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Saying YES to $1.65 Billion

Posted on Monday, Oct 9th 2006

YouTube said YES to Google. No surprises there.

Sequoia strikes again. Mike Moritz plays a perfect game. Again.

Moritz leveraged Google with Yahoo, and now he has leveraged YouTube with Google. This time, faster.

All the nuances were thought through. Just in case the SEC raises concerns, notice, Moritz is not on the YouTube Board. Roelf Botta is. (Sorry I said Mark Kvamme, earlier.)

YouTube makes perfect strategic fit for Google. Google had also made perfect strategic fit for Yahoo. (See this video of Terry Semel discussing the Yahoo turn-around, and how he tried to buy Google early on.) Most important nugget – Google got paid $7 Million a year to provide Yahoo with its core search technology for several years. That’s a remarkable additional capital infusion into a young company without any dilution. Google brilliantly leveraged that capital, and built AdWords in parallel, and then beat Yahoo in their own game.

Mike Moritz, I take my proverbial hat off to you. This is, indeed, Venture Capital at its absolute best – creating industries, jobs, wealth, heroes, … Just brilliant!

ps. Don’t forget, Moritz also did Paypal, now resting inside eBay.

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The actual partner at Sequoia who led the deal was Roelof Botha. While I am sure Mike was pretty involved as were the other partners, Roelof was the person who took the board seat and worked with Chad and Steve.

Radgan Tuesday, October 10, 2006 at 2:16 AM PT

The real question is, who master-minded the whole thing? To me, it looks and feels like a classic Moritz formula. It doesn’t matter whether Kvamme and/or Botha “led” the deal.

Sramana Mitra Tuesday, October 10, 2006 at 11:01 AM PT

From VentureWire, an analysis of Sequoia’s returns from YouTube, versus their returns from Google. One thing to note, Sequoia managed to get a spectacular return on Google in 5 years, whereas, from YouTube, they got one in just over a year.

“With its $1.65 billion acquisition of video sharing Web site YouTube Inc., Google Inc. is once again providing Sequoia Capital with monster returns.

The Menlo Park, Calif.-based firm poured about $11.5 million into YouTube since last year and reportedly held roughly 30% of the company. That would give Sequoia about $495 million in Google stock, worth roughly 43 times its investment.

Since the burst of the technology bubble, only a handful of venture-backed Internet companies have proved such spectacular exits for VCs. Ebay Inc.’s $2.6 billion acquisition of Internet telephony company Skype Technologies SA stands out. With only $20 million in venture money, firms including Draper Fisher Jurvetson, Index Ventures, Bessemer Venture Partners and Mangrove Capital Partners all saw huge returns from the deal.

But overall, the merger and acquisition market has not provided any such returns for investors. The median acquisition price for venture-backed companies was $47.15 million last year, according to industry tracker VentureOne, a unit of Dow Jones & Co. And before the Skype deal, the last time a venture-backed company was bought for more than $1 billion was in 2001, when publicly traded Ciena Corp. bought telecom start-up Cyras Systems for $1.15 billion, according to VentureOne.

Of course, Sequoia’s return on investment for YouTube is nowhere near what it scored with Google. The firm invested about the same amount, roughly $12 million in 1999. At the time of Google’s IPO in 2004, Sequoia’s eighth fund held about 21.65 million shares, according to Google filings, meaning Sequoia’s shares were worth about $2.17 billion after the first trading day.

Over the years, Sequoia has dwindled down its stake in Google to about 0.1%, according to an April Google filing, leaving it with 412,823 shares worth about $177 million. With Google’s stock trading at $429 as of Monday’s close, Sequoia is getting roughly 1.15 million Google shares in the YouTube deal. “

Sramana Mitra Tuesday, October 10, 2006 at 11:21 AM PT

[…] that it has been a few months since Google bought YouTube, we can look at how it is benefiting from it. Comscore data for March 2007 seems promising. […]

Sramana Mitra on Strategy » Blog Archive » Is Google Monetizing YouTube? Thursday, June 14, 2007 at 6:41 AM PT

[…] that it has been a few months since Google bought YouTube, we can look at how it is benefiting from it. Comscore data for March 2007 seems promising. […]

Sramana Mitra on Strategy » Blog Archive » Is Google Monetizing YouTube? Thursday, June 14, 2007 at 6:41 AM PT