Fred Wilson, legendary VC blogger, partner at Union Square Ventures and an early internet investor at Flatiron Partners has done some incredible deals in his career. He knows more than most VCs and has an amazing knack of sharing his knowledge with the world through his blog.
With the news today that Geocities is to be closed by Yahoo! Fred has written an extraordinary piece that artfully demonstrates many of the issues that investors and entrepreneurs have to address when managing their growth. I found it fascinating to put myself in the position of the many parties involved at each stage of the story and consider what I would feel in their postion and what I would try to do.
Fred speaks from experience of the deal. As he says in the post, he said to his partner in 1996 as they did the first round of finance,
‘…”we are about to invest in one of the top ten internet companies in the world at a $10mm valuation.” Not many people understood how big a deal that was back then, but we did.’
Flatiron invested $ 6m for 30% of Geocities in 1996 which was acquired by Yahoo! in 1999 for $3.5 billion (after plenty of other financing activity). 100x return for Flatiron.
This post is unusually candid in articulating the thoughts that went through the investor’s minds and will probably become the basis for many an MBA case study in the future.
More importantly, it should be required reading for anyone who wants to know how venture capital works – from the investor and entrepreneur’s side.
What he doesn’t cover is how, like so many acquisitions, large exits didn’t create huge value for the acquirer. Geocities was shut down by the troubled Yahoo! about 10 years after it’s $ 3.5 billion exit.