Fred Wilson of Union Square Ventures once said that “If you do the math around our goal of returning the fund with our high impact companies, you will notice that we need these companies to exit at a billion dollars or more. Exit is the important word. Getting valued at a billion or more does nothing for our model.”
As you can easily understand from this quote, VCs are obsessed with exits, and by exits, they mean their return on investments. They are approaching the startups they scout with this perspective from the very beginning. In the early stages, they look at founders’ capability to execute the business and handle it in the long run. At later stages, the VC focus is on the financials, key metrics, and sector dynamics. The whole work is to decide whether the startup will bring greater returns or not. Some of the efforts have resulted in the best VC Bets in terms of returns so far. Here are five excellent examples of great VC investments.
In 2014, Facebook paid $22 billion for WhatsApp, making it the largest private acquisition of a VC-backed firm. Sequoia Capital, the company's sole venture backer, saw its $60 million investment grow into $3 billion.
Sequoia's success predicated on exclusive cooperation with Brian Acton and Jan Koum, the founders of WhatsApp.
When early-stage investors put money into a firm, they usually want to bring in more money to generate more publicity and legitimize their investment. A startup's cap table may have as many as five or six different VCs. Because of this, these rounds are called "party rounds."
For early investors, Accel Partners and Breyer Capital, Facebook's $16 billion IPO at a gigantic $104 billion valuation was a big triumph. In 2005, the businesses led a $12.7 million Series A into Facebook, acquiring a 15% ownership in what was then known as "Thefacebook." The company was valued at a whopping $100 million at the time of the transaction.
Investors didn't start coming to the early social media startup until almost exactly one year later.
Founders Fund, Interpublic Group, Meritech Capital Partners, and Greylock Partners contributed to Facebook's Series B funding round in 2006, which valued the company at $418 million.
When Facebook went public in 2012, Accel Partners' stake was worth $9 billion, despite selling $500 million in shares in 2010. Accel's IX fund became one of the most successful venture capital funds in history due to this bet.
Since Google's first public offering in 2007, Groupon's IPO in 2011 was the largest by a US web company. The IPO raised $700 million, valuing Groupon at over $13 billion.
New Enterprise Associates' 14.7 percent investment in Groupon was valued at around $2.5 billion at the end of the first day of trade. Eric Lefkofsky, Groupon's largest shareholder, was the biggest beneficiary of the IPO.
As a co-founder, chairman, investor, and largest stakeholder in Groupon, Lefkofsky was heavily involved. Through numerous privately-held financial firms and management responsibilities, he positioned himself on both sides of the Groupon deal. He did so in an unusual manner. He did possess 21.6 percent of the corporation in the end, though. When Groupon went public in 2011, his share was worth $3.6B.
When Cisco paid $6.9 billion for Cerent in 1999, it was the most significant tech acquisition ever. Kleiner Perkins Caufield & Byers, which invested $8 million in the startup, made a multibillion-dollar profit.
For Series C and D rounds, Cerent sought funding from Norwest Venture Partners, Integral Capital, Advanced Fibre Communication, TeleSoft Partners, and Kinetic Ventures. Meanwhile, Cisco spent $13 million to buy 8.2 percent of the company before the acquisition.
Kleiner Perkins Caufield & Byers, whose 30.8 percent ownership was valued at nearly $2.1 billion after the stock transfer, did the best.
Cerent was co-founded and directed by Vinod Khosla, a Kleiner Perkins partner. There were parallels to Genentech, a previous Kleiner Perkins home run. Robert Swanson, a former Kleiner Perkins partner, was a co-founder of Genentech.
Khosla knew the best engineers in Silicon Valley and had a keen understanding of what the market needed, thanks to Kleiner Perkins' reputation and transaction flow. Cerent's concept nearly walked into his office; all he had to do was find the proper individuals to put it into action.
Snap Inc. had the second-highest valuation upon exit of any social media and messaging business since 1999, when it went public in March 2017 with a $25 billion valuation.
Benchmark Capital Partners' stake in the company was valued at $3.2 billion at the time. The IPO also marked the end of a successful sequence of transactions for Lightspeed Venture Partners, whose $8 million investment increased to $2 billion in value.
Snap received its initial investment from Lightspeed Venture Partners in May 2012, when it backed a $480K seed round. Benchmark funded $13.5 million in the company's Series A investment nine months later as the round's sole investor.
Snap's $60 million Series B later attracted a slew of new investors, including General Catalyst, SV Angel, Tencent Holdings, Institutional Venture Partners, and SF Growth Fund, in a move reminiscent of Facebook. Benchmark and Lightspeed would enjoy higher returns than the others.
Benchmark's success with Snapchat was due to the company's ability to see past the public's impression of the app. It saw a business where others saw a fad.
June 22, 2022