Wednesday, November 22, 2017

"From Alibaba to Zynga: 21 Of The Best VC Bets Of All Time And What We Can Learn From Them"

This is a primer on venture capital. Don't let the post-IPO performance of some of the names in the snapshots stop you from reading on, scroll down to the capsule descriptions for the mini case studies.
From the VC Mavens at CB Insights:
These venture bets on startups that "returned the fund," making firms and careers, were the result of research, strong convictions, and patient follow-through. Here are the stories behind the biggest VC home runs of all time.

In venture capital, returns follow the power law — 80% of the wins come from 20% of the deals.
Great venture capitalists invest knowing they’re going to take a lot of losses in order to hit those wins.

Chris Dixon of top venture firm Andreessen Horowitz has referred to this as the “Babe Ruth effect,” in reference to the legendary 1920s-era baseball player. Babe Ruth would strike out a lot, but also made slugging records.

Likewise, VCs swing hard, and occasionally hit a home run. Those wins often make up for all the losses and then some — they “return the fund.”
Fred Wilson of Union Square Ventures recently wrote that for his fund, this translates to needing at least two $1B exits per fund:

“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,” he wrote. “Exit is the important word. Getting valued at a billion or more does nothing for our model.”

We analyzed 21 of the biggest VC hits of all time — all of which are in the top 35 venture exits of all time — to learn more about what those home runs have in common.

To do so, we pulled data and information from web archives, books, S-1s, founder interviews, the CB Insights platform, and more.

For each company, we dove into the remarkable numbers they posted before their IPOs and acquisitions, the driving factors behind their growth, and the roles of their most significant investors. Below, we’ll show you our analysis on each specific case. You’ll read about how:

WhatsApp decided early on to work only with a single investor, Sequoia Capital, which invested a total of $60M into the company for a massive $3B return.

Facebook’s exponential growth resulted in huge successes for early investors like Accel Partners. Even Peter Thiel, who wrote the first check to Facebook, later worried the company was overvalued and sat out a subsequent round while Accel maintained its conviction in Facebook.

Groupon pivoted from a social activism platform to a local deals aggregator, and generated huge returns for co-founder, chairman, and biggest shareholder Eric Lefkofsky.

Cerent, which was founded by a Kleiner Perkins Caufield & Byers partner, saw investment from Kleiner Perkins from the very beginning and returned $2.1B.

Snapchat developed a tight relationship with Series A investor Benchmark Capital Partners as it shook off the early perception that it was just a faddish app for “sexting.”

King Digital Entertainment, maker of mobile game Candy Crush, was acquired for $5.9B, resulting in a huge payout for Apax Partners, which owned 44%.

UCWeb was acquired by Alibaba, a prior investor, because they offered services that would help Alibaba triple their own valuation.

Alibaba grew alongside the early growth of the internet, helping to make early investor Masayoshi Son, today chairman of Softbank Group, the richest man in Japan and a tech titan in his own right...