Cardsmith Inc

Case # 144-C06-A-U

Arthur M. Blank Center for Entrepreneurship
January 2006 Babson Park, MA Phone: [phone]-0310 Fax: [phone] URL: http://www.babson.edu/eship

CardSmith, Inc.
Taran Lent, co-founder of CardSmith, Inc., leaned into his laptop as he tapped out a response to his partner some 300 miles to the South in New Jersey. Soon, two other members of their dispersed team had joined the instant messaging strategy session. As developers of a business that was pioneering online interfaces to economically install and operate student debit-card programs, it seemed only fitting that their company was itself essentially virtual. By July of 2005—one year after beginning operations—the CardSmith team was eager to begin scaling
As the fall semester approached, Mitch and Taran decided to grow the business by attracting more vendors and by opening up the program to the entire student body. To that end, they met with the card administrator at Dartmouth to propose a joint-venture that would expand the purchasing power of student IDs beyond the dining halls and the book store. When the woman made it clear that the college had no interest in moving in that direction, the partners raised $20,000 through friends and family to establish an offcampus business that sported the school colors; the Green Card. Taran noted that by that time their roles in the venture had become clearly defined: Mitch and I were perfect partners. He’s a great strategist, salesperson, and an ideas guy; but implementing plans and managing day to day operations is not his strong suite. I never wanted to be an engineer in the traditional sense—my interest lies in crossing that divide between business and technology by designing solutions that improve operations. Together we made a really good team. Word spread quickly among the students, and the growing popularity of the card was a key selling point as they worked to expand the base of participating merchants in town. Taran explained that as an additional enticement, they devised an advertising credit
Flush with cash and big-picture strategies, SA was gearing up for a high-profile IPO by aggressively acquiring a myriad of online businesses in that space. The Green Card, with its Ivy League pedigree, was a logical target. Taran explained that despite firm opposition from their advisor, the offer seemed too good to pass up: At the time, we just didn’t see an easy path to do it on our own. SA was offering us $2.5 million in cash, significant stock options, and management positions. They appeared to have an excellent plan; leverage college student buying power nationally, like AARP does for retirees. It was to be a national membership program: for twenty dollars a year, students would get discounts on airlines, on Amtrak, and at over twentyfive thousand merchants. It was a great deal for the students, and a great marketing service for the merchants. SA was talking about building one community at a time until they had 200 college towns. And they had a national community management infrastructure we thought we could leverage to fast-track the roll-out of our service. At the last minute, [venture capitalist] Millennium Partners gave us a term sheet for $1 million. Stuart urged us to go with Millennium, but since we knew that this wouldn’t be our last startup, we went with SA. Taran smiled and added, “Stuart is still kind of upset about that…” The two packed up and moved to Boston. Taran recalled that almost