This blog contains original articles as well as articles from the book "Start-Up", by Hervé Lebret, which exists both in English and French. It is available on Amazon as well as in electronic versions. To buy it, click here.
I had already showed the power of networks when I commented Once you’re lucky, Twice you’re good a book subtitled The Rebirth of Silicon Valley and the Rise of Web 2.0. You can check again the web of people connected ten years ago or so. I had done the same with the older and now mature EDA industry. This new NYT article shows new connections illustrated by the new figure below:
Let me just quote the article: “The history of Silicon Valley has always been one generation of companies gives birth to great companies that follow”…”This is the story line of Silicon Valley, from Apple to Netscape to PayPal and now, to Facebook.” … and finally, “the social fabric of Silicon Valley is a dense set of overlapping spider webs, meaning everyone is connected.”
In my article on the web2.0, I had also shown the value creation. There had been $800M of VC money invested for a $17B value creation (mostly paper value). The new table below adds another $100M of VC money, and the value creation is now… $113B!!
I do not why 2011 saw three IPOs with companies beginning with Z. I thought that beginning with an A was what mattered (Apple, Amazon, not to say @Home). Maybe this is the Zuckerberg effect!
So I looked at the cap. tables of these three companies. Zipcar went public earlier this year, Zillow today and Zynga filed earlier this month. Zuckerberg might wait until 2011 though. They do not have that much in common, except they are all Internet companies with nice revenues (but not always a profit) and a lot of venture capital too. Zynga being apparently the current star, I begin with it. Of coure the price per share is a guess, as the company is not public yet, it just recently filed at the SEC.
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As the fund raising included sales of existing shares, the following data is also of interest. But I still have to admit there are missing pieces in all this and it might still be a little confusing (in comparison to previous tables, sorry!) Zynga has only one founder, Mark Pincus (check his Wikipedia profile). As with Zillow (and Google in the past), founders have shares of a special class which usually guarantee more voting right.
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Zynga has raised $850M, had about $600M in revenues and a profit of $90M in 2010. Nice! KP and IVP are the two famous VCs and Union Square is the new emerging player (Twitter, FourSquare, Etsy). As a sidenote, Fred Wilson is a partner and has a great blog, avc.com. Reid Hoffman was the seed investor (co-founder of LinkedIn, former VP at Paypal, investor in more than 80 start-ups).
Next is Zillow. Again the 2 founders (with about an equal amount of shares) have also special voting shares. The company is a little older but has raised less cash ($80M), has smaller revenues and not a profit yet. Another element of interest is the equity that independant directors own (you also have this in the Zynga and Zipcar tables). Zillow changed its price again up from $18 uin my table to $20.
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And finally Zipcar. Again two founders, but not much info on them as they are not active anymore. A lot of money raised, good revenues but no profit. Much older (11 years old). Benchmark again is a VC (just as in Zillow).
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A word of conclusion: Zynga will be the big winner if it goes public at the mentioned valuation until Zuckerberg goes out (you can still have a look at my “tentative” Facebook equity table).
Twitter is with Facebook, Groupon and LinkedIn, one of the divas if the web 2.0. This morning, I read about a new rumor that the start-up received a new investment valuing Twitter at $4.5B. Twitter has already raised more than $250M and the latest valuation was $3.7B for only $45M in revenues in 2010 with 300 employees. If this is true, Evan Williams, Jack Dorsey et Biz Stone, the 3 founders, are already wealthy, all the more that it seems that some of the investors did not buy new shares from the company, but existing shares from management and employees.
I tried to read the crystal ball and guess how the shareholding is structured. Given the number of unknown parameters, I am probably quite far from the current status, but, thanks to a simple analysis of the financing rounds, a standard stock option plan and a quora article on the founders, here is the result:
The much anticipated filing by LinkedIn was announced last week and I could do my favorite analysis, the capitalization table and equity structure of the start-up. My main frustration came from the fact that there is no information on the founders’ shares. LinkedIn has five founders and only Reid Hoffman shareholding is known. Wikipedia states that “the company was founded by Reid Hoffman and founding team members from Paypal and Socialnet.com (Allen Blue, Eric Ly, Jean-Luc Vaillant, Lee Hower, Konstantin Guericke, Stephen Beitzel, David Eves, Ian McNish, Yan Pujante, and Chris Saccheri).” Linkedin mentions them in its Founders web page. This just means their equity level is rather small… here is LinkedIn cap. table (assuming a virtual IPO date and price per share).
Another interesting disclosure is the full list of LinkedIn investors:
The new movie about Facebook’s founder, Mark Zuckerberg, is a great movie. It does not matter so much if it is a description of reality. You may watch it as a piece of fiction, and it would remain a great movie thanks to the actors and screenplay.
