Alan Patricof and other VCs look back on their most satisfying deals, their duds and the ones that got away
Venture deals are like love affairs. Some blossom, some turn ugly and some fizzle before they have a real chance to begin.
With that in mind, we asked seven venture capitalists to tell us about their best deal, their worst deal and the one that got away. The conversations were not only entertaining, but also instructive.
Some lessons we took away:
• If you really believe in a deal, do it even if you feel it is overvalued.
• No matter how great a particular technology is, make sure the market is ready for it.
• Don’t be afraid to bet on great entrepreneurs, even if you aren’t 100% certain about their business plan.
• And always trust your gut.
We hope you learn from the following venture capitalists’ successes and failures. They certainly did.
Sharon Wienbar
Managing Director
Scale Venture Partners
Most Satisfying: Reply.com
Description: Operates an online marketing platform.
Funding: Raised $22.87 million from 2005 to 2008 from ATEL Ventures, Outlook Ventures and Scale Venture Partners, according to Thomson Reuters.
Lead investor: Scale Venture Partners says it led the first round in 2005.
Outcome: One of the fastest growing companies in Scale’s portfolio.
“Reply.com is my most satisfying, despite all the sleepless nights it has given me. The company serves the automotive and real estate sectors, which were hit hardest by the recession. I remember one surreal moment when we had an emergency board call about whether to extend credit to GM and Chrysler for marketing services—right before these companies were about to file for bankruptcy and we weren’t on the approved creditor list!
“However, the founder, Payam Zamani, was able to turn the company around even while the market was melting down around him. It would have been easy to say, ‘Hey, the company is not doing well, so let’s replace the CEO.’ But there wasn’t anything he should have been doing differently. In fact, he made the hard choices to cut costs faster than revenue was falling. I learned that if the entrepreneur is willing to make the hard choices, let him do it. Reply is now one of the fastest growing companies in our portfolio.”
Least Satisfying: BellaMax Inc.
Description: Provides digital photo enhancement services to consumers, professionals and businesses.
Funding: Raised $9.3 million from 2003 to 2006 from Adobe Systems, Apex Venture Partners, Granite Ventures and Scale Venture Partners, according to Thomson Reuters.
Lead investor: Apex Venture Partners and Scale Venture Partners led the company’s $6.3 million first round in March 2003, according to Thomson Reuters.
Outcome: The still operates with a couple of employees who run it for cash. Scale declined to say how much it lost on the deal.
“BellaMax was a total wipeout deal. The two founders were from Adobe, where I once worked. Shortly after I invested it was clear the two founders did not get along and within six months, both were gone. We hired a new CEO who pushed every button she could to find a market for this technology. But in the end there was no market because this was not something consumers were willing to pay for.
“When we invested, BellaMax had promising tests with companies like Match.com and eBay. But they could never build on this early traction. I think I was overeager to make this investment. As an ex-Adobe person, I may have assumed more than I should have. I really wanted this deal to work. I learned that you have to step outside your own set of experience, scrutinize all the facts, and peel back every layer.”
The One That Got Away: Playfish Ltd.
Description: Develops games for social networks.
Funding: Raised $17 million in a single round from Accel Partners and Index Ventures in October 2008, according to Thomson Reuters.
Lead investor: Accel Partners and Index Ventures.
Outcome: Acquired by Electronic Arts for up to $400 million in November 2009. EA paid $275 million in cash and $25 million in equity retention arrangements and agreed to pay another $100 million if Playfish meets certain milestones.
“We did everything we could to invest in Playfish. We flew people to London and Seattle to meet them, we did favors, but we couldn’t get in. We knew the founders because their previous startup was acquired by a mobile gaming company in our portfolio. We weren’t at all surprised at their huge exit.
“I’m not sure we could have done anything differently. Playfish is based in London and they were bridged by Accel London, so they had local investors from the get-go. They also liked that Accel was in Facebook, and it’s hard to compete with that.”
