acquired Anchor, a podcasting technology provider, underscoring the company's effort to move beyond music and "become both the premier producer of podcasts and the leading platform for podcast creators."

Consumers were showing Spotify the way. According to a study earlier this year from Edison Research, about 90 million Americans are listening to podcasts every month, up from 73 million in 2018. The business is still nascent but growing rapidly, with podcast ad revenue expected to increase 42% this year to $678.7 million, according to data from PricewaterhouseCoopers and the Interactive Advertising Bureau.

Spotify CEO on its goal to be the world's leading audio platform
Spotify CEO on its goal to be the world's leading audio platform

Here's what Spotify CEO Daniel Ek told CNBC's Jim Cramer the day of the Gimlet deal:

"It's really about expanding our mission from just being about music to being about all of audio and being the world's leading audio platform."

For fans of "Startup," the final three-episode season offers a satisfying conclusion to the kind of chaotic corporate story that's almost always shielded from public consumption. Since 2014, the show has provided a fly-on-the-wall view of fights between Gimlet's co-founders, employee burnout, uncomfortable conversations about diversity and sensitive meetings with potential investors. There was also family drama for Blumberg, whose wife, Nazanin Rafsanjani, joined the company in 2015, leaving behind a position as a producer for MSNBC's Rachel Maddow.

The first season of "Startup" even formed the basis of an ABC comedy, "Alex Inc.," with Zach Braff playing the CEO, who was renamed Alex Schuman for the 2018 TV version.

Zach Braff
Joe Scarnici | Getty Images

The podcast "Startup" wraps up by pulling back the curtain on what was happening inside the Brooklyn-based company when Spotify approached last year.

The podcasting business had suddenly become crowded. Far more shows were competing for the same listeners and same ad dollars, forcing content creators to lower the costs they charged advertisers or leave inventory unfilled. By early 2018, Gimlet's audience was plateauing and the company was struggling to lure advertisers, a particularly problematic scenario because it had poured money into heavily produced shows that were now destined to lose money.

Having raised $22 million in venture capital to invest in more people and programs, the company was burning cash at about twice the rate it had expected. Blumberg and co-founder Matt Lieber were fighting. Lieber, the business guy, saw the costs adding up, and he was losing patience with Blumberg, the product visionary.

In the first episode of the final season, Lieber was asked how he felt about Blumberg when things were at their worst.

"My least generous thought," Lieber said, "was that Alex is a child who doesn't want to grow up and just wants to, like, make art projects and doesn't care to understand the responsibility of building and running a company that has creativity at the center of it but has a lot of other stuff around it that makes it all work."

Blumberg, who was narrating the show, said, "In the swirl of anxiety about Gimlet's future, we were becoming caricatures to each other." Rather than discussing their differences, "These thoughts, we buried them," Blumberg said.

'All this work started to make no sense'

One specific point of tension involved the development of a documentary miniseries called "The Habitat," about a crew of volunteers spending a year together on a remote mountain in Hawaii, simluating what life would be like on Mars and sending audio back to the producer. The show, which launched in April 2018, blew past its budget and took much longer to produce than expected.

"At some point, all this work started to make no sense to Matt," Blumberg said. "When we greenlit the project, we estimated it would take a year of production time. But then that year stretched towards two," and it became clear the show would lose money.

In another scene, Lieber was with a small team at Cannes trying to close a big advertiser deal that had been in the works for a year. Blumberg hadn't been much involved in the deal, only to chime in at the 11th hour with detailed questions and concerns, leading to a testy cross-Atlantic exchange.

"I was sitting in an Airbnb that three of us had, like, scrunched ourselves into, so that we spent as little money as possible" Lieber said in the second episode. "I had Alex on speaker and he was like, 'I don't know if we should do this deal.' And I'm like, 'What... why... what?'"


As an outside observer, this friction was masked by the continuous rollout of entertaining content, like fictional shows "Sandra" and "The Horror of Dolores Roach," the investigative series "Crimetown" and the deeply personal narratives of "Heavyweight." There was no reason to suspect internal strife or that the business was on such shaky ground.

When Spotify announced the acquisition of Gimlet in February (terms were undisclosed but the $200 million price tag was widely reported), it made plenty of sense. It appeared that Spotify was paying up for a fast-growing, successful start-up. Seed investors in Gimlet made 15 times their money back while Series A investors generated a fivefold return, according to a person familiar with the matter who asked not to be named because the terms were private. 

A Spotify spokesperson declined to comment and Gimlet's founders weren't available for an interview. 

A different perspective

From the inside of Gimlet, the Spotify offer was a potential way out.

The last two episodes provide intimate details on the dealmaking process. It was mid-November when he got the call, and Lieber was preparing to cook Thanksgiving dinner for 20 people at his house in New York. Flying to Sweden to meet with Ek the week of Thanksgiving would complicate his gravy-making plans. He even relayed that concern to Sheila Spence, Spotify's vice president of corporate development.

"Matt was telling me all about his family sport traditions and his gravy and stuffing that he makes," Spence said. "I was listening and I wanted to be sympathetic to this, but in my head, I had this thought bubble of, like, man you're the president of a venture-backed start-up and your acknowledged ideal buyer's CEO wants to meet with you. And can't that be a little more important than the gravy?"

In the end, Lieber and Blumberg both made the flight to Stockholm to meet with Ek, who in the discussion asked the pair the hypothetical question, "What would you do if I gave you $1 billion?" That wasn't the offer on the table, but it was a test. One of Blumberg's spur-of-the-moment responses was that he would hire Jad Abumrad, the creator of popular show "Radiolab." Neither of them had any clue how they would spend that kind of money.

The Spotify logo hangs on the facade of the New York Stock Exchange with U.S. and a Swiss flag as the company lists its stock with a direct listing in New York, April 3, 2018.
Lucas Jackson | Reuters

As the final episode winds down, you get the emotional realization from Blumberg and Rafsanjani that, while their lives are about to materially improve (to put it mildly), there's sadness in handing over the thing they'd built, and then showing up for work as employees. Someone else will now tell them whether they get to keep making their audacious shows or if the future will all be about programs that make financial sense.

At a party after the announcement in Spotify's Manhattan office, one Gimlet employee, Devon Taylor, pulled out her phone to capture audio of the celebration, because — well — it's a podcasting company.

"It's the only way I know how to process this experience," Taylor told Blumberg, after the CEO pondered out loud why he wasn't the one recording.

Blumberg finishes the show six months later, in September. Things had changed as expected. People in sales and marketing were part of the broader Spotify organization. Email addresses had been moved over. Perks were much better.

And the only show Gimlet had stopped making is this one — "Startup."

"What started as four or five episodes chronicling my attempt to start a company grew into five years of programming," Blumberg said. "Five years during which we launched our start-up, grew our start-up and have now graduated from being a start-up."

You can listen to the full series here or wherever you get your podcasts.

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