It is also great because it describes the start-up world in a very accurate manner. It is not a movie about start-ups really, but there are details which reminds me a lot of real-life stories.
The first lesson is that money and friendship seldom work together. The stories of Eduardo Saverin, the founder soon to be diluted, Sean Parker, the exhuberant founder of Napster and Plaxo and mentor of Zuckenberg and the short appearance of Peter Thiel are such examples.
It also shows the old world of Boston where people think ideas are crucial and the new world of Silicon Valley where what matters is implementation. It’s why Silicon Valley is the Triumph of the Nerds. It shows how right Paul Graham is when he says Silicon Valley is about nerds and money. You see the crazy, sad, exciting, depressing life of these hard-working people. You may like it or not, but it is mostly what start-ups are about.
I just looked for what some key people thought of the movie. So, for example, Eduardo Saverin said here: “The Social Network” was bigger and more important than whether the scenes and details included in the script were accurate. After all, the movie was clearly intended to be entertainment and not a fact-based documentary. What struck me most was not what happened – and what did not – and who said what to whom and why. The true takeaway for me was that entrepreneurship and creativity, however complicated, difficult or tortured to execute, are perhaps the most important drivers of business today and the growth of our economy.”
And Dustin Moskovitz said there: It is interesting to see my past rewritten in a way that emphasizes things that didn’t matter (like the Winklevosses, who I’ve still never even met and had no part in the work we did to create the site over the past 6 years) and leaves out things that really did (like the many other people in our lives at the time, who supported us in innumerable ways). Other than that, it’s just cool to see a dramatization of history. A lot of exciting things happened in 2004, but mostly we just worked a lot and stressed out about things; the version in the trailer seems a lot more exciting, so I’m just going to choose to remember that we drank ourselves silly and had a lot of sex with coeds. [...] I’m very curious to see how Mark turns out in the end – the plot of the book/script unabashedly attack him, but I actually felt like a lot of his positive qualities come out truthfully in the trailer (soundtrack aside). At the end of the day, they cannot help but portray him as the driven, forward-thinking genius that he is. And the Ad Board *does* owe him some recognition, dammit.
Of course, this looks like corporate language, we should remember these guys have FaceBook shares! Talking about shares, there was another thing I did not like recently, the fact that according to Forbes, Zuckerberg would be richer than Steve Jobs. I had a discussion with a friend over the week end and he agreed with the statement whereas I disagreed. It may be a detail: but as long as Facebook is not quoted, Zuckerberg’s wealth is mostly paper value he can not really trade. I am sure he is already rich, he probably has already monetized some of his shares but not all of them whereas Jobs owns shares which are liquid. It may not be a big difference given the success of Facebook, but I have seen to many stories of start-ups where people thought the paper value of the stock was real wealth and the next day worth nothing…
When my daughter told me yesterday, she might at least explain her friends what her dad was doing. i.e. working in the world of start-ups, I thought the movie had at least reached that goal of reaching a large audience towards this important topic!
Final point, a recurrent topic in my blog: Facebook cap. table and shareholder structure. As Facebook is private, it is a challenge to know what’s true and what’s myth. I have still tried the exercice from what the Internet gives. One interesting feature is Saverin’s dilution from 30% to 5% whereas Zuckerberg went from 65% to 24%, not really pro-rata! We shall see when Facebook goes public, who wrong I was!
This is the third book I report on this blog about entrepreneurs. In fact it is the fourth if I include Inside Steve’s Brain (but this one is about a single entrepreneur). The two previous ones were interviews of many, i.e. Betting it all and Founders at Work. The beauty (and at same time weakness) of Once you’re lucky, Twice you’re good is that is is about web2.0. Is this new step in the Internet development a speculative bubble or a speculative revolution. It is probably too early to say even if author Tracy Lacy (appearing in another post) is quite convinced it is a revolution.
It is a beautiful book because it shows once again the richness of individual connections. I have done below my illustration of it. Paypal and its founders appear to be at the center of this network. Fairchild had such a similar situation at the beginning of Silicon Valley in the sixties, Apple, Sun, Cisco thereafter.
Another interesting element is about investors. There has been a popular idea that web2.0 was not funded by venture capitalists anymore because the web2.0 business angels who were web1.0 entrepreneurs had learnt their lesson. The situation is more complex as the web2.0 financing shows. Greylock, CRV, Accel but also Benchmark and Sequoia are vey active. Finally, it shows again and again what entrepreneurs are: passionate, driven individuals and I can only advise reading the epilogue about Levchin’s childhood. Quite fascinating…