Tony Fadell

Tony Fadell Q&A: Why I sold Nest to Google

January 13, 2014: 5:52 PM ET

Nest CEO talks Google, Apple, and why he agreed to sell.

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FORTUNE -- Nest Labs is on of the hottest companies in Silicon Valley, combining the Internet Of Things with Apple-style design and an ability to reduce carbon consumption. It was widely believed to be an IPO candidate for either 2014 or 2015, with reports that it was in talks to raise another $150 million in venture capital at around a $2 billion valuation.

Until today, when the company agreed to be acquired by Google (GOOG) -- an existing shareholder in the company -- for $3.2 billion in cash.

So why sell? And what does it mean for Nest's future? What follows is an edited transcript of an interview with Nest co-founder and CEO Tony Fadell, conducted shortly after the announcement:

Fortune: Why did you choose to sell the company?

Fadell: Most companies have two paths: They either can stay independent, or they can join forces with another company and get absorbed into it. Google made a very strong pitch for how we could have all the resources of a large company while retaining the independence of a next-generation Nest.

That's what sold the management team at the end of the day. Most of us have been inside of a large company before and understand what large company scale applied directly can do to help create a world-class business. For us to spend more time building non-differentiated infrastructure rather than focus on products and services -- which is what we do best -- doesn't make sense. This allows us to accelerate and stay in front of the coming wave of products for what we like to call the conscious home.

When did you first start talking to Google?

Well, we started in February 2011 when we met Sergey on an off-chance, and the company since then has been very keen about learning more and working together. The first formal relationship was when Google Ventures made its first investment in our Series B round, and then made its second investment -- which we were very, and pleasantly, surprised by.

Then last summer when we were planning more tech partnership-type relationships, Google asked how it could do more. We put them on hold for a while because we had to ship our next product, the Nest Protect, but when we began entertaining our next round of funding Google started presenting its case for an acquisition. All of our options were on the table and, at the end of the day, it wasn't about the money. Investors were basically offering us blank checks. It was about the scale and being able to realize the second generation quicker.

Once Google made its pitch, did you reach out to other potential acquirers?

Our goal was about accelerating our vision, and how many companies are really in position to do that? I'm going to a new home, not selling a used car.

Okay, more specifically: Did you discuss a possible deal with Apple?

I'm not at liberty to discuss that.

Do you believe Apple will continue to sell Nest products in its stores?

We have incredibly passionate iOS users and incredibly passionate Android users. We don't compete with what Apple (AAPL) or Google does, so while to reduce choice to users by removing us from Apple retail stores would be their prerogative, it doesn't make sense to me. We very much value our Apple relationship, and today I've gotten a lot of nice notes from people in Cupertino.

How important to you was it that Google now has hardware expertise, from Motorola to Glass?

It's important, but it's not just hardware. It's hardware, software, and services ... Nest isn't just bringing one of those three things, we're bringing all three of those.

